<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 33-96792
PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus dated January 22, 1996)
2,272,728 SHARES
EQUITY RESIDENTIAL PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
___________________
Equity Residential Properties Trust (the "Company") is a Maryland real
estate investment trust ("REIT") which owns or has interests in a portfolio of
223 multifamily properties (individually a "Property" and collectively the
"Properties") containing 66,792 apartment units and manages 13,829 additional
units owned by affiliated entities. The Company is the largest publicly traded
REIT owner of multifamily properties (based on the number of apartment units
owned and total revenues earned), with Properties located in 31 states
throughout the United States.
All of the common shares of beneficial interest of the Company, $.01
par value per share (the "Common Shares"), offered hereby are being offered by
the Company (the "Offering"). To ensure that the Company qualifies as a REIT,
transfer of the Common Shares is restricted and ownership by any person is
limited to 5% of the lesser of the number or value of the Company's outstanding
shares of beneficial interest, subject to certain exceptions. See "Description
of Shares of Beneficial Interest--Restrictions on Transfer" in the accompanying
Prospectus.
The Common Shares are listed on the New York Stock Exchange ("NYSE")
under the symbol "EQR." On September 11, 1996, the last reported sale price of
the Common Shares on the NYSE was $35 1/2. See "Price Range of Common Shares and
Distributions."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE COMMON
SHARES.
___________________
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. 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.
<TABLE>
<CAPTION>
===============================================================================
PRICE TO PROCEEDS TO
PUBLIC COMPANY(1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Per Common Share......................... $ 33.00 $ 33.00
- -------------------------------------------------------------------------------
Total.................................... $75,000,024 $75,000,024
===============================================================================
(1) Before deducting expenses payable by the Company. The Company does not
intend to utilize any underwriter or broker dealer in connection with the
Offering and thus no underwriting discount or commissions will be payable.
</TABLE>
The date of this Prospectus Supplement is September 12, 1996.
<PAGE>
The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus Supplement or the accompanying Prospectus or incorporated
therein by reference. 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, one of the largest publicly
traded REITs (based on the aggregate market value of its outstanding equity
capitalization), is a self-administered and self-managed equity REIT. The
Company was organized in March 1993 and commenced operations as a publicly
traded company on August 18, 1993 upon completion of its initial public offering
(the "IPO"). The Company was formed to continue the multifamily property
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 properties since 1969. The Company's senior executives average over
23 years of experience in the multifamily property business.
As of September 12, 1996, the Company owned or had interests in a
portfolio of 223 multifamily properties (individually a "Property" and
collectively the "Properties") containing 66,792 apartment units and managed
13,829 additional units owned by affiliated entities. Since the Company's IPO,
at which time the Company owned 69 Properties, the Company has acquired,
directly or indirectly, interests in an additional 162 Properties containing
47,992 units for a total purchase price of approximately $2.17 billion,
including the assumption of approximately $499 million of mortgage indebtedness.
Since the IPO, the Company has disposed of eight of its properties containing
2,925 units for a total sales price of approximately $62.2 million and the
release of mortgage indebtedness in the amount of approximately $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. At September 12, 1996, the Properties had an
average occupancy rate of approximately 94%. The Properties are located
throughout the United States in the following 31 states: Arizona, Arkansas,
California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, New Hampshire, New
Jersey, New Mexico, Nevada, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Washington.
The Company is the largest publicly traded REIT owner of multifamily
properties (based on the number of apartment units owned and total revenues
earned). 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, ERP Operating Limited Partnership (the
"Operating Partnership"). The Operating Partnership currently has three classes
of limited partnership interests outstanding: (i) partnership interests ("OP
Units"), which may be exchanged by the holders thereof for either common shares
of beneficial interest of the Company, $0.01 par value per share ("Common
Shares"), on a one-for-one basis or, at the Company's option, cash; (ii) 9 3/8%
Cumulative Redeemable Preference Units ("9 3/8% Preference Units"); (iii) 9 1/8%
Cumulative Redeemable Preference Units ("9 1/8% Series B Preference Units"); and
(iv) 9 1/8% Series C Cumulative Redeemable Preference Units ("9 1/8% Series C
Preference Units"). The 9 3/8% Preference Units, the 9 1/8% Series B Preference
Units, and the 9 1/8% Series C Preference Units are owned by the Company and
mirror the payments of distributions, including accrued and unpaid distributions
upon redemption, and of the liquidating preference amount of the Company's 9
3/8% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest,
$.01 par value per share (the "Series A Preferred Shares"), the Company's 9 1/8%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 par
value per share (the "Series B Preferred Shares"), and the Company's 9 1/8%
Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, $.01 per
value per share (the "Series C Preferred Shares"), respectively. The Company
controls the Operating Partnership as the sole general partner and, as of
September 12, 1996, owned approximately 83% of all of the Operating
Partnership's outstanding partnership interests, excluding the 9 3/8% Preference
Units, the 9 1/8% Series B Preference Units, and the 9 1/8% Series C Preference
Units. It is the Company's policy that Equity Residential Properties Trust shall
not incur indebtedness other than short-term trade, employee compensation,
dividends payable or similar indebtedness that will be paid in the ordinary
course of business, and that indebtedness shall instead be incurred by the
Operating Partnership to the extent necessary to fund the business activities
conducted by the Operating Partnership and its subsidiaries.
The Company's corporate headquarters and executive offices are located
at Two North Riverside Plaza, Suite 400, 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; Irvine, California; Raleigh, North Carolina; and Ft. Lauderdale,
Florida.
S-2
<PAGE>
RECENT DEVELOPMENTS
ACQUISITIONS
Since January 1, 1996, the Company has acquired 30 Properties
containing an aggregate of 10,082 units at a total purchase price of
approximately $443 million (including the assumption of mortgage indebtedness of
approximately $87 million). The Company funded the cash portion of these
acquisitions primarily from its $250 million unsecured line of credit (the "Line
of Credit") which it pays down from time to time with the proceeds of equity or
debt offerings by the Company or the Operating Partnership, respectively. See
"Securities Issuances" below.
PROBABLE ACQUISITIONS
The Company has entered into contracts with various sellers to
purchase an additional four multifamily properties (the "Properties Under
Contract") containing 1,213 units. The total combined purchase price for the
Properties Under Contract is approximately $54.6 million, which includes the
assumption of approximately $39.4 million of mortgage indebtedness. There can be
no assurance that these four Properties Under Contract will be acquired or, if
acquired, that the terms of such acquisitions will not change from the terms
presently contemplated. The Company anticipates that the acquisition of the
Properties Under Contract will be funded with the proceeds of the Offering, its
working capital and/or its Line of Credit. The Company believes that the
Properties Under Contract can be integrated into its system of Regional
Operations Centers and area offices without any significant corresponding
increase in the costs of operations of such offices.
PENDING ACQUISITIONS
Additional Properties Under Contract
The Company has entered into contracts with various unaffiliated
sellers to acquire seven additional properties under contract (the "Additional
Properties Under Contract") for a total combined purchase price of approximately
$95.9 million. These Additional Properties Under Contract contain 1,637 units
and are located in California, Colorado, Missouri and Texas. The contracts for
the Additional Properties Under Contract contain due diligence contingency
provisions that allow the Company to conduct extensive investigation procedures
of such properties and give the Company the option to terminate such contracts
with a full refund of earnest money if the Company becomes dissatisfied with the
Additional Properties Under Contract in any way, in its sole discretion, during
such review period. The purchase price for the Additional Properties Under
Contract is expected to be funded primarily with the net proceeds of the
Offering or from the Company's Line of Credit. There can be no assurance that
the Additional Properties Under Contract will be acquired or, if acquired, that
the terms of such acquisitions will not change from the terms presently
contemplated.
Properties Under Negotiation
The Company is also negotiating with various sellers for the
acquisition of eight additional multifamily properties (the "Properties Under
Negotiation") containing 3,008 units for a purchase price of approximately
$157.1 million, which includes the assumption of approximately $26.3 million of
mortgage indebtedness. With respect to the Properties Under Negotiation, the
Company is negotiating the significant terms of the purchase contracts for such
properties. The Company anticipates that, if and when entered into, the purchase
contracts for the Properties Under Negotiation will contain due diligence
contingency provisions that will allow the Company to conduct extensive
investigations of such properties and will give the Company flexibility to
terminate such contracts with a full refund of earnest money if the Company
becomes dissatisfied with the Properties Under Negotiation in any way, in its
sole discretion, during such review period. If the Company acquires the
Properties Under Negotiation, it is expected that the terms and conditions of
such acquisitions will be similar to other acquisitions of Properties made by
the Company. The purchase price for the Properties Under Negotiation is expected
to be funded primarily with the net proceeds of the Offering or from the
Company's Line of Credit. In addition, the Company or the Operating Partnership
may consider issuing additional equity or debt securities to finance some or all
of such potential acquisitions. There can be no assurance, however, that the
Properties Under Negotiation will be acquired or, if acquired, that the terms of
such acquisitions will not change from the terms presently contemplated.
DISPOSITIONS
Since January 1, 1996, the Company has disposed of its interests in
two properties containing 480 units for an aggregate sales price of
approximately $10.15 million. The proceeds of these transactions were used for
the acquisition of two of the Properties.
S-3
<PAGE>
SECURITIES ISSUANCES
Since January 1, 1996, the Company has raised an aggregate of approximately
$229.8 million pursuant to five separate public offerings of its Common Shares.
In January 1996, the Company sold 1,725,000 Common Shares to Lehman Brothers
Inc. for $29.375 per Common Share and, in February 1996, the Company sold
2,300,000 Common Shares to Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") for $29.50 per Common Share. On May 21, 1996, the Company
completed the sale of 2,300,000 Common Shares to Merrill Lynch for $30.50 per
Common Share, which Merrill Lynch agreed to reoffer at no less than $31.00 per
Common Share. On May 28, 1996, the Company completed the sale of 73,287 Common
Shares to employees of the Company, the Operating Partnership and Equity Group
Investments, Inc. ("EGI") and certain of their respective affiliates and
consultants at a price equal to $30.50 per Common Share. Mr. Zell is Chairman of
the Board of Directors of EGI. On May 30, 1996, the Company completed the sale
of 1,264,400 Common Shares to Merrill Lynch for $30.75 per Common Share.
On August 13, 1996, the Operating Partnership issued $150 million aggregate
principal amount of its 7.57% Notes due August 15, 2026 (the "7.57% Notes")
pursuant to a public debt offering and received net proceeds of approximately
$149 million therefrom.
On September 9, 1996, the Company sold 4,600,000 depositary shares each
representing a 1/10 fractional interest in a 9 1/8% Series C Preferred Share in
a public offering and received net proceeds of approximately $111 million
therefrom.
FINANCING ACTIVITIES
The Company restructured certain of its tax-exempt bond investments in June
1996 and received approximately $77.1 million of proceeds in connection
therewith.
THE OFFERING
All of the Common Shares offered hereby are being sold by the Company. None
of the Company's present shareholders, including management of the Company, are
selling any Common Shares (or interests exchangeable for Common Shares) in this
Offering. The Company does not intend to utilize any underwriter or broker
dealer in connection with this Offering, and thus no underwriting discount or
commissions will be payable.
The Company is offering up to 2,272,728 Common Shares to an institutional
investor. The aggregate offering price of all Common Shares sold in this
offering will be $75,000,024 (U.S.), which represents a per Common Share
offering price of $33.00. The investor to whom the Company directs offers will
be required to make payment in full of the purchase price within three (3)
business days of the date hereof.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Shares offered
hereby are estimated at approximately $75,000,024. The Company will contribute
or otherwise transfer the net proceeds of the sale of the Common Shares to the
Operating Partnership in exchange for partnership interests in the Operating
Partnership ("OP Units"). The Operating Partnership presently intends to use the
net proceeds for the acquisition of additional multifamily properties. Any
remaining net proceeds will be used for working capital and general corporate
purposes.
S-4
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
The Common Shares have been traded on the NYSE under the symbol "EQR" since
the Company's IPO. The following table sets forth the quarterly high and low
sales prices per share reported on the NYSE, as well as the quarterly
distributions declared per Common Share.
<TABLE>
<CAPTION>
High Low Distributions
------ ------ -------------
<S> <C> <C> <C>
1993
Third Quarter (commencing August 11, 1993) ... 32 1/4 27 3/8 .21(1)
Fourth Quarter ............................... 36 3/4 29 1/8 .47
1994
First Quarter ................................ 33 1/2 28 3/8 .48
Second Quarter ............................... 35 1/8 28 1/2 .495
Third Quarter ................................ 33 1/2 29 1/8 .51
Fourth Quarter ............................... 32 1/4 25 3/4 .52
1995
First Quarter ................................ 29 1/8 25 5/8 .53
Second Quarter ............................... 29 3/4 24 7/8 .53
Third Quarter ................................ 31 3/4 27 3/4 .53
Fourth Quarter ............................... 31 7/8 28 .59
1996
First Quarter ................................ 33 1/2 29 .59
Second Quarter ............................... 33 1/2 30 7/8 .59
Third Quarter (through September 4, 1996) .... 36 1/8 33 1/4 .59(2)
- ------------------
</TABLE>
(1) Represents an amount equivalent to a quarterly distribution of $.453 per
share.
(2) The third quarter distribution is payable on October 11, 1996 to
shareholders of record as of September 27, 1996 and represents an annual
distribution rate of $2.36 per share.
On September 11, 1996 the last reported sale price of a Common Share on the
NYSE was $35 1/2 per share. As of September 5, 1996, the Company's transfer
agent reported 408 record holders of Common Shares and, as of March 15, 1996,
The Depository Trust Company held Common Shares on behalf of approximately
10,500 beneficial owners.
The Company intends to continue to pay regular quarterly distributions to
holders of Common Shares. The Company has increased its annual distribution each
year since its IPO. For the year ended December 31, 1995, the Company declared
distributions of $2.18 per Common Share to holders of Common Shares. This
distribution rate represented a 9% increase over the 1994 distribution rate and
an 18% increase over the Company's annualized 1993 distribution rate after the
completion of the IPO. Future distributions will be at the discretion of the
board of trustees and will depend on the actual cash available for distribution
by the Company, the Company's financial condition, capital requirements, credit
agreement restrictions, the annual distribution requirements under the REIT
provisions of the Internal Revenue Code of 1986, as amended, and such other
factors as the board of trustees deems relevant. A portion of the Company's
distribution may represent a nontaxable return of capital and/or a capital gain
dividend. Approximately 22% of the Company's declared distribution in 1995 of
$2.18 per Common Share represented a nontaxable return of capital. No portion of
such distribution represented a capital gain dividend.
S-5
<PAGE>
BUSINESS AND PROPERTIES
The Company is a self-administered and self-managed equity REIT established
to continue the multifamily property business objectives and acquisition
strategies of certain affiliated entities controlled by Mr. Zell, Chairman of
the Board of Trustees of the Company. These entities had been engaged in the
multifamily property business since 1969. The Company is a fully integrated real
estate concern that acquires, improves, operates and manages its Properties. The
Company has benefited, and expects to benefit, from the following elements:
DIVERSIFIED PORTFOLIO
As of September 12, 1996, the Company owned or had interests in a portfolio
of 223 Properties containing 66,792 apartment units located in 31 states. As of
such date, the Company's portfolio was the largest multifamily property
portfolio controlled by a publicly traded REIT (based on the number of apartment
units owned and total revenues earned). The Company's interest in six of the
Properties consists solely of ownership of the debt collateralized by such
Properties and in 21 Properties consists solely of investments in partnership
interests and subordinated mortgages collateralized by such Properties. No
single Property represents more than 2.13% of total apartment units. The
distribution of the Properties throughout the United States reflects the
Company's belief that geographic diversification helps insulate the portfolio
from regional and local economic influences. At the same time, the Company has
sought to create clusters of Properties within each of its primary markets to
achieve economies of scale in management and operation. The Company has
established Regional Operations Centers in Chicago, Illinois; Tampa, Florida;
Dallas, Texas; Denver, Colorado; Seattle, Washington; and Bethesda, Maryland;
and area offices in Atlanta, Georgia; Las Vegas, Nevada; Phoenix, Arizona;
Portland, Oregon; San Antonio, Texas; Irvine, California; Raleigh, North
Carolina; and Ft. Lauderdale, Florida.
EXPERIENCED MANAGEMENT
The Company's senior executives average over 23 years of experience in the
multifamily property business. The Company has a fully integrated management
team: an Acquisitions Department that is dedicated exclusively to the property
acquisition function and is in constant contact with principals and brokers
nationwide; an Asset Management Department that establishes strategic plans with
respect to the portfolio including the development and implementation of long-
term business plans, asset financings, property repositionings, expansions, and
property disposition decisions; a Property Management Department that
aggressively manages the portfolio through significant interaction with on-site
property managers at each Property; an Accounting and Finance Department that
maintains the books and records of the Properties and generates timely financial
reports; a Capital Markets Department that manages investor relations and
capital raising; and a Legal Department that oversees all of the Company's legal
affairs.
SOPHISTICATED MANAGEMENT INFORMATION SYSTEMS
The Company makes extensive use of management information systems. On-site
computers at every Property are capable of compiling and forwarding to the
Company's Regional Operations Centers on a daily basis numerous standardized
reports including daily occupancy, lease expiration and renewals, prospective
tenants and rental rate information. Quality controls are assured with the
Company's practice of (i) conducting resident satisfaction surveys, (ii)
surveying residents that move out of the Properties, and (iii) surveying
prospective tenants who select alternative housing.
THE PROPERTIES
As of September 12, 1996, the Company owned or had interests in a portfolio
of 223 Properties located in 31 states containing 66,792 apartment units with
the largest having 1,420 units and the smallest having 40 units. The average
number of units per Property was approximately 300. The units are typically
contained in a series of two-story buildings. The Properties' average unit size
is 884 square feet. As of September 12, 1996, the Properties had an average
occupancy rate of approximately 94%. Tenant leases are generally year-to-year
and require security deposits. The Properties typically provide residents with
attractive amenities, including a clubhouse, swimming pool, laundry facilities
and cable television access. Certain Properties offer additional amenities such
as saunas, whirlpools, spas, sports courts and exercise rooms.
S-6
<PAGE>
The following chart sets forth certain information regarding the Properties on a
state-by-state basis.
PROPERTIES BY STATE
(AS OF SEPTEMBER 12, 1996)
<TABLE>
<CAPTION>
STATE NUMBER OF PROPERTIES NUMBER OF UNITS % OF UNITS IN PORTFOLIO
----- -------------------- --------------- -----------------------
<S> <C> <C> <C>
Arizona 16 4,955 7.42%
Arkansas 4 1,039 1.56%
California 30 7,389 11.06%
Colorado 8 1,749 2.62%
Florida 24 5,989 8.96%
Georgia 13 3,454 5.17%
Idaho 1 120 0.18%
Illinois 3 2,032 3.04%
Indiana 1 272 0.41%
Iowa 1 186 0.28%
Kansas 4 1,678 2.51%
Kentucky 5 1,327 1.98%
Louisiana 1 200 0.30%
Maryland 12 3,753 5.62%
Michigan 5 2,406 3.60%
Minnesota 1 500 0.75%
Missouri 1 388 0.58%
Nevada 8 2,313 3.46%
New Hampshire 1 390 0.58%
New Jersey 1 704 1.05%
New Mexico 3 601 0.90%
North Carolina 11 2,986 4.47%
Ohio 4 2,083 3.12%
Oklahoma 5 1,140 1.71%
Oregon 6 1,868 2.80%
Pennsylvania 2 558 0.84%
South Carolina 1 211 0.32%
Tennessee 3 898 1.34%
Texas 27 9,830 14.72%
Virginia 6 2,103 3.15%
Washington 15 3,670 5.50%
--- ------ -------
TOTAL 223 (1) 66,792 100.00%
=== ====== =======
_________________________
</TABLE>
(1) The Company's interest in six of the Properties consists solely of
ownership of the debt collateralized by such Properties and in 21
Properties consists solely of investments in partnership interests and
subordinated mortgages collateralized by such Properties.
For additional information with respect to the Properties, see the
Company's Annual Report on Form 10-K, as amended by Form 10-K/A, for the year
ended December 31, 1995, the Company's Quarterly Reports on Form 10-Q for the
three months ended March 31, 1996 and June 30, 1996, and the Company's Current
Report on Form 8-K, as amended by Form 8-K/A, dated May 23, 1996, incorporated
by reference into the accompanying Prospectus.
S-7
<PAGE>
PROSPECTUS
EQUITY RESIDENTIAL PROPERTIES TRUST
$500,000,000
PREFERRED SHARES, COMMON SHARES AND DEPOSITARY SHARES
---------------------
Equity Residential Properties Trust (the "Company") may from time to time
offer (i) in one or more series its preferred shares of beneficial interest,
$0.01 par value per share ("Preferred Shares"); (ii) common shares of beneficial
interest, $0.01 par value per share ("Common Shares"); and (iii) in one or more
series its Preferred Shares represented by depositary shares (the "Depositary
Shares"), with an aggregate public offering price of up to $500,000,000 (or its
equivalent based on the exchange rate at the time of sale) in amounts, at prices
and on terms to be determined at the time of offering. The Preferred Shares,
Common Shares and Depositary Shares (collectively, the "Securities") may be
offered, separately or together, in separate series (with respect to Preferred
Shares and Depositary Shares) in amounts, at prices and on terms to be described
in one or more supplements to this Prospectus (a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Preferred Shares, the
specific title and stated value, any distribution, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; (ii)
in the case of Common Shares, any initial public offering price; and (iii) in
the case of Depositary Shares, the fractional Preferred Shares represented by
each Depositary Share. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the
Securities, in each case as may be appropriate to assist in maintaining the
status of the Company as a real estate investment trust for federal income tax
purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about the material U.S. federal income tax considerations relating
to, and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement, not contained in this Prospectus.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
RELATING TO AN INVESTMENT IN THE SECURITIES.
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 DATE OF THIS PROSPECTUS IS JANUARY 22,1996.
<PAGE>
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, 13th Floor, 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 Company's
Common Shares and 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) ("Series A Preferred Shares") are listed on the New
York Stock Exchange under the symbols "EQR" and "EQR-PrA", respectively, 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 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 of 1933, as amended (the "Securities Act"), with respect to
the Securities 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 Securities, 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, 1994, as amended by Form 10-K/A.
b. 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.
c. The Company's definitive proxy statement dated March 31, 1995 relating
to the annual meeting of shareholders held on May 10, 1995.
d. The Company's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1995, June 30, 1995 (including the Company's Amended
and Restated Declaration of Trust filed as Exhibit 3(i) thereto) and
September 30, 1995, as amended by Form 10-Q/A.
e. 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), August 11, 1995, September 22, 1994, May 10,
1994, and March 25, 1994.
f. The Company's Registration Statement on Form S-11 which was declared
effective on January 19, 1994 (File No. 33-72080).
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 Securities 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.
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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 Securities
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 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,
Suite 450, Chicago, Illinois 60606, Attention: Cynthia McHugh (telephone
number: (312) 474-1300).
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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 22 years of experience in the multifamily residential property
business.
As of September 30, 1995, the Company owned or had interests in a portfolio
of 196 multifamily residential properties (individually a "Property" and
collectively, the "Properties") containing 58,236 apartment 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 129 Properties
containing 37,363 units for a total purchase price of approximately $1.7
billion, including the assumption of $412 million of mortgage indebtedness. One
of the Properties was disposed of on July 14, 1995 and another Property was
disposed of on September 14, 1995. 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.
The Company's portfolio is the largest multifamily residential portfolio
controlled by a publicly traded REIT (based on the number of apartment units
owned and total revenues earned). 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, ERP Operating
Limited Partnership (the "Operating Partnership"). The Operating Partnership
currently has four classes of limited partnership interests outstanding:
partnership interests ("OP Units"), which may be exchanged by the holders
thereof for either cash or common shares of beneficial interest of the Company,
$0.01 par value per share ("Common Shares") on a one-for-one basis, redeemable
preference interests ("Artery Preference Units"), which are convertible into OP
Units under certain circumstances, 9 3/8% Cumulative Redeemable Preference Units
("9 3/8% Preference Units"), which are owned by the Company and mirror the
payments of distributions, including accrued and unpaid distributions upon
redemption, and of the liquidating preference amount of the Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest ($.01 par value per share,
liquidation preference of $25 per share) (the "Series A Preferred Shares"), and
9 1/8% Cumulative Redeemable Preference Units ("9 1/8% Preference Units") which
are owned by the Company and mirror the payments of distributions, including
accrued and unpaid distributions upon redemption, and the liquidating preference
amounts of the Company's 9 1/8% Series B Cumulative Redeemable Preferred Shares
of Beneficial Interest ($.01 par value per share, liquidation preference of $250
per share) (the "Series B Preferred Shares"). The Company controls the
Operating Partnership as the sole general partner and, as of September 30, 1995,
owned approximately 77.69% of all of the Operating Partnership's outstanding
partnership interests (excluding the 9 3/8% Preference Units and the 9 1/8%
Preference 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 Washington, D.C. and area offices in Atlanta,
Georgia; Las Vegas, Nevada; Little Rock, Arkansas; Phoenix, Arizona; Portland,
Oregon; San Antonio, Texas and Laguna Hills, California.
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RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below prior to making an investment decision regarding the
Securities offered hereby.
ADVERSE CONSEQUENCES OF DEBT FINANCING AND PREFERRED SHARES
General Risks. As of September 30, 1995, the Properties were subject to
approximately $565 million of mortgage indebtedness and the Company's total debt
equaled approximately $1.1 billion, $309 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 (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 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 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 September 30, 1995, 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 10.58% 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 9.75% 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 as the "Original Owners." The Company has options outstanding to
purchase approximately 1,350,000 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 3.0% of the
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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 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. Ninety of the
environmental assessments were conducted during 1991 through 1993 and an
additional 106 assessments were completed in 1994 or 1995. 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
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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 17% 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 8,077,130
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 1996,
1997 and 1998, respectively. As the term of each class expires, trustees for
that class will be 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
September 30, 1995, 6,120,000 Preferred Shares were issued and outstanding.
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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 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,
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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.
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
Company will contribute or otherwise transfer the net proceeds of any sale of
Securities to the Operating Partnership in exchange for additional partnership
interests in the Operating Partnership, the economic terms of which will be
substantially identical to the Securities sold. The Operating Partnership will
use such net proceeds for general business purposes including, without
limitation, the repayment of certain outstanding debt and the acquisition of
multifamily residential properties.
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 Amended and Restated Declaration
of Trust (the "Declaration of Trust") and the amended and restated bylaws
("Bylaws") of the Company, each of 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 and 10,000,000 Preferred Shares. As of September 30, 1995,
34,489,597 Common Shares and 6,120,000 Series A Preferred Shares were issued and
outstanding. In November 1995, the Company issued 500,000 Series B Preferred
Shares. In addition, as of September 30, 1995, 8,077,130 Common Shares were
issuable upon exchange of OP Units currently held by certain holders of OP Units
(the "Original OP Units") originally issued to affiliates of Mr. Zell which
contributed 33 of the Properties at the time of the IPO (the "Zell Original
Owners"), and certain entities controlled by Starwood Capital Partners L.P. and
its affiliates which contributed 23 of the Properties at the time of the IPO
(the "Starwood Original Owners" and, together with the Zell Original Owners, the
"Original Owners"). An additional 608,665 OP Units were issued in exchange for
the contribution of four of the Properties to the Operating Partnership in
August, 1995. The OP Units are exchangeable for either cash or Common Shares on
a one-for-one basis. Also, as of September 30, 1995, an additional 1,217,723
Common Shares may be issuable upon exchange of OP Units issuable upon exchange
of certain redeemable preference interests in the Operating Partnership ("Artery
Preference Units") issued to certain affiliates of Artery Property Management,
Inc., who contributed certain Properties and other assets to the Operating
Partnership in exchange for such Artery Preference Units.
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.
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PREFERRED SHARES
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate.
The Board of Trustees is empowered by the Company's Declaration of Trust to
designate and issue from time to time one or more series of Preferred Shares
without shareholder approval. The Board of Trustees may determine the relative
rights, preferences and privileges of each series of Preferred Shares so issued.
Because the Board of Trustees has the power to establish the preferences and
rights of each series of Preferred Shares, it may afford the holders of any
series of Preferred Shares preferences, powers and rights, voting or otherwise,
senior to the rights of holders of Common Shares. The Preferred Shares will,
when issued, be fully paid and nonassessable.
The Company currently has outstanding 6,120,000 9 3/8% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest ($0.01 par value per share)
(liquidation preference $25.00 per share) ("Series A Preferred Shares") that are
listed on the New York Stock Exchange under the symbol "EQR-PrA." Distributions
on the Series A Preferred Shares are cumulative from the date of original issue
and payable quarterly on or about the fifteenth day of January, April, July and
October of each year, at the rate of 9 3/8% of the liquidation preference per
annum.
The Series A Preferred Shares are not redeemable prior to June 1, 2000. On
or after June 1, 2000, the Series A Preferred Shares may be redeemed for cash at
the option of the Company in whole or in part, at a redemption price of $25.00
per share, plus accrued and unpaid distributions, if any, thereon. The
redemption price (other than the portion thereof consisting of accrued and
unpaid distributions) is payable solely out of the sale proceeds of other shares
of beneficial interest of the Company which may include other series of
Preferred Shares. The Series A Preferred Shares have no stated maturity and are
not subject to any sinking fund or mandatory redemption and are not convertible
into any other securities of the Company. However, the Company may redeem
Series A Preferred Shares in certain circumstances relating to maintenance of
its status as a REIT for federal income tax purposes. See "-Redemption" and
"-Restrictions on Transfer" below. The other terms of the Series A Preferred
Shares are described generally below.
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The distribution rate(s), period(s) and /or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Shares;
(4) The date from which distributions on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company,
including the conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
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(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(12) A discussion of all material federal income tax considerations, if
any, applicable to such Preferred Shares that are not discussed in
this Prospectus;
(13) The relative ranking and preferences of such Preferred Shares as to
distribution rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
(14) Any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such series of Preferred Shares as to
distribution rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
Rank. Unless otherwise specified in the Prospectus Supplement, the
Preferred Shares will, with respect to distribution rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Shares of the Company, and to all equity securities
ranking junior to such Preferred Shares; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Shares; and (iii)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Preferred
Shares. The term "equity securities" does not include convertible debt
securities.
Distributions. Holders of the Preferred Shares of each series will be
entitled to receive, when, as and if declared by the Board of Trustees of the
Company, out of assets of the Company legally available for payment, cash
distributions (or distributions in kind or in other property if expressly
permitted and described in the applicable Prospectus Supplement) at such rates
and on such dates as will be set forth in the applicable Prospectus Supplement.
Each such distribution shall be payable to holders of record as they appear on
the share transfer books of the Company on such record dates as shall be fixed
by the Board of Trustees of the Company.
Distributions on any series of Preferred Shares may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Distributions,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a distribution payable on a distribution payment date on any series
of the Preferred Shares for which distributions are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
distribution in respect of the distribution period ending on such distribution
payment date, and the Company will have no obligation to pay the distribution
accrued for such period, whether or not distributions on such series are
declared payable on any future distribution payment date.
Unless otherwise specified in the Prospectus Supplement, if any Preferred
Shares of any series are outstanding, no full distributions shall be declared or
paid or set apart for payment on any shares of beneficial interest of the
Company of any other series ranking, as to distributions, on a parity with or
junior to the Preferred Shares of such series for any period unless (i) if such
series of Preferred Shares has a cumulative distribution, full cumulative
distributions have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such payment on the
Preferred Shares of such series for all past distribution periods and the then
current distribution period or (ii) if such series of Preferred Shares does not
have a cumulative distribution, full distributions for the then current
distribution period have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such payment
on the Preferred Shares of such series. When distributions are not paid in full
(or a sum sufficient for such full payment is not so set apart) upon Preferred
Shares of any series and the shares of any other series of Preferred Shares
ranking on a parity as to distributions with the Preferred Shares of such
series, all distributions declared upon Preferred Shares of such series and any
other series of Preferred Shares ranking on a parity as to distributions with
such Preferred Shares shall be declared pro rata so that the amount of
distributions declared per share of Preferred Shares of such series and such
other series of Preferred Shares shall in all cases bear to each other the same
ratio that accrued distributions per share on the Preferred Shares of such
series (which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such Preferred Shares do not
have a cumulative distribution) and such other series of Preferred Shares bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any distribution payment or payments on Preferred Shares
of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative distribution, full cumulative
distributions on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and
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a sum sufficient for the payment thereof set apart for payment for all past
distribution periods and the then current distribution period, and (ii) if such
series of Preferred Shares does not have a cumulative distribution, full
distributions on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment, for the then current distribution period,
no distributions (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to
distributions and upon liquidation) shall be declared or paid or set aside for
payment or other distribution upon the Common Shares, or any other shares of
beneficial interest of the Company ranking junior to or on a parity with the
Preferred Shares of such series as to distributions or upon liquidation, nor
shall any Common Shares, or any other shares of beneficial interest of the
Company ranking junior to or on a parity with the Preferred Shares of such
series as to distributions or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to distributions and upon liquidation).
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Internal Revenue Code of 1986, as
amended (the "Code")) any portion (the "Capital Gains Amount") of the dividends
(within the meaning of the Code) paid or made available for the year to holders
of all classes of shares of beneficial interest (the "Total Dividends"), then
the portion of the Capital Gains Amount that will be allocable to the holders of
Preferred Shares will be the Capital Gains Amount multiplied by a fraction, the
numerator of which shall be the total dividends (within the meaning of the Code)
paid or made available to the holders of the Preferred Shares for the year and
the denominator of which shall be the Total Dividends.
Redemption. If so provided in the applicable Prospectus Supplement, the
Preferred Shares will be subject to mandatory redemption or redemption at the
option of the Company, in whole or in part, in each case upon the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid distributions thereon (which shall not,
if such Preferred Shares do not have a cumulative distribution, include any
accumulation in respect of unpaid distributions for prior distribution periods)
to the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of beneficial interest of the Company, the
terms of such Preferred Shares may provide that, if no such shares of beneficial
interest shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
the applicable shares of beneficial interest of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative distribution, full cumulative distributions on all
Preferred Shares of any series shall have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past distribution periods and the current distribution period
and (ii) if such series of Preferred Shares does not have a cumulative
distribution, full distributions on the Preferred Shares of any series have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current distribution
period, no Preferred Shares of any series shall be redeemed unless all
outstanding Preferred Shares of such series are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Shares of such series. In addition,
unless (i) if such series of Preferred Shares has a cumulative distribution,
full cumulative distributions on all outstanding shares of any series of
Preferred Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past distributions periods and the then current distribution period, and
(ii) if such series of Preferred Shares does not have a cumulative distribution,
full distributions on the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current distribution period,
the Company shall not purchase or otherwise acquire directly or indirectly any
Preferred Shares of such series (except by conversion into or exchange for
shares of beneficial interest of the Company ranking junior to the Preferred
Shares of such series as to distributions and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Preferred Shares of such series to assist in maintaining the REIT status of the
Company or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be
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determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
and series of Preferred Shares to be redeemed; (iii) the place or places where
certificates for such Preferred Shares are to be surrendered for payment of the
redemption price; (iv) that distributions on the shares to be redeemed will
cease to accrue on such redemption date; and (v) the date upon which the
holder's conversion rights, if any, as to such shares shall terminate. If fewer
than all of the Preferred Shares of any series are to be redeemed, the notice
mailed to each such holder thereof shall also specify the number of Preferred
Shares to be redeemed from each such holder. If notice of redemption of any
Preferred Shares has been given and if the funds necessary for such redemption
have been set aside by the Company in trust for the benefit of the holders of
any Preferred Shares so called for redemption, then from and after the
redemption date distributions will cease to accrue on such Preferred Shares, and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Shares or any
other class or series of shares of beneficial interest of the Company ranking
junior to the Preferred Shares in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Shares shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all
distributions accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such Preferred Shares do not have a cumulative distribution). After payment
of the full amount of the liquidating distributions to which they are entitled,
the holders of Preferred Shares will have no right or claim to any of the
remaining assets of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding Preferred Shares and the corresponding amounts payable on all
shares of other classes or series of shares beneficial interest of the Company
ranking on a parity with the Preferred Shares in the distribution of assets,
then the holders of the Preferred Shares and all other such classes or series of
shares of beneficial interest shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of shares of beneficial interest
ranking junior to the Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights. Holders of Preferred Shares will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law or as indicated in the applicable Prospectus Supplement.
Whenever distributions on any Preferred Shares shall be in arrears for six
or more quarterly periods, the holders of such Preferred Shares (voting
separately as a class with all other series of Preferred Shares upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional Trustees of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Shares so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Shares has a
cumulative distribution, all distributions accumulated on such shares of
Preferred Shares for the past distribution periods and the then current
distribution period shall have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment or (ii) if such series of
Preferred Shares do not have a cumulative distribution, four consecutive
quarterly distributions shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In such case, the
entire Board of Trustees of the Company will be increased by two Trustees.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of Preferred Shares outstanding at the time, given in person or by proxy, either
in writing or at a meeting (such series voting separately as a class), (i)
authorize or create, or increase
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the authorized or issued amount of, any class or series of shares of beneficial
interest ranking prior to such series of Preferred Shares with respect to the
payment of distributions or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any authorized shares of beneficial
interest of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Declaration of Trust or the Articles Supplementary for such series of Preferred
Shares, whether by merger, consolidation or otherwise (an "Event"), so as to
materially and adversely affect any right, preference, privilege or voting power
of such series of Preferred Shares or the holders thereof; provided, however,
with respect to the occurrence of any of the Events set forth in (ii) above, so
long as the Preferred Shares remain outstanding with the terms thereof
materially unchanged, taking into account that upon the occurrence of an Event,
the Company may not be the surviving entity, the occurrence of any such Event
shall not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Shares and provided further
that (x) any increase in the amount of the authorized Preferred Shares or the
creation or issuance of any other series of Preferred Shares, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to payment of distributions or the
distribution of assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding Preferred Shares of such series shall have been
redeemed or called for redemption and sufficient funds shall have been deposited
in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which any series
of Preferred Shares is convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Shares.
Registrar and Transfer Agent. The registrar and transfer agent for the
Preferred Shares will be set forth in the applicable Prospectus Supplement.
COMMON SHARES
All Common Shares offered hereby will be 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.
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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 registrar and transfer agent for the Common Shares is The First
National Bank of Boston.
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 Internal Revenue Service (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 Option and Award Plan, but in no event will such
persons be entitled to acquire additional shares 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 or other
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
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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 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 New York Stock Exchange ("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 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 holders of the Original OP Units (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 17% 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.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares of each series represented by Depositary Shares
will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Share Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Shares represented by such Depositary Shares (including distribution,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by the Company to the Preferred Share
Depositary, the Company will cause the Preferred Share Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof filed as an exhibit to
the Registration Statement of which this Prospectus is a part is qualified in
its entirety by reference thereto.
DISTRIBUTIONS
The Preferred Share Depositary will distribute all cash distributions
received in respect of the Preferred Shares to the record holders of Depositary
Receipts evidencing the related Depositary Shares in proportion to the number of
such Depositary Receipts owned by such holders, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Share Depositary.
In the event of a distribution other than in cash, the Preferred Share
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Share Depositary, unless the Preferred Share
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Share Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Shares converted into Excess Shares.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Share Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Shares), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional Preferred Shares and any
money or other property represented by the Depositary Shares evidenced by such
Depositary Receipts. Holders of Depositary Receipts will be entitled to receive
whole or fractional shares of the related Preferred Shares on the basis of the
proportion of the Preferred Shares represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such Preferred
Shares will not thereafter be entitled to receive Depositary Shares therefor. If
the Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
Preferred Shares to be withdrawn, the Preferred Share Depositary will deliver to
such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Share
Depositary, the Preferred Share Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the Preferred Shares so
redeemed, provided the Company shall have paid in full to the Preferred Share
Depositary the redemption price of the Preferred Shares to be redeemed plus an
amount equal to any accrued and unpaid distributions thereon to the date fixed
for redemption. The redemption price per Depositary Share will be equal to the
redemption price and any other amounts per share payable with respect to the
Preferred Shares. If fewer than all the Depositary Shares are to be redeemed,
the Depositary Shares to be redeemed will be selected pro rata (as nearly as may
be practicable without creating fractional Depositary Shares) or by any other
equitable method determined by the Company that will not result in the issuance
of any Excess Shares.
From and after the date fixed for redemption, all distributions in respect
of the Preferred Shares so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any monies payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Share Depositary.
VOTING OF THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Share Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Share
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Share Depositary will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Share Depositary in order to enable the Preferred Share Depositary to
do so. The Preferred Share Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Share Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Preferred Share Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. Nevertheless, if so specified in the applicable Prospectus Supplement
relating to an offering of Depositary Shares, the Depositary Receipts may be
surrendered by holders thereof to the Preferred Share Depositary with written
instructions to the Preferred Share Depositary to instruct the Company to cause
conversion of the Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipts into whole Common Shares, other Preferred
Shares (including Excess Shares) of the Company or other shares of beneficial
interest, and the Company has agreed that upon receipt of such instructions and
any amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Shares
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted. No fractional
Common Shares will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional interest based upon the closing
price of the Common Shares on the last business day prior to the conversion.
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AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Share
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Shares will not be effective unless such amendment has been approved
by the existing holders of at least a majority of the Depositary Shares
evidenced by the Depositary Receipts then outstanding. No amendment shall
impair the right, subject to certain exceptions in the Depositary Agreement, of
any holder of Depositary Receipts to surrender any Depositary Receipt with
instructions to deliver to the holder the related Preferred Shares and all money
and other property, if any, represented thereby, except in order to comply with
law. Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such
Depositary Receipt, to consent and agree to such amendment and to be bound by
the Deposit Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Share Depositary if (i) such
termination is necessary to assist in maintaining the Company's status as a REIT
or (ii) a majority of each series of Preferred Shares affected by such
termination consents to such termination, whereupon the Preferred Share
Depositary shall deliver or make available to each holder of Depositary
Receipts, upon surrender of the Depositary Receipts held by such holder, such
number of whole or fractional Preferred Shares as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by the Preferred Share Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
assist in maintaining the Company's status as a REIT, then, if the Depositary
Shares are listed on a national securities exchange, the Company will use its
best efforts to list the Preferred Shares issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, the Deposit
Agreement will automatically terminate if (i) all outstanding Depositary Shares
shall have been redeemed, (ii) there shall have been a final distribution in
respect of the related Preferred Shares in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Shares or (iii) each share of the related
Preferred Shares shall have been converted into shares of beneficial interest of
the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED SHARE DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Share Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Share Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Share Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Share Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Share Depositary. A successor
Preferred Share Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Share Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Share Depositary with respect to the related Preferred Shares.
Neither the Preferred Share Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Share Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Shares represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Share Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or Preferred Shares represented thereby
unless satisfactory indemnity
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is furnished. The Company and the Preferred Share Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
Preferred Shares represented thereby for deposit, holders of Depositary Receipts
or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event the Preferred Share Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Share Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
The Company's ratio of earnings to combined fixed charges and Preferred
Share distributions for the nine months ended September 30, 1995 was 1.58, and
for the years ended December 31, 1994, and 1993 was 2.18 and 1.25, respectively.
Prior to the year ended December 31, 1994, the Company had not issued any
Preferred Shares; therefore, the ratios of earnings to combined fixed charges
and Preferred Share distributions would be unchanged from the ratios of earnings
to fixed charges in the previous sentence.
The ratio of earnings to combined fixed charges and Preferred Share
distributions was computed by dividing earnings by fixed charges and Preferred
Share distributions. For purposes of computing these ratios, earnings have been
calculated by adding fixed charges to income (loss) before extraordinary items.
Fixed charges (as applicable) consist of interest costs, whether expensed or
capitalized, the interest component of rental expense, and amortization of debt
discounts and issue costs, whether expensed or capitalized. Preferred Share
distributions consist of those distributions paid on the Company's Series A
Preferred Shares during the periods indicated. The Series A Preferred Shares
were issued on June 1, 1995.
Prior to completion of the IPO, certain of the predecessor entities to the
Company operated in a highly leveraged manner. As a result, although the
Properties have historically generated positive net cash flow, the combined
financial statements of the predecessor entities show net losses for the fiscal
years ended December 31, 1992, 1991 and 1990. Consequently, the computation of
the ratio of earnings to fixed charges for such periods indicates that earnings
were inadequate to cover fixed charges by approximately $3.3 million, $6.2
million and $12.2 million, for the fiscal years ended December 31, 1992, 1991
and 1990, respectively, primarily due to the effect of certain non-cash charges
such as depreciation and amortization.
The reorganization and recapitalization of the Company effected in
connection with the IPO permitted the Company to significantly deleverage the
Properties resulting in an improved ratio of earnings to fixed charges for
periods subsequent to the IPO.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes all material federal income tax
considerations. The applicable Prospectus Supplement will contain information
about specific federal income tax considerations, if any, relating to Securities
other than 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.
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EACH PROSPECTIVE PURCHASER OF SECURITIES 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
ending 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 and December
31, 1994, and the Company's current organization and method of operation should
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, Equity Residential Properties Management Limited Partnership and
Equity Residential Properties Management Limited Partnership II (collectively,
the "Management Partnerships"), Equity Residential Properties Management Corp.,
Equity Residential Properties Management Corp. II and Equity Residential
Properties Management Corp. III (collectively, the "Management Corps."), the
limited partnerships and limited liability companies (the "Financing
Partnerships") that own the beneficial interest of certain Properties encumbered
by mortgage financing, 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 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
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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, or (ii) 10% of the outstanding voting securities of any one issuer.
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 does 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.
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 (including the Securities offered hereby) 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
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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 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
dividends) 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.
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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%
dividend 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 partnership
agreement (as well as the Financing 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
24
<PAGE>
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 Securities
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
Securities 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 Securities. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. For a discussion on the manner in which that
portion of any dividends designated by the Company as capital gains dividends
will be allocated among the holders of Preferred Shares and Common Shares, see
"Description of Shares of Beneficial Interest--Preferred Shares--Distributions."
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 Securities 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 Securities 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 Securities by a shareholder
who has held such Securities 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.
Additional Tax Consequences for Holders of Preferred Shares and Depositary
Shares. If the Company offers one or more series of Preferred Shares or
Depositary Shares, then there may be additional tax consequences for the holders
of such Preferred Shares or Depositary Shares. For a discussion of any such
additional consequences, see the applicable Prospectus Supplement.
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
Securities with "acquisition indebtedness" within the meaning of the Code and
the Securities 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 Securities applicable to
Non-U.S. Holders of such Securities. 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 Securities. In cases where the dividend income from a Non-U.S.
Holder's investment in Securities 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 Securities. Unless Securities constitute a USRPI, a sale
of Securities by a Non-U.S. Holder generally will not be subject to U.S.
taxation under FIRPTA. The Securities 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 Securities 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 Securities will not
be subject to taxation under FIRPTA. Because the Securities 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 Securities generally will still not
be subject to tax under FIRPTA as a sale of a USRPI provided that (i) the
Securities 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 Securities at all times
during a specified testing period.
If gain on the sale of Securities 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 Securities 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 Securities 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.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of the Securities,
underwriters may be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of the Securities for whom they may act as agent. Underwriters
may sell Securities 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
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Securities sold pursuant to
Contracts shall be not less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.
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<PAGE>
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
Subsidiaries in the ordinary course of business.
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, 1994, as amended, 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.
LEGAL MATTERS
The legality of the Securities 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 federal income tax matters described
under "Federal Income Tax Considerations" will be passed on for the Company by
Hogan & Hartson L.L.P. With respect to any underwritten offering of Securities,
certain legal matters will be passed upon for the underwriters by Hogan &
Hartson L.L.P. Hogan & Hartson L.L.P. from time to time provides services to
the Company and other entities controlled by Mr. Zell.
Sheli Z. Rosenberg, the Chairman of the Board of Rosenberg & Liebentritt,
P.C., is a trustee of the Company. The Company paid legal fees to Rosenberg &
Liebentritt, P.C. of approximately $2.536 million in 1994 and, to date,
approximately $1.7 million in 1995. Attorneys of Rosenberg & Liebentritt, P.C.
beneficially own less than 1% of the outstanding Common Shares, either directly
or upon the exercise of options.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE ANY SUCH OFFER OF SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN
THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company................................... S-2
Recent Developments........................... S-3
The Offering.................................. S-4
Use of Proceeds............................... S-4
Price Range of Common Shares and
Distributions................................ S-5
Business and Properties....................... S-6
PROSPECTUS
Available Information......................... 2
Incorporation of Certain Documents
by Reference................................. 2
The Company................................... 4
Risk Factors.................................. 5
Use of Proceeds............................... 9
Description of Shares of Beneficial Interest.. 9
Description of Depositary Shares.............. 17
Ratios of Earnings to Combined Fixed Charges.. 20
Federal Income Tax Considerations............. 20
Plan of Distribution.......................... 27
Experts....................................... 28
Legal Matters................................. 28
</TABLE>
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2,272,728 SHARES
EQUITY RESIDENTIAL PROPERTIES TRUST
COMMON SHARES
OF
BENEFICIAL INTEREST
_____________________
PROSPECTUS SUPPLEMENT
_____________________
SEPTEMBER 12, 1996
================================================================================
