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PROSPECTUS Filed pursuant to Rule 424(b)(5)
- ---------- SEC File No. 333-12983
1,182,835 SHARES
EQUITY RESIDENTIAL PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
This Prospectus relates to the offer and sale from time to time of up to
1,182,835 common shares of beneficial interest, $0.01 par value per share (the
"Common Shares"), of Equity Residential Properties Trust, a Maryland real estate
investment trust (the "Company"), by the holders thereof following the potential
issuance of such Common Shares upon the exchange of up to 1,182,835 outstanding
limited partnership interests ("OP Units") in ERP Operating Limited Partnership
(the "Operating Partnership"), of which the Company is the sole general partner
and owns a controlling interest, to the holders thereof, if and to the extent
that such holders exchange such OP Units for Common Shares (the "Offered
Shares"). The Company is registering the Offered Shares as required under the
terms of a certain registration rights and lock-up agreement between the Company
and the holders of securities exchangeable for the Offered Shares (collectively,
the "Selling Shareholders"). The registration of the Offered Shares does not
necessarily mean that any of the Offered Shares will be offered or sold by the
Selling Shareholders. The Company will receive no part of the proceeds of the
sales of the Offered Shares. See "Selling Shareholders" and "Plan of
Distribution".
The Common Shares are listed on the New York Stock Exchange (the "NYSE")
under the symbol "EQR." To ensure that the Company maintains its qualification
as a real estate investment trust (a "REIT"), ownership by any person is limited
to 5% of the lesser of the number or value of outstanding Common Shares, with
certain exceptions. See "Description of Shares of Beneficial Interest -- Common
Shares--Restrictions on Transfer." The closing sales price of the Common Shares
as reported by the NYSE on October 3, 1996 was $36-1/4 per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS," BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Selling Shareholders may from time to time offer and sell all or a
portion of the Offered Shares in transactions on the NYSE, in the over-the-
counter market, on any other national securities exchange on which the Common
Shares are listed or traded, in negotiated transactions or otherwise, at prices
then prevailing or related to the then-current market price or at negotiated
prices. The Offered Shares may be sold directly or through agents or broker-
dealers acting as principal or agent, or in block trades or pursuant to a
distribution by one or more underwriters on a firm commitment or best-efforts
basis. To the extent required, the names of any agent or broker-dealer and
applicable commissions or discounts and any other required information with
respect to any particular offer will be set forth in this Prospectus under the
caption "Plan of Distribution" or an accompanying Prospectus Supplement. Each of
the Selling Shareholders reserves the right to accept or reject, in whole or in
part, any proposed purchase of the Offered Shares to be made directly or through
agents. The Selling Shareholders and any agents or broker-dealers participating
in the distribution of the Offered Shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and any profit on the sale of Offered Shares by the Selling Shareholders
and any commissions received by any such agents or broker-dealers may be deemed
to be underwriting commissions or discounts under the Securities Act. The
Company will not receive any of the proceeds from the sale of any Offered Shares
by the Selling Shareholders.
THE DATE OF THIS PROSPECTUS IS OCTOBER 4, 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Common
Shares are listed on the NYSE under the symbol "EQR" and similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act, with respect to the Offered Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Offered Shares,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K, as amended by Form 10-K/A
(filed on August 26, 1996), for the year ended December 31, 1995.
b. The Company's Amended and Restated Declaration of Trust (the
"Declaration of Trust") filed as Exhibit 3(i) to the Company's
Quarterly Report on Form 10-Q for the three and six month periods
ended June 30, 1995.
c. The Company's Amended and Restated Bylaws, filed as an exhibit to the
Company's Registration Statement on Form S-11, No. 33-63158 dated July
26, 1993, as amended.
d. The Company's definitive proxy statement dated March 29, 1996 relating
to the annual meeting of shareholders held on May 10, 1996.
e. The description of the Company's Common Shares contained in the
Company's Registration Statement on Form S-11, No. 33-80420, dated
July 20, 1994, as amended.
f. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996.
g. The Company's Current Reports on Form 8-K dated September 21, 1995 (as
amended by Forms 8-K/A filed on October 25, 1995 and October 30, 1995,
respectively), January 22, 1996, January 25, 1996, February 5, 1996,
March 1, 1996, May 15, 1996, May 23, 1996, May 24, 1996 and September
9, 1996 and the Company's Current Reports on Form 8-K/A dated March 1,
1996 and May 23, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of all Offered Shares to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in the
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
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applicable Prospectus Supplement relating to a specific offering of Offered
Shares, or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to Equity Residential Properties Trust, Two North Riverside Plaza,
Chicago, Illinois 60606, Attention: Cynthia McHugh (telephone number: (312) 474-
1300).
As used herein, the term "Company" includes Equity Residential Properties
Trust and those entities owned or controlled by it (collectively, the
"Subsidiaries"), unless the context indicates otherwise.
THE COMPANY
GENERAL
Equity Residential Properties Trust, 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 October 4, 1996, the Company owned or had interests in a portfolio
of 231 multifamily properties (individually a "Property" and collectively the
"Properties") containing 68,712 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 170 Properties containing 49,912 units for a total
purchase price of approximately $2.28 billion, including the assumption of
approximately $512 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 October 4, 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 four 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 (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 par
value per share (the "Series C Preferred Shares"),
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respectively. The Company controls the Operating Partnership as the sole general
partner and, as of October 4, 1996, owned approximately 84% 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.
USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of the Offered
Shares by the Selling Shareholders. All costs and expenses incurred in
connection with the registration under the Securities Act of the offering made
hereby will be paid by the Company, other than any brokerage fees and
commissions, fees and disbursements of legal counsel for the Selling
Shareholders and share transfer and other taxes attributable to the sale of the
Offered Shares, which will be paid by the Selling Shareholders.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below prior to making an investment decision regarding the
Offered Shares offered hereby.
ADVERSE CONSEQUENCES OF DEBT FINANCING AND PREFERRED SHARES
General Risks. As of June 30, 1996, the Properties were subject to
approximately $667.8 million of mortgage indebtedness and the Company's total
debt equaled approximately $1.04 billion, $151.5 million of which was floating
rate debt. Subsequent to June 30, 1996, the Operating Partnership issued $150
million aggregate principal amount of 7.57% Notes due August 15, 2026 pursuant
to a public debt offering in August 1996 (the "Debt Offering"). In addition, in
June 1995, the Company issued 6,120,000 Series A Preferred Shares pursuant to a
preferred share offering; in November 1995, the Company issued 5,000,000
depositary shares each representing a 1/10 fractional interest in a Series B
Preferred Share pursuant to a depositary share offering; and in September 1996,
the Company issued 4,600,000 depositary shares each representing a 1/10
fractional interest in a Series C Preferred Share pursuant to a depositary share
offering (collectively, the "Preferred Share Offerings"). The Company used the
proceeds from the Debt Offering and the Preferred Share Offerings to repay
indebtedness and to acquire additional Properties. 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. A substantial portion of the
Company's debt was issued pursuant to two different indentures (the
"Indentures") which restrict the amount of indebtedness (including acquisition
financing) the Company may incur. Accordingly, in the event that the Company is
unable to raise additional equity or borrow money because of the debt
restrictions in the indentures, the Company's ability to acquire additional
properties may be limited. If the Company is unable to acquire additional
properties, its ability to increase the distributions with respect to Common
Shares, as it has done in the past, will be limited to
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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 several 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 several
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 if 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 October 4, 1996, Mr. Zell, certain of the current holders (the
"Zell Holders") of certain OP Units issued at the time of the IPO ("Original OP
Units") to certain affiliates of Mr. Zell which contributed 33 of the Properties
at the time of the IPO (the "Zell Original Owners"), Equity Properties
Management Corp. ("EPMC") and other affiliates of Mr. Zell owned in the
aggregate approximately 8.58% 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 5.94% of the Common Shares (assuming that all of the partnership
interests in the Operating Partnership are exchanged for Common Shares). The
Starwood Original Owners, together with the Zell Original Owners, shall be
referred to collectively as the "Original Owners." As of October 4, 1996, the
Company had options outstanding to purchase approximately 2.4 million Common
Shares which it has granted to certain officers, employees and trustees of the
Company and consultants to the Company, some of whom are affiliated with Mr.
Zell, representing in the aggregate approximately 4.2% of the Common Shares
(assuming that all such options are exercised for Common Shares and all of the
outstanding partnership interests in the Operating Partnership are exchanged for
Common Shares). Further, the consent of affiliates of Mr. Zell who are Zell
Holders and of the Starwood Original Owners is required for certain amendments
to the Operating Partnership's Fourth Amended and Restated ERP Operating Limited
Partnership Agreement of Limited Partnership (the "Partnership Agreement").
Accordingly, Mr. Zell and the Starwood Original Owners may continue to have
substantial influence over the Company, which influence might not be consistent
with the interests of other shareholders, and on the outcome of any matters
submitted to the Company's shareholders for approval. In addition, although
there is no current agreement, understanding or arrangement for these
shareholders to act together on any matter, these shareholders would be in a
position to exercise significant influence over the affairs of the Company if
they were to act together in the future.
POTENTIAL ENVIRONMENTAL LIABILITY AFFECTING THE COMPANY
Under various Federal, state and local environmental laws, ordinances and
regulations, an owner of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. These
laws often impose environmental liability without regard to whether the owner
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of such substances, or the failure properly to
remediate such substances, may adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain laws impose liability for release of asbestos-
containing materials ("ACMs") into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Company or the Subsidiaries,
as the case may be, may be considered an owner or operator of such properties or
as having arranged for the disposal or treatment of hazardous or toxic
substances and, therefore, potentially liable for removal or remediation costs,
as well as certain other related costs, including governmental fines and
injuries to persons and property.
All of the Properties have been the subject of a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or ground water analysis and generally without radon testing) completed
by qualified independent environmental consultant companies. All of the
environmental assessments were conducted within the last five years and were
obtained prior to the acquisition by the Company of each of the Properties.
These environmental assessments have not revealed, nor is the Company aware of,
any environmental liability that the Company's management believes would have a
material adverse effect on the Company's business, results of operations,
financial condition or liquidity.
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No assurance can be given that existing environmental assessments with
respect to any of the Properties reveal all environmental liabilities, that any
prior owner of a Property did not create any material environmental condition
not known to the Company, or that a material environmental condition does not
otherwise exist as to any one or more Properties.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Income from real property investments and the Company's resulting
ability to make expected distributions to shareholders may be adversely affected
by the general economic climate, local conditions such as oversupply of
apartment units or a reduction in demand for apartment units in the area, the
attractiveness of the Properties to tenants, zoning or other regulatory
restrictions, the ability of the Company to provide adequate maintenance and
insurance, and increased operating costs (including insurance premiums and real
estate taxes). The Company's income would also be adversely affected if tenants
were unable to pay rent or the Company were unable to rent apartment units on
favorable terms. If the Company were unable to promptly relet or renew the
leases for a significant number of apartment units, or if the rental rates upon
such renewal or reletting were significantly lower than expected rates, then the
Company's funds from operations and ability to make expected distributions to
shareholders may be adversely affected. In addition, certain expenditures
associated with each equity investment (such as real estate taxes and
maintenance costs) generally are not reduced when circumstances cause a
reduction in income from the investment. Furthermore, real estate investments
are relatively illiquid and, therefore, will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
Changes in Laws. Increases in real estate taxes and income, service or
other taxes generally are not passed through to tenants under existing leases
and may adversely affect the Company's funds from operations and its ability to
make distributions to shareholders. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would adversely affect the
Company's funds from operations and its ability to make distributions to
shareholders.
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
5% Ownership Limit; Inapplicability to Mr. Zell and Others. In order to
maintain its qualification as a REIT under the Code, not more than 50% of the
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities). Certain beneficial owners of the Zell Holders
affiliated with Mr. Zell and EPMC (i.e., beneficiaries of trusts established for
the benefit of Mr. Zell and his family and trusts established for the benefit of
the family of Mr. Robert Lurie, a deceased partner of Mr. Zell (the "Lurie
Family Trusts")) and of the Starwood Original Owners (through their potential
ownership rights of Common Shares) together constitute four individuals for
purposes of this test and, under the Internal Revenue Service's (the "Service")
rules applicable to determining percentages of ownership, will be deemed to own
approximately 11% 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 6,932,274
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. 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
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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
October 4, 1996, 7,080,000 Preferred Shares were issued and outstanding.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. The Company believes that it has qualified and
will continue to qualify as a REIT under the Code, commencing with its taxable
year ended December 31, 1993. However, no assurance can be given that the
Company was organized and has been operated and will be able to operate in a
manner so as to qualify or remain so qualified. Qualification as a REIT involves
the satisfaction of numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex Code provisions for which
there are only limited judicial or administrative interpretations, and involves
the determination of various factual matters and circumstances not entirely
within the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to shareholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to shareholders would no longer be
required to be made. See "Federal Income Tax Considerations."
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain Federal, state and local taxes on its income and property.
See "Federal Income Tax Considerations--Other Tax Considerations--State and
Local Taxes." In addition, the Company's management operations, which are
conducted through Equity Residential Properties Management Limited Partnership
and Equity Residential Properties Management Limited Partnership II
(collectively, the "Management Partnerships") generally will be subject to
Federal income tax at regular corporate rates. See "Federal Income Tax
Considerations--Other Tax Considerations."
Consequences of Failure to Qualify as Partnerships. The Company believes
that the Operating Partnership, the Management Partnerships and each of the
other partnership and limited liability company Subsidiaries have been organized
as partnerships and will qualify for treatment as such under the Code. If any of
such Subsidiaries fails to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and such Subsidiary would be subject
to Federal income tax (including any alternative minimum tax) on its income at
corporate rates. See "Federal Income Tax Considerations--Taxation of the
Company--Failure to Qualify" and "--Tax Aspects of the Company's Investments in
Partnerships--General."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a temporary adverse effect on the
operations of the Company. None of these officers has entered into employment
agreements with the Company.
DISTRIBUTION REQUIREMENTS POTENTIALLY INCREASING INDEBTEDNESS OF THE COMPANY
The Company may be required from time to time, under certain circumstances,
to accrue as income for tax purposes interest and rent earned but not yet
received. In such event, or upon the repayment by the Company or its
Subsidiaries of principal on debt, the Company could have taxable income without
sufficient cash to enable the Company to meet the distribution requirements of a
REIT. Accordingly, the Company could be required to borrow funds or liquidate
investments on adverse terms in order to meet such distribution requirements.
See "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements."
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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 a merger, consolidation, share exchange or,
in certain circumstances, an asset transfer or issuance or reclassification 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 or an affiliate of the trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the trust's shares of beneficial
interest (an "Interested Shareholder"), or an affiliate of such Interested
Shareholder, 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 recommended by the board of trustees of such
trust and approved by the affirmative vote of at least (a) 80% of the votes
entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust and (b) two-thirds of the votes entitled to be cast by
holders of voting shares of beneficial interest of the trust other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
holders of the common shares of the trust receive a minimum price (as defined in
the MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Shareholder for its common
shares. The Zell Original Owners beneficially own more than 10% of the Company's
voting shares and would, therefore, be subject to the business combination
provisions of the MGCL. However, pursuant to the statute, the Company has
exempted any business combination involving Mr. Zell, the Zell Original Owners,
EPMC and their respective affiliates and associates, present or future, or any
other person acting in concert or as a group with any of the foregoing persons
and, consequently, the five-year prohibition and the super-majority vote
requirements will not apply to a business combination between any of them and
the Company. As a result, Mr. Zell, the Zell Original Owners, EPMC, any present
or future affiliate or associate of theirs or any other person acting in concert
or as a group with any of the foregoing persons may be able to enter into
business combinations with the Company, which may not be in the best interest of
the shareholders, without compliance by the Company with the super-majority vote
requirements and other provisions of the statute.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and amended
and restated bylaws ("Bylaws") of the Company, 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, $0.01 par value per share, and 10,000,000 Preferred Shares. As of
October 4, 1996, 45,774,634 Common Shares were issued and outstanding. In
addition, as of October 4, 1996, 8,723,774 Common Shares were issuable upon
exchange of OP Units currently held by the holders of the Original OP Units or
holders who were issued OP Units in exchange for the contribution of certain of
the Properties to the Operating Partnership subsequent to the IPO. The OP Units
are exchangeable on a one-for-one basis for Common Shares or, at the Company's
option, cash.
Both the Maryland REIT law and the Company's Declaration of Trust provide
that no shareholder of the Company will be liable for any debt or obligation of
the Company solely as a result of his status as a shareholder of the Company.
The Company's bylaws further provide that the Company shall indemnify each
shareholder against any claim or liability to which the shareholder may become
subject by reason of his being or having been a shareholder and that the Company
shall reimburse each shareholder for all reasonable expenses incurred by him in
connection with any such claim or liability. However, with respect to tort
claims, contractual claims where shareholder liability is not so negated, claims
for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
COMMON SHARES
All Offered Shares offered hereby are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Company's Declaration of Trust
regarding Excess Shares (as defined herein), holders of Common Shares are
entitled to receive distributions if, as and when authorized and declared by the
Board of Trustees out of assets legally available therefor and to share ratably
in the assets of the Company legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company. The Company currently pays regular quarterly distributions.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, each outstanding Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of such Common Shares will possess the exclusive voting power. There is
no cumulative voting in the election of trustees, which means that the holders
of a majority of the outstanding Common Shares can elect all of the trustees
then standing for election and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.
Holders of Common Shares have no conversion, sinking fund, redemption or
preemptive rights to subscribe for any securities of the Company. Subject to the
provisions of the Company's Declaration of Trust regarding Excess Shares, Common
Shares have equal distribution, liquidation and other rights, and have no
preference, exchange or, except as expressly required by the Maryland REIT law,
appraisal rights.
Pursuant to the Maryland REIT law, a REIT generally cannot dissolve, amend
its declaration of trust or merge, unless approved by the affirmative vote or
written consent of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the REIT's declaration of trust. The Company's Declaration of Trust does not
provide for a lesser percentage in such situations. A declaration of trust may
permit the Trustees by a two-thirds vote to amend the declaration of trust from
time to time to qualify as a REIT under the Code or the Maryland REIT law
without the affirmative vote or written consent of the shareholders. The
Company's Declaration of Trust permits such action by the Board of Trustees.
The transfer agent and registrar for the Common Shares is The First
National Bank of Boston.
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RESTRICTIONS ON TRANSFER
Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions, provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5% (the "Ownership Limit") of
the lesser of the number of shares or value of the issued and outstanding shares
of beneficial interest of the Company. The Board of Trustees, upon receipt of a
ruling from the Service, an opinion of counsel or other evidence satisfactory to
the Board of Trustees and upon such other conditions as the Board of Trustees
may direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer no later than the fifteenth day prior to
any transfer which, if consummated, would result in the intended transferee
owning shares in excess of the Ownership Limit. Any transfer of Common or
Preferred Shares that would (i) create a direct or indirect ownership of shares
of beneficial interest in excess of the Ownership Limit, (ii) result in the
shares of beneficial interest being owned by fewer than 100 persons, or (iii)
result in the Company being "closely held" within the meaning of Section 856(h)
of the Code, will be void ab initio, and the intended transferee will acquire no
rights to the shares of beneficial interest. The foregoing restrictions on
transferability and ownership will not apply if the Board of Trustees determines
that it is no longer in the best interests of the Company to attempt to qualify,
or to continue to qualify, as a REIT.
The Company's Declaration of Trust exempts from the Ownership Limit certain
of the beneficial owners of the Original Owners and EPMC, who would exceed the
Ownership Limit as a result of the exchange of the OP Units for Common Shares,
which OP Units were received by them at the time of the formation of the
Company. These persons may also acquire additional shares of beneficial interest
through the Company's Second Amended and Restated 1993 Share Option and Share
Award Plan (the "Option and Award Plan"), but in no event will such persons be
entitled to acquire additional shares of beneficial interest such that the five
largest beneficial owners of the Company's shares of beneficial interest hold
more than 50% in number or value of the total outstanding shares of beneficial
interest.
Any shares of beneficial interest the transfer of which would result in a
person owning shares of beneficial interest in excess of the Ownership Limit or
cause the Company to become "closely held" under Section 856(h) of the Code that
is not otherwise permitted as provided above will constitute excess shares
("Excess Shares"), which will be transferred by operation of law to the Company
as trustee for the exclusive benefit of the person or persons to whom the Excess
Shares are ultimately transferred, until such time as the intended transferee
retransfers the Excess Shares. While these Excess Shares are held in trust, they
will not be entitled to vote or to share in any distributions (except upon
liquidation). Subject to the Ownership Limit, the Excess Shares may be
retransferred by the intended transferee to any person (if the Excess Shares
would not be Excess Shares in the hands of such person) at a price not to exceed
the price paid by the intended transferee or, if the intended transferee did not
give value for such Excess Shares (e.g., a transfer by gift or devise), the fair
market value (as described below) at the time of the purported transfer that
resulted in the Excess Shares, at which point the Excess Shares will
automatically be exchanged for the shares of beneficial interest to which the
Excess Shares are attributable. In addition, such Excess Shares held in trust
are subject to purchase by the Company at a purchase price equal to the lesser
of the price paid for the Excess Shares in the transaction that created such
Excess Shares (or, in the case of a devise or gift, the fair market value at the
time of such devise or gift) and the fair market value of the Preferred Shares
or Common Shares to which such Excess Shares relate on the date the Company
exercises its right to purchase. Fair market value will be the last sales price
of such shares of beneficial interest reported on the NYSE on the trading day
immediately preceding the relevant date, or if not then traded on the NYSE, the
last reported sales price of such shares of beneficial interest on the trading
day immediately preceding the relevant date as reported on any exchange or
quotation system over which such shares of beneficial interest may be traded, or
if not then traded over any exchange or quotation system, then the fair market
value of such shares of beneficial interest on the relevant date as determined
in good faith by the Board of Trustees of the Company. The Company's right to
purchase shall be for a period of 90 days after the later of the date of the
purported transfer which resulted in the Excess Shares and the date the Board of
Trustees determines in good faith that such a transfer has occurred. From and
after the intended transfer to the intended transferee of the Excess Shares, the
intended transferee shall cease to be entitled to distributions (except upon
liquidation), voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the shares or the
retransfer of shares as provided above. Any distribution paid to a proposed
transferee on Excess Shares prior to the discovery by the Company that such
shares of beneficial interest have been transferred in violation of the
provisions of the Company's Declaration of Trust shall be repaid to the Company
upon demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the Company.
All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.
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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 Zell Original Owners (i.e., beneficiaries
of trusts established for the benefit of Mr. Zell and his family and the family
of Mr. Robert Lurie, a deceased partner of Mr. Zell) and EPMC, together with the
Starwood Original Owners (through their potential ownership of shares of
beneficial interest) together constitute four individuals for purposes of this
test and, under the Service's rules applicable to determining percentages of
ownership, are deemed to own approximately 11% 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.
SHARES AVAILABLE FOR FUTURE SALE
As of October 4, 1996, the Company had outstanding 45,774,634 Common
Shares, all of which are tradable without restriction under the Securities Act.
The 1,182,835 Offered Shares to be sold pursuant to this Prospectus and any
applicable Prospectus Supplement will be tradable without restriction under the
Securities Act pursuant to the Registration Statement of which this Prospectus
is a part. In addition, as of October 4, 1996, 8,723,774 Common Shares were
issuable upon the exchange of OP Units currently held by the holders of OP Units
or holders who were issued OP Units in exchange for certain of the Properties,
including the Selling Shareholders, all of which Common Shares currently would
be or may be, upon the exercise of registration rights, tradable without
restriction under the Securities Act.
The holders of Offered Shares may also be able to sell their shares without
registration in accordance with the exemptions provided by Rule 144 under the
Securities Act. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated in accordance with the Rule) who has
beneficially owned his shares for at least two years, as well as any persons who
may be deemed "affiliates" of the Company (as defined in the Securities Act),
would be entitled to sell within any three month period a number of Common
Shares that does not exceed the greater of 1% of the then outstanding number of
shares or the average weekly trading volume of the shares during the four
calendar weeks preceding each such sale. After shares are held for three years,
a person who is not deemed an "affiliate" of the Company is entitled to sell
such shares under Rule 144 without regard to the volume limitations described
above. Sales of shares by affiliates will continue to be subject to the volume
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through the use of one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer.
The Company has adopted its Second Amended and Restated 1993 Share Option
and Share Award Plan (the "Option and Award Plan") for the purpose of attracting
and retaining officers, other key employees and directors. The Company has
reserved 3,600,000 Common Shares for future issuance under the Option and Award
Plan. As of October 4, 1996, the Company had granted options to purchase
approximately 2.4 million Common Shares to certain officers, trustees and
employees of the Company and consultants to the Company. The Company has also
adopted its 1996 Non-Qualified Employee Share Purchase Plan (the "Employee Share
Purchase Plan") and pursuant thereto has reserved 1,000,000 Common Shares for
future issuance under such plan. As of October 4, 1996, the Company has not
issued any Common Shares under the Employee Share Purchase Plan. The Company has
filed Form S-8 Registration Statements with respect to the Common Shares
issuable under each of the Option and Award Plan and the Employee Share Purchase
Plan, which Common Shares may be resold without restriction, unless held by
affiliates.
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No prediction can be made as to the effect, if any, that future sales of
Common Shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Shares (including Common Shares issued upon the exercise of Options), or
the perception that such sales could occur, could adversely affect prevailing
market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this Prospectus
is a part pursuant to its obligations under the terms of the Registration Rights
and Lock-Up Agreement among the Company, the Operating Partnership and each of
the Artery Investors, as defined therein. The following summary does not purport
to be complete and is qualified in its entirety by reference to the Registration
Rights and Lock-Up Agreement.
Under the Registration Rights and Lock-Up Agreement, the Company is
obligated to (a) use its best efforts to cause a registration statement filed
pursuant to request as provided in the Registration Rights and Lock-Up Agreement
to become effective, and (b) to file such amendments, post-effective amendments
and supplements to such registration statement as may be necessary to keep such
registration statement continuously effective for the period required by the
intended method of disposition or to describe the terms of any offering made
pursuant to a "shelf registration" pursuant to Rule 415 of Regulation C
promulgated under the Securities Act. The Company is registering the Offered
Shares pursuant to such a shelf registration. Any Offered Shares or Common
Shares sold to the public pursuant to this offering or another offering
registered under the Securities Act or sold to the public in compliance with
Rule 144 under the Securities Act (or any similar rule then in force) will cease
to be "Registrable Securities" within the meaning of the Registration Rights and
Lock-Up Agreement.
The Company has agreed to pay all of its expenses incident to its
performance and compliance under the Registration Rights and Lock-Up Agreement,
including all legal fees of the Company, registration expenses, and
qualification and filing fees associated with the registration of the Offered
Shares. The Company also has agreed to indemnify the Selling Shareholders and
their respective partners, officers and directors and each person who controls
(within the meaning of the Securities Act) each of the Selling Shareholders
against certain losses, claims, damages and expenses arising under the
securities laws in connection with this offering. Each Selling Shareholder has
agreed to indemnify the Company, its trustees, shareholders and officers and
each person who controls (within the meaning of the Securities Act) the Company
against other losses, claims, damages and expense arising under the securities
laws in connection with this offering with respect to written information
furnished to the Company by such Selling Shareholder; provided, however, that
the indemnification obligation is individual to each Selling Shareholder.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes all material federal income tax
considerations to a holder of Common Shares. The following discussion, which is
not exhaustive of all possible tax considerations, does not give a detailed
discussion of any state, local or foreign tax considerations. Nor does it
discuss all of the aspects of federal income taxation that may be relevant to a
prospective shareholder in light of his or her particular circumstances or to
certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws. As used in this section,
the term "Company" refers solely to Equity Residential Properties Trust.
EACH PROSPECTIVE PURCHASER OF OFFERED SHARES IS ADVISED TO CONSULT WITH HIS
OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM, IN LIGHT
OF HIS SPECIFIC OR UNIQUE CIRCUMSTANCES, OF THE PURCHASE, OWNERSHIP AND SALE OF
SECURITIES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company elected REIT status commencing with its taxable year
ended December 31, 1993. In the opinion of Hogan & Hartson L.L.P., which has
acted as special tax counsel to the Company, the Company was organized and has
operated in conformity with the requirements for qualification and taxation as a
REIT under the Code for its taxable years ended December 31, 1993, December 31,
1994 and December 31, 1995, and the Company's current organization and method of
operation
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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, 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 share ownership.
Asset Tests. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
any combination of interests in real property, interests in mortgages on real
property, shares in other REITs, cash, cash items and certain government
securities. Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this class may not
exceed either (i) 5% of the value of the Company's total assets as to any one
issuer (other than an interest in a partnership), or (ii) 10% of the outstanding
voting securities of any one issuer (other than an interest in a partnership or
shares of a qualified REIT subsidiary or another REIT). Where the Company
invests in a partnership, it will be deemed to own a proportionate share of the
partnership's assets. The Company's investment in the Properties through its
interest in the Operating Partnership will constitute qualified assets for
purposes of the 75% asset test.
The Operating Partnership owns none of the voting stock, but owns 100%
of the non-voting stock of each of the Management Corps. By virtue of its
partnership interest in the Operating Partnership, the Company is deemed to
own its pro rata share of the assets of the Operating Partnership, including
the stock of the Management Corps. as described above. The Operating
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Partnership has not and will not own more than 10% of the voting securities of
the Management Corps. In addition, based upon its analysis of the estimated
value of the stock of the Management Corps. owned by the Operating Partnership
relative to the estimated value of the other assets owned by the Operating
Partnership, the Company believes that its pro rata share of the stock of each
Management Corp. held by the Operating Partnership has not exceeded and will not
exceed 5% of the total value of the Company's assets. No independent appraisals,
however, have been obtained to support this conclusion. This 5% limitation must
be satisfied not only on the date that the Company first acquired stock of a
Management Corp., but also at the end of each quarter in which the Company
increases its interest in either of the Management Corps. (including as a result
of increasing its interest in the Operating Partnership as the holders of OP
Units exercise their exchange rights). Although the Company plans to take steps
to ensure that it satisfies the 5% value test for any quarter with respect to
which retesting is to occur, there can be no assurance that such steps will
always be successful or will not require a reduction in the Operating
Partnership's overall interest in the Management Corps.
The Company's indirect interests as a general partner in the Financing
Partnerships are held through the QRS Corporations, each of which is organized
and operated as a "qualified REIT subsidiary" within the meaning of the Code.
Qualified REIT subsidiaries are not treated as separate entities from their
parent REIT. Instead, all assets, liabilities and items of income, deduction
and credit of each QRS Corporation will be treated as assets, liabilities and
items of the Company. Each QRS Corporation therefore will not be subject to
Federal corporate income taxation, although it may be subject to state or local
taxation. In addition, the Company's ownership of the voting stock of each QRS
Corporation will not violate the general restriction against ownership of more
than 10% of the voting securities of any issuer.
Gross Income Tests. There are three separate percentage tests relating
to the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will retain
the same character in the hands of the Company as it has in the hands of the
partnership.
1. The 75% Test. At least 75% of the Company's gross income for each
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage collateralized by such property
("foreclosure property"); (vii) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income attributable
to the investment of new capital received by the Company in exchange for its
shares during the one-year period following the receipt of such new capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person. Finally, for rents received to qualify as rents from
real property, the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent that the services
provided by the Company are "usually or customarily rendered" in connection with
the rental of space for occupancy only, and are not otherwise considered
"rendered to the occupant."
The Company, through the Management Partnerships, provides certain services
with respect to the Properties and any newly acquired multifamily residential
properties. The Company believes that the services provided by the Management
Partnerships are usually or customarily rendered in connection with the rental
of space for occupancy only, and therefore that the provision of such services
has not caused, and will not in the future cause the rents received with respect
to the Properties to fail to qualify as rents from real property for purposes of
the 75% and 95% gross income tests.
2. The 95% Test. At least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends (including the Company's
share of dividends paid by the Management Corps.) and interest on
14
<PAGE>
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
distributions) to its shareholders each year in an amount at least equal to (A)
the sum of (i) 95% of the Company's REIT taxable income (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be.
The Company has made and intends to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. In this regard, the
partnership agreement of the Operating Partnership authorizes the Company, as
general partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that the
Company may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, due to the payment of principal on debt or to timing
differences between the actual receipt of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such expenses
in computing the Company's REIT taxable income on the other hand. To avoid any
problem with the 95% distribution requirement, the Company will closely monitor
the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be required and, if made, will not
be deductible by the Company. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be ineligible for qualification as a REIT for the four taxable years
following the year during which qualification was lost.
15
<PAGE>
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds direct or indirect interests in the Operating
Partnership, the Management Partnerships and certain Financing Partnerships
(each individually a "Partnership" and, collectively, the "Partnerships"). The
Company believes that each of the Partnerships qualifies as a partnership (as
opposed to an association taxable as a corporation) for Federal income tax
purposes. If any of the Partnerships were to be treated as an association, it
would be taxable as a corporation and therefore subject to an entity-level tax
on its income. In such a situation, the character of the Company's assets and
items of gross income would change, which would preclude the Company from
satisfying the asset tests and possibly the income tests (see "Federal Income
Tax Considerations--Taxation of the Company--Asset Tests" and "--Gross Income
Tests"), and in turn would prevent the Company from qualifying as a REIT.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the 69 Properties contributed at
the time of the IPO (the "Initial Properties")) must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value and the adjusted tax basis of contributed property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Initial Properties). Consequently, the Operating Partnership agreement (as
well as the Financing Partnerships agreements) requires such allocations to be
made in a manner consistent with Section 704(c). As a result, certain limited
partners of the Operating Partnership will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on sale by the Partnerships of the contributed assets (including certain of the
Initial Properties). These allocations will tend to eliminate the Book-Tax
Difference over the life of the Partnerships. However, the special allocation
rules of Section 704(c) as applied by the Company do not always entirely rectify
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Partnerships will cause the Company to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "Federal Income Tax Considerations--Taxation of the Company--
Annual Distribution Requirements."
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations--Taxation of the Company--
Gross Income Tests--The 95% Test." Under existing law, whether property is
dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Partnerships have
held and intend to continue to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the Properties and other multifamily residential properties
and to make such occasional sales of the Properties as are consistent with the
Company's investment objectives. Based upon such investment objectives, the
Company believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
General. As long as the Company qualifies as a REIT, distributions made
to the Company's taxable domestic shareholders, with respect to their Offered
Shares out of current or accumulated earnings and profits (and not designated
as capital gain dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends received deduction for shareholders
that are corporations. For purposes of determining whether distributions on the
Offered Shares are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Preferred
Shares and second to the Common Shares. There can be no assurance, however,
that the Company will have sufficient earnings and profits to cover
distributions on the Preferred Shares. Dividends that are designated as capital
gain dividends will be taxed as long-term capital gains (to the extent that they
do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's Offered Shares by the
amount of such distribution (but not below zero), with distributions in excess
of the
16
<PAGE>
shareholder's tax basis taxable as capital gains (if the Offered Shares are held
as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a shareholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the shareholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Offered Shares by a
shareholder who has held such Offered Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company received by such
shareholder are required to be treated by such shareholder as long-term capital
gains.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
Offered Shares with "acquisition indebtedness" within the meaning of the Code
and the Offered Shares are not otherwise used in an unrelated trade or business
of the tax-exempt entity. In addition, for taxable years beginning on or after
January 1, 1994, certain pension trusts that own more than 10% of a "pension-
held REIT" must report a portion of the distribution that they receive from such
a REIT as UBTI. The Company has not been and does not expect to be treated as a
pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income
tax consequences of the ownership and disposition of Offered Shares applicable
to Non-U.S. Holders of such Offered Shares. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, or (iii) an estate or trust whose income
is includable in gross income for U.S. Federal income tax purposes regardless of
its source. The discussion is based on current law and is for general
information only.
Distributions From the Company. 1. Ordinary Dividends. The portion of
dividends received by Non-U.S. Holders payable out of the Company's earnings and
profits which are not attributable to capital gains of the Company or of the
Operating Partnership and which are not effectively connected with a U.S. trade
or business of the Non-U.S. Holder will be subject to U.S. withholding tax at
the rate of 30% (unless reduced by an applicable treaty). In general, Non-U.S.
Holders will not be considered engaged in a U.S. trade or business solely as a
result of their ownership of Offered Shares. In cases where the dividend income
from a Non-U.S. Holder's investment in Offered Shares is (or is treated as)
effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or
business, the Non-U.S. Holder generally will be subject to U.S. tax at graduated
rates, in the same manner as U.S. shareholders are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax in the case of
a Non-U.S. Holder that is a foreign corporation).
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of the
Company's current and accumulated earnings and profits, the entire distribution
will be subject to withholding at the rate applicable to dividends. However,
the Non-U.S. Holder may seek a refund of such amounts from the Service if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the Properties beneficially owned by
the Company ("USRPI Capital Gains"), will be considered effectively connected
with a U.S. trade or business of the Non-U.S. Holder and subject to U.S. income
tax at the rate applicable to U.S. individuals or corporations, without regard
to whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax
in the hands of a foreign corporate shareholder that is not entitled to treaty
exemption.
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<PAGE>
Dispositions of Offered Shares. Unless Offered Shares constitute a USRPI,
a sale of Offered Shares by a Non-U.S. Holder generally will not be subject to
U.S. taxation under FIRPTA. The Offered Shares will not constitute a USRPI if
the Company is a "domestically controlled REIT." A domestically controlled REIT
is a REIT in which, at all times during a specified testing period, less than
50% in value of its Offered Shares is held directly or indirectly by Non-U.S.
Holders. The Company believes that it has been and anticipates that it will
continue to be a domestically controlled REIT, and therefore that the sale of
Offered Shares will not be subject to taxation under FIRPTA. Because the
Offered Shares will be publicly traded, however, no assurance can be given the
Company will continue to be a domestically controlled REIT. If the Company does
not constitute a domestically controlled REIT, a Non-U.S. Holder's sale of
Offered Shares generally will still not be subject to tax under FIRPTA as a sale
of a USRPI provided that (i) the Offered Shares are "regularly traded" (as
defined by applicable Treasury regulations) on an established securities market
and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
outstanding Common Shares and Preferred Shares at all times during a specified
testing period.
If gain on the sale of Offered Shares were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
shareholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of Offered Shares could be required to withhold
10% of the purchase price and remit such amount to the Service. Capital gains
not subject to FIRPTA will nonetheless be taxable in the United States to a Non-
U.S. Holder in two cases: (i) if the Non-U.S. Holder's investment in Offered
Shares is effectively connected with a U.S. trade or business conducted by such
Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment as a
U.S. shareholder with respect to such gain, or (ii) if the Non-U.S. Holder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
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.
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<PAGE>
SELLING SHAREHOLDERS
As described elsewhere herein, the "Selling Shareholders" are holders of OP
Units that were issued such OP Units in exchange for the contribution of certain
Properties to the Company. The following table provides the names of each
Selling Shareholder and the number of Common Shares to be owned upon exchange of
OP Units by each Selling Shareholder, which is equal to the maximum number of
Offered Shares to be sold in the offering:
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF COMMON SHARES
TO BE SOLD IN
NAME OF SELLING SHAREHOLDER THE OFFERING (1)(2)
--------------------------- --------------------
<S> <C>
Bel Pre Associates Limited Partnership(3)..... 146,134
The Estate of Judith Bryant................... 5,202
Joshua Frieman................................ 2,203
Michael Frieman............................... 2,203
Alan B. Geller................................ 39,662
Raymond Dungan, As Trustee For The
Irrevocable Trust For Estelle Gelman......... 28,706
Raymond Dungan, As Trustee For
The Trust Under The Will of Melvin Gelman,
Deceased For The Benefit Of Estelle Gelman... 3,519
GGL Investment Partners #1(3)................. 75,714
Henry H. Goldberg(3).......................... 263,347
Carol B. Goldberg(3)(4)....................... 48,078
Thomas Hall................................... 734
Steven J. Katz Irrevocable Trust.............. 75,714
Robert P. Kogod............................... 19,372
Morris Rodman................................. 124,221
Judy Ann Rosenberg............................ 13,802
Steven M. Rosenberg........................... 13,802
Mary Salandria................................ 5,202
Robert H. Smith............................... 19,372
Walter E. Story............................... 9,670
The George Wasserman Family Partnership....... 286,178
---------
TOTAL 1,182,835
=========
</TABLE>
____________________
(1) Unless otherwise indicated, assuming the exchange of all OP Units held by
each Selling Shareholder, the number of Common Shares set forth in this
column is also the number of Common Shares owned by each Selling
Shareholder prior to the offering. Each Selling Shareholder has claimed
sole voting and investment power concerning their Offered Shares.
(2) There is no assurance that the Selling Shareholders will sell any or all of
the Offered Shares. Unless otherwise indicated, if all of the Offered
Shares are sold, none of the Selling Shareholders would own any securities
of the Company after completion of the offering.
(3) Henry H. Goldberg, a trustee of the Company since 1995, is a general
partner of Bel Pre Associates Limited Partnership and GGL Investment
Partners #1. Mr. Goldberg is also deemed to have beneficial ownership in
5,000 Common Shares subject to options granted to him as a result of his
position as a trustee which are currently exercisable or are exercisable
within 60 days of the date hereof. Mr. Goldberg disclaims beneficial
ownership of the interests held by his spouse and 33.33% of the interests
held by GGL Investment Partners #1.
(4) Carol B. Goldberg is the wife of Henry H. Goldberg.
19
<PAGE>
PLAN OF DISTRIBUTION
Any of the Selling Shareholders may from time to time, in one or more
transactions, sell all or a portion of the Offered Shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Shares are listed or traded, in negotiated transactions, in underwritten
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The offering price of the Offered
Shares from time to time will be determined by the Selling Shareholders and, at
the time of such determination, may be higher or lower than the market price of
the Common Shares on the NYSE. In connection with an underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from a Selling Shareholder or from purchasers of
Offered Shares for whom they may act as agents, and underwriters may sell
Offered Shares to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents. Under
agreements that may be entered into by the Company, underwriters, dealers and
agents who participate in the distribution of Offered Shares may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which such underwriters, dealers or agents may be required to make in
respect thereof. The Offered Shares may be sold directly or through broker-
dealers acting as principal or agent, or pursuant to a distribution by one or
more underwriters on a firm commitment or best-efforts basis. The methods by
which the Offered Shares may be sold include (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Offered Shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) an exchange distribution in accordance with the rules of the NYSE; (e)
privately-negotiated transactions; and (f) underwritten transactions. The
Selling Shareholders and any underwriters, dealers or agents participating in
the distribution of the Offered Shares may be deemed to be "underwriters" within
the meaning of the Securities Act, and any profit on the sale of the Offered
Shares by the Selling Shareholder sand any commissions received by an such
broker-dealers may be deemed to be underwriting commissions under the Securities
Act.
When a Selling Shareholder elects to make a particular offer of Offered
Shares, a prospectus supplement, if required, will be distributed that will
identify any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from such Selling Shareholder and any
other required information.
In order to comply with the securities laws of certain states, if
applicable, the Offered Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Offered Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
The Company has agreed to pay all costs and expenses incurred in connection
with the registration under the Securities Act of the Offered Shares, including,
without limitation, all registration and filing fees, printing expenses and fees
and disbursements of counsel and accountants for the Company. The Selling
Shareholders will pay any brokerage fees and commissions, fees and disbursements
of legal counsel for the Selling Shareholders and stock transfer and other taxes
attributable to the sale of the Offered Shares. The Company also has agreed to
indemnify each of the Selling Shareholders and their respective partners,
officers and directors and each person who controls (within the meaning of the
Securities Act) such Selling Shareholder against certain losses, claims, damages
and expenses arising under the securities laws in connection with this offering.
Each of the Selling Shareholders has agreed to indemnify the Company, its
officers, trustees and shareholders and each person who controls (within the
meaning of the Securities Act) the Company against other losses, claims, damages
and expenses arising under the securities laws in connection with this offering
with respect to written information furnished to the Company by such Selling
Shareholder; provided, however, that the indemnification obligation is several,
not joint, as to each Selling Shareholder.
There is no assurance that the Selling Shareholders will sell any or all of
the Offered Shares.
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<PAGE>
EXPERTS
The Consolidated and Combined Financial Statements incorporated in this
Prospectus by reference to the Annual Report on Form 10-K, as amended by Form
10-K/A, for the year ended December 31, 1995 have been so incorporated in
reliance on the reports of Grant Thornton LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting. The Combined
Statement of Revenue and Certain Expenses of the 1996 Acquired Properties and
Probable Properties for the year ended December 31, 1995, as set forth in the
Company's Current Report on Form 8-K, as amended by Form 8-K/A, dated May 23,
1996, has been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated in this Prospectus by
reference. Such combined financial statement is incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The legality of the Offered Shares offered hereby will be passed upon for
the Company by Rosenberg & Liebentritt, P.C., Chicago, Illinois. Rosenberg &
Liebentritt, P.C. will rely on Hogan & Hartson L.L.P., Washington, D.C., as to
certain matters of Maryland law. Certain tax matters will be passed upon by
Hogan & Hartson L.L.P.
Sheli Z. Rosenberg, the Chairman of the Board of Rosenberg & Liebentritt,
P.C., is a trustee of the Company. The Company incurred legal fees to Rosenberg
& Liebentritt, P.C. of approximately $1.031 million in 1995 and, through
September 1, 1996, approximately $540,000 in 1996. Attorneys of Rosenberg &
Liebentritt, P.C. beneficially own less than 1% of the outstanding Common
Shares, either directly or upon the exercise of options.
21
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE OFFERED
SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS OR ANY
OFFER OR SALE MADE HEREUNDER SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 4
Risk Factors.............................................................. 4
Description of Shares of Beneficial Interest.............................. 9
Shares Available for Future Sale.......................................... 11
Registration Rights....................................................... 12
Federal Income Tax Considerations......................................... 12
Selling Shareholders...................................................... 19
Plan of Distribution...................................................... 20
Experts................................................................... 21
Legal Matters............................................................. 21
</TABLE>
================================================================================
================================================================================
1,182,835 SHARES
EQUITY RESIDENTIAL
PROPERTIES TRUST
COMMON SHARES
OF
BENEFICIAL INTEREST
PROSPECTUS
OCTOBER 4, 1996
================================================================================
