e424b5
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-156156
CALCULATION OF REGISTRATION FEE
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Proposed |
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Proposed |
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Maximum |
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Title of Each Class of |
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Amount to |
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Maximum |
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Aggregate |
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Amount of |
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Securities |
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be |
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Offering Price |
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Offering |
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Registration |
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to be Registered |
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Registered |
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Per Share (1) |
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Price (1) |
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Fee (2) |
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Common Shares of Beneficial Interest, $0.01 par value |
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5,687,478 |
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$ |
53.31 |
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$ |
303,199,453 |
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$ |
35,202 |
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(1) |
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Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the
“Securities Act”), the proposed maximum offering price per share and the
proposed maximum aggregate offering price have been determined on the
basis of the average of the high and low prices reported on the New York
Stock Exchange on January 28, 2011. |
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(2) |
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The registration fee has been calculated and is being paid in accordance
with Rule 457(r) and Rule 456(b) under the Securities Act. Excludes
4,312,522 Common Shares for which a filing fee has been previously paid
on a Registration Statement on Form S-3 (No. 333-156156). |
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 16, 2008)
10,000,000 Common
Shares
We have entered into separate amended and restated sales agency
financing agreements with each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated (“Merrill
Lynch”), J.P. Morgan Securities LLC
(“J.P. Morgan”) and Morgan Stanley &
Co. Incorporated (“Morgan Stanley,” and together with
Merrill Lynch and J.P. Morgan, the “Original Sales
Agents”), and we have entered into a sales agency financing
agreement with BNY Mellon Capital Markets, LLC
(“BNYMCM”) (together with the Original Sales Agents,
the “Sales Agents”), in each case relating to offers
and sales of our common shares of beneficial interest,
$0.01 par value (the “Common Shares”). In
accordance with the terms of these sales agency financing
agreements, we may offer and sell up to 10,000,000 Common Shares
from time to time through the Sales Agents, as our agents for
the offer and sale of the Common Shares. The Common Shares to
which this prospectus supplement relates include 4,312,522
Common Shares that remain unsold under the prospectus supplement
dated September 28, 2009.
The Common Shares will be offered at market prices prevailing at
the time of sale. Each respective Sales Agent will be entitled
to compensation not to exceed 2.0% of the gross sales price of
all Common Shares sold through it.
If a Sales Agent engages in special selling efforts, as that
term is used in Regulation M under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), the
Sales Agent will receive from us a commission to be agreed upon
at the time of sale.
Our Common Shares are listed on the New York Stock Exchange
under the symbol “EQR.” On February 2, 2011, the
last reported sale price of our Common Shares as reported on the
NYSE was $54.80 per share.
Investing in our Common Shares involves risks. See
“Risk Factors” on
page S-3
of this prospectus supplement, as well as the risk factors under
the heading “Risk Factors” beginning on page 8 of
our Annual Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
herein by reference.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the adequacy or accuracy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
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BofA Merrill Lynch
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BNY Mellon Capital
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J.P. Morgan
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Morgan Stanley
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Markets, LLC
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Prospectus Supplement dated February 3, 2011
TABLE OF
CONTENTS
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PROSPECTUS SUPPLEMENT
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S-1
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S-3
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S-3
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S-6
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S-8
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S-8
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S-9
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When we refer to “the Company,” “we,”
“us,” or “our” or similar expressions in
this prospectus supplement, we mean Equity Residential, a
Maryland real estate investment trust, and its direct and
indirect subsidiaries, including ERP Operating Limited
Partnership, its operating partnership.
This prospectus supplement is a supplement to the accompanying
prospectus. If information in this prospectus supplement is
inconsistent with the prospectus, this prospectus supplement
will apply and supersede the information in the prospectus. It
is important for you to read and carefully consider all
information contained in this prospectus supplement and the
accompanying prospectus. You should also read and carefully
consider the information in the documents we have referred you
to in “Where You Can Find More Information About Us.”
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and no Sales Agent has,
authorized any other person to provide you with different or
additional information. If anyone provides you with different or
additional information, you should not rely on it. This
prospectus supplement and the accompanying prospectus is not an
offer to sell or the solicitation of an offer to buy any
securities other than the registered shares to which they
relate, nor is this prospectus supplement or the accompanying
prospectus an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. You should assume that the information contained
or incorporated by reference in this prospectus supplement and
the accompanying prospectus is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
When we or any of the Sales Agents deliver this prospectus
supplement or the accompanying prospectus or make a sale
pursuant to this prospectus supplement or the accompanying
prospectus, neither we nor such Sales Agent are implying that
the information is current as of the date of the delivery or
sale.
i
THE
COMPANY
We are a Maryland real estate investment trust
(“REIT”) formed in March 1993 and an S&P
500 company focused on the acquisition, development and
management of high quality apartment properties in top United
States growth markets. We have elected to be taxed as a REIT for
federal income tax purposes.
We are one of the largest publicly traded real estate companies
and the largest publicly traded owner of multifamily properties
in the United States of America (based on the aggregate market
value of our outstanding Common Shares, the number of apartment
units wholly owned and total revenues earned). Our corporate
headquarters are located in Chicago, Illinois and we also
operate property management offices throughout the United States
of America.
Our principal executive offices are located at Two North
Riverside Plaza, Suite 400, Chicago, Illinois 60606 and our
telephone number is
(312) 474-1300.
Our website is located at www.equityresidential.com. Information
on our website is not deemed to be part of this prospectus
supplement or the attached prospectus.
S-1
THE
OFFERING
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Common Shares offered by us |
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Up to 10,000,000 Common Shares |
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Use of proceeds |
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We intend to use the proceeds from this offering for working
capital and general company purposes including, without
limitation, the acquisition or development of multifamily
properties (including possible portfolio or asset acquisitions,
business combinations or joint ventures) as suitable
opportunities arise and the reduction of debt. See “Use of
Proceeds.” |
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NYSE symbol |
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EQR |
S-2
RISK
FACTORS
In addition to the other information contained in this
prospectus supplement and the accompanying prospectus, you
should carefully consider any additional information and risk
factors described in the documents incorporated by reference in
this prospectus supplement and the accompanying prospectus,
including (i) our Annual Reports on
Form 10-K,
(ii) our Quarterly Reports on
Form 10-Q
and (iii) any other documents we file with the Securities
and Exchange Commission (“SEC”) after the date of this
prospectus supplement that are deemed incorporated by reference
in this prospectus supplement before making an investment
decision. These risks are not the only ones we face. Additional
risks not presently known to us or that we currently deem
immaterial may also adversely affect our business operations.
These risks could materially adversely affect, among other
things, our business, financial condition or results of
operations, and could cause the trading price of our Common
Shares to decline, resulting in the loss of all or part of your
investment.
FORWARD-LOOKING
STATEMENTS
This prospectus supplement, the accompanying prospectus and the
documents incorporated or deemed incorporated by reference as
described under “Where You Can Find More Information About
Us” contain certain information that we intend to be
considered “forward-looking statements” within the
meaning of Section 27A of the Securities Act. These
forward-looking statements relate to such things as our
anticipated future economic performance, our plans and
objectives for future operations and projections of revenue and
other financial items, which can be identified by the use of
forward-looking words such as “may,” “will,”
“should,” “expect,” “anticipate,”
“estimate” or “continue” or the negative
thereof or other variations thereon or comparable terms.
Actual results could differ materially from those contemplated
by these forward-looking statements as a result of many factors.
The cautionary statements under the caption “Risk
Factors” contained in our filings with the SEC incorporated
by reference, and other similar statements contained in this
prospectus supplement, the accompanying prospectus and the
documents incorporated or deemed incorporated by reference
herein and therein, identify important factors with respect to
forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial also may adversely
affect us. Should any known or unknown risks and uncertainties
develop into actual events, those developments could have a
material adverse effect on our business, financial condition and
results of operations.
In light of these risks and uncertainties, there can be no
assurance that the results and events contemplated by the
forward-looking information contained in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference or deemed incorporated by reference
herein will in fact transpire. Potential investors are cautioned
not to place undue reliance on these forward-looking statements.
The forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus supplement.
We do not undertake any obligation to update or revise any
forward-looking statements. All subsequent written or oral
forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these
cautionary statements.
S-3
USE OF
PROCEEDS
We intend to use the proceeds from this offering for working
capital and general company purposes including, without
limitation, the acquisition or development of multifamily
properties (including possible portfolio or asset acquisitions,
business combinations or joint ventures) as suitable
opportunities arise and the reduction of debt. Net proceeds may
be temporarily invested prior to use.
Certain affiliates of the Sales Agents are lenders under our
unsecured revolving credit facility and our operating
partnership’s unsecured term loan facility. To the extent
that we use the net proceeds from this offering to repay amounts
we have borrowed or may borrow or re-borrow in the future under
either of these facilities, those lenders will receive their pro
rata portion of any of the proceeds from this offering that we
use to repay any such amounts.
SUPPLEMENTAL
FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion, together with the discussion under the
heading “Federal Income Tax Considerations” in the
accompanying prospectus, summarizes the federal income tax
considerations anticipated to be material to a holder of our
Common Shares. This discussion supplements, and should be read
in conjunction with, and is subject to the qualifications and
limitations set forth in, the discussion under the heading
“Federal Income Tax Considerations” in the
accompanying prospectus.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT
WITH HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER, IN LIGHT OF HIS OR HER 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.
Our
Taxation
We elected REIT status beginning with the year that ended
December 31, 1992. We believe that we have qualified as a
REIT for each of our taxable years commencing with our taxable
year ended December 31, 1992, and that our current
structure and method of operation is such that we will continue
to qualify as a REIT.
DLA Piper LLP (US) has acted as our tax counsel in connection
with this offering. As a condition to the establishment of this
offering, and from time to time as a condition to sales of
Common Shares pursuant to this prospectus supplement, DLA Piper
LLP (US) will provide an opinion to the Sales Agents to the
effect that we were organized and have operated in conformity
with the requirements for qualification and taxation as a REIT
under the Internal Revenue Code of 1986, as amended (the
“Internal Revenue Code”), for our taxable years ended
December 31, 1992 through December 31, 2010, and that
our current organization and proposed method of operation will
enable us to continue to meet the requirements for qualification
and taxation as a REIT for our taxable year ending
December 31, 2011 and thereafter. It must be emphasized
that this opinion is based on various assumptions and factual
representations made by us and our operating partnership
relating to our organization, prior and expected operations, and
the organization and prior and expected operations of our
operating partnership, and all of the various partnerships,
limited liability companies and corporate entities
S-4
in which we presently have an ownership interest, or in which we
had an ownership interest in the past. DLA Piper LLP (US) will
not review our compliance with these requirements on a
continuing basis. No assurance can be given that the actual
results of our operations or, as applicable, the operations of
our operating partnership, and our subsidiary entities,
including the sources of gross income, the composition of
assets, the level of distributions to shareholders and the
diversity of share ownership, for any particular taxable year
will satisfy the requirements under the Internal Revenue Code
for qualification and taxation as a REIT.
S-5
PLAN OF
DISTRIBUTION
On September 28, 2009, we entered into separate sales
agency financing agreements (the “Original Sales Agency
Financing Agreements”) with each of the Original Sales
Agents that contemplated the offer and sale of up to 17,000,000
Common Shares from time to time through the Original Sales
Agents, as our agents for the offer and sale of the shares. As
of the date of this prospectus supplement, we have issued and
sold 12,687,478 Common Shares under the Original Sales Agency
Financing Agreements.
On February 3, 2011, we amended and restated the Original
Sales Agency Financing Agreements, and also entered into a new
sales agency financing agreement with BNYMCM, under which we may
issue and sell up to 10,000,000 Common Shares from time to time
through the Sales Agents, as our agents for the offer and sale
of the shares, for a three-year period. The 10,000,000 Common
Shares available for issuance includes the 4,312,522 Common
Shares that were not sold under the Original Sales Agency
Agreements plus 5,687,478 additional Common Shares. The sales,
if any, of the Common Shares under a sales agency financing
agreement will be made in “at the market” offerings as
defined in Rule 415 of the Securities Act, including sales
made directly on the New York Stock Exchange, the existing
trading market for our Common Shares, or sales made to or
through a market maker or through an electronic communications
network. In addition, our Common Shares may be offered and sold
by such other methods, including privately negotiated
transactions, as we and any Sales Agent agree to in writing.
From time to time during the term of the sales agency financing
agreements, we may deliver an issuance notice to one of the
Sales Agents specifying the length of the selling period, the
amount of the Common Shares to be sold and the minimum price
below which sales may not be made. Upon receipt of an issuance
notice from us, and subject to the terms and conditions of the
respective sales agency financing agreements, each Sales Agent
agrees to use its commercially reasonable efforts consistent
with its normal trading and sales practices to sell such shares
on such terms. We or any such Sales Agent may suspend the
offering of our Common Shares at any time upon proper notice to
the other, upon which the selling period will immediately
terminate. Settlement for sales of our Common Shares will occur
on the third trading day following the date on which any sales
were made, unless we agree otherwise with the relevant Sales
Agent. The obligation of any Sales Agent under its respective
sales agency financing agreement to sell shares pursuant to any
issuance notice is subject to a number of conditions, which such
Sales Agent reserves the right to waive in its sole discretion.
We will pay each respective Sales Agent commissions not to
exceed an aggregate 2.0% of the gross sales price of all shares
sold through it as agent under its sales agency financing
agreement.
If a Sales Agent engages in special selling efforts, as that
term is used in Regulation M under the Exchange Act, the
Sales Agent will receive from us a commission to be agreed upon
at the time of sale.
We will report at least quarterly the number of the Common
Shares sold through the Sales Agents, as agents, in
at-the-market
offerings and the net proceeds to us in connection with such
sales of our Common Shares.
Sales of our Common Shares as contemplated by this prospectus
supplement will be settled through the facilities of the
Depository Trust Company or by such other means as we and
the Sales Agents may agree upon.
In connection with the sale of our Common Shares hereunder, the
Sales Agents may each be deemed to be an “underwriter”
within the meaning of the Securities Act, and the compensation
paid to the Sales Agents may be deemed to be underwriting
commissions or discounts. We have agreed to indemnify the Sales
Agents against certain civil liabilities, including liabilities
under the Securities Act.
S-6
The Sales Agents have determined that our Common Shares are an
“actively-traded security” excepted from the
requirements of Rule 101 of Regulation M under the
Exchange Act by Rule 101(c)(1) under that Act. If a Sales
Agent or we have reason to believe that the exemptive provisions
set forth in Rule 101(c)(1) of Regulation M under the
Exchange Act are not satisfied, that party will promptly notify
the other and sales of the Common Shares under the sales agency
financing agreement will be suspended until that or other
exemptive provisions have been satisfied in the judgment of the
Sales Agent and us.
We estimate that the total expenses of the offering payable by
us, excluding commissions payable to the Sales Agents under the
sales agency financing agreements, will be approximately
$100,000.
The offering of our Common Shares pursuant to any sales agency
financing agreement will terminate upon the earlier of
(1) the sale of all of our Common Shares subject to the
sales agency financing agreements, (2) the third
anniversary of the date of such sales agency financing
agreement, and (3) termination of such sales agency
financing agreement by either us or the respective Sales Agent
at any time in the respective party’s sole discretion.
We have agreed not to directly or indirectly sell, offer to
sell, contract to sell, grant any option to sell or otherwise
dispose of, our Common Shares or securities convertible into or
exchangeable for our Common Shares, warrants or any rights to
purchase or acquire our Common Shares for a period beginning on
the first trading day prior to the delivery of any issuance
notice to any of the Sales Agents and ending on the first
trading day following the settlement date for our Common Shares
sold pursuant to the applicable issuance notice, without the
prior written consent of such respective Sales Agent. This
consent may be given at any time without public notice. The
restriction described in this paragraph does not apply to sales
of:
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the Common Shares we offer or sell pursuant to the sales agency
financing agreement;
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the Common Shares (or our operating partnership’s limited
partnership units) we issue in connection with acquisitions;
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the Common Shares we issue upon conversion of convertible
securities, such as our operating partnership’s limited
partnership units, or the exercise of warrants, options or other
rights; or
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the Common Shares and options to purchase shares we issue, in
either case, pursuant to any current or future employee or
director stock option, incentive or benefit plan, employee stock
purchase, long-term incentive plan, deferred compensation plan
or ownership plan or dividend investment plan.
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In the ordinary course of business, each of the Sales Agents
and/or their
affiliates have engaged, and may in the future engage, in
commercial banking or investment banking transactions with us
and our affiliates for which they have received, and will in the
future receive, customary compensation. Bank of America, N.A.
and Merrill Lynch Bank USA, each an affiliate of Merrill Lynch,
J.P. Morgan Chase Bank, N.A., an affiliate of
J.P. Morgan, Morgan Stanley Bank, an affiliate of Morgan
Stanley, and The Bank of New York Mellon, an affiliate of
BNYMCM, each holds a commitment under our unsecured revolving
credit facility and may receive a portion of amounts we may
borrow or re-borrow in the future under this credit facility
that may be repaid from the proceeds of offerings pursuant to
the sales agency financing agreements. In addition, each of
these lenders also holds a commitment under our operating
partnership’s unsecured term loan facility and may receive
a portion of amounts that may be repaid under this facility from
the proceeds of offerings pursuant to the sales agency financing
agreements. Bank of America Securities LLC, an affiliate of
Merrill Lynch, and J.P. Morgan act as joint lead arrangers
and joint book runners under both of these facilities. See
“Use of Proceeds.”
S-7
LEGAL
MATTERS
DLA Piper LLP (US), Chicago, Illinois, will pass upon certain
matters relating to this offering for us. Certain legal matters
will be passed upon for the Sales Agents by Hogan Lovells US LLP.
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our consolidated financial
statements and schedule included in our Annual Report on
Form 10-K
for the year ended December 31, 2009, as amended by our
Current Report on
Form 8-K
dated September 14, 2010, and the effectiveness of our
internal control over financial reporting as of
December 31, 2009, as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements and
schedule are incorporated by reference in reliance on
Ernst & Young LLP’s reports, given on their
authority as experts in accounting and auditing.
S-8
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
We are subject to the information requirements of the Exchange
Act, and in accordance with the Exchange Act, we file annual,
quarterly and current reports, proxy statements, and other
information with the SEC. You may read and copy any document we
file at the SEC’s public reference room located at
100 F Street NE, Washington, D.C., 20549. Please
call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to you at the SEC’s website at
http://www.sec.gov
and at our website at
http://www.equityresidential.com.
The information on our website is not a part of this prospectus
supplement.
The SEC allows us to “incorporate by reference” into
this prospectus the information we file with it. This means that
we can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be a part of this prospectus supplement, or
information that we have filed or later file with the SEC prior
to the termination of this offering, modifies or replaces this
information. We incorporate by reference into this prospectus
our documents listed below (other than information furnished
pursuant to Items 2.02 and 7.01 of
Form 8-K
and any related exhibits):
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Annual Report on
Form 10-K
for the year ended December 31, 2009, filed on
February 25, 2010;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2010, June 30, 2010,
and September 30, 2010, filed on May 6, 2010,
August 5, 2010, and November 4, 2010, respectively;
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Current Reports on
Form 8-K
filed on January 4, 2010, January 26, 2010,
February 4, 2010, March 22, 2010, June 21, 2010,
July 8, 2010, September 14, 2010, October 28,
2010, December 9, 2010, December 14, 2010 and
February 2, 2011;
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Our definitive Proxy Statement and definitive Additional
Materials, both filed on April 15, 2010 in connection with
our Annual Meeting of Shareholders held on June 16,
2010; and
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Description of the Common Shares contained in our registration
statement on
Form 8-A/A
dated August 10, 1993.
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All documents filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this
prospectus supplement will also be deemed to be incorporated by
reference in this prospectus supplement and to be a part hereof
from the date of filing those documents. We are not, however,
incorporating by reference any documents or portions thereof,
whether specifically listed above or filed in the future, that
are not deemed “filed” with the SEC, including, but
not limited to, any information furnished pursuant to
Items 2.02 or 7.01 of
Form 8-K.
Upon request, we will provide, without charge, to each person,
including any beneficial owner, to whom a copy of this
prospectus supplement is delivered a copy of the documents
incorporated by reference in this prospectus supplement. You may
request a copy of these filings, and any exhibits we have
specifically incorporated by reference as an exhibit in this
prospectus supplement, by writing or telephoning us at the
following:
Equity
Residential
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Investor Relations
Telephone number:
(888) 879-6356
S-9
PROSPECTUS
EQUITY
RESIDENTIAL
Preferred
Shares, Common Shares and Depositary Shares
We may from time to time offer (i) in one or more series
our preferred shares of beneficial interest, $0.01 par
value per share (“Preferred Shares”), (ii) common
shares of beneficial interest, $0.01 par value per share
(“Common Shares”), and (iii) in one or more
series our Preferred Shares represented by depositary shares
(the “Depositary Shares”), in amounts, at initial
prices and on terms to be determined at the time of offering.
The Preferred Shares, Common Shares and Depositary Shares
(collectively, the “Securities”) may be offered,
separately or together, in separate series (with respect to
Preferred Shares and Depositary Shares), in amounts, at prices
and on terms to be described in one or more supplements to this
prospectus.
When we decide to offer the Securities, we will prepare a
prospectus supplement describing the offering and the particular
terms of the Securities we are selling, which terms will
include, among other things: (i) in the case of Preferred
Shares, the specific title and stated value, any distribution,
liquidation, redemption, conversion, voting and other rights,
and any initial public offering price; (ii) in the case of
Common Shares, any initial public offering price; and
(iii) in the case of Depositary Shares, the fractional
Preferred Shares represented by each Depositary Share and the
applicable terms of those preferred shares. In addition, such
specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in
each case as may be appropriate to assist in maintaining our
status as a real estate investment trust (a “REIT”)
for federal income tax purposes.
The applicable prospectus supplement also will contain
information, where applicable, about the material United States
federal income tax considerations relating to, and any listing
on a securities exchange of, the Securities covered by such
prospectus supplement, not contained in this prospectus.
The Securities may be offered directly, through agents
designated from time to time by us, or to or through
underwriters or dealers. If any agents or underwriters are
involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount
arrangement with, between or among them, will be set forth, or
will be calculable from the information set forth, in an
accompanying prospectus supplement. See “Plan of
Distribution.” No Securities may be sold without delivery
of a prospectus supplement describing the method and terms of
the offering of such Securities.
You should read this prospectus and any prospectus supplement
carefully before you make an investment in our securities.
The Common Shares are listed on the New York Stock Exchange
under the symbol “EQR.”
Our principal executive offices are located at Two North
Riverside Plaza, Suite 400, Chicago, Illinois 60606
and our telephone number is
(312) 474-1300.
Investing in our securities involves risks. Before
buying our securities, you should read and consider the risk
factors included in our periodic reports, in the prospectus
supplements or any free writing prospectus relating to any
specific offering, and in other information that we file with
the Securities and Exchange Commission. See “Where You Can
Find More Information About Us” and “Special Note
Regarding Forward-Looking Statements.”
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is December 16, 2008.
TABLE OF
CONTENTS
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We have not authorized any person to give any information or
to make any representations in connection with this offering
other than those contained or incorporated or deemed to be
incorporated by reference in this prospectus and any applicable
prospectus supplement or free writing prospectus, and, if given
or made, such information or representations must not be relied
upon as having been so authorized. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person is not
qualified to do so or to any person to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this
prospectus nor any sale hereunder shall, under any
circumstances, create any implication that there has been no
change in our affairs since the date hereof, that the
information contained herein is correct as of any time
subsequent to its date, or that any information incorporated or
deemed to be incorporated by reference herein is correct as of
any time subsequent to its date.
ABOUT
THIS PROSPECTUS
This prospectus is part of an automatic shelf registration
statement that we filed with the Securities and Exchange
Commission, or the “SEC,” as a “well-known
seasoned issuer” as defined in Rule 405 under the
Securities Act of 1933, as amended, or the “Securities
Act.” By using a shelf registration statement, we may, at
any time and from time to time, sell the securities described in
this prospectus or in any applicable prospectus supplement in
one or more offerings. The exhibits to the registration
statement contain the full text of certain contracts and other
important documents we have summarized in this prospectus. Since
these summaries may not contain all the information that you may
find important in deciding whether to purchase the securities we
offer, you should review the full text of these documents. The
registration statement and the exhibits can be obtained from the
SEC as indicated under the heading “Where You Can Find More
Information About Us.”
This prospectus only provides you with a general description of
the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific
information about the terms of those securities. The prospectus
supplement may also add, update or change information contained
in this prospectus. You should read both this prospectus and any
prospectus supplement together with the documents incorporated
or deemed to be incorporated by reference in this prospectus and
the additional information described under the heading
“Where You Can Find More Information About Us” in this
prospectus.
In this prospectus, the “Company,” “we,”
“us” and “our” refer to Equity Residential,
a Maryland real estate investment trust, and its direct and
indirect subsidiaries, including ERP Operating Limited
Partnership, its operating partnership (the “Operating
Partnership”) .
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WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
This prospectus does not contain all of the information included
in the related registration statement. We have omitted parts of
the registration statement in accordance with the rules and
regulations of the SEC. For further information, we refer you to
the registration statement on
Form S-3
of which this prospectus forms a part, including its exhibits.
We file annual, quarterly and current reports and other
information with the SEC. You may read and copy any document we
file at the SEC’s public reference room located at
100 F Street NE, Washington, D.C., 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to you at the SEC’s web site at
http://www.sec.gov
and at our website at
http://www.equityresidential.com.
The contents of our website are not deemed to be part of this
prospectus or any prospectus supplement.
The SEC allows us to “incorporate by reference” into
this prospectus the information we file with it. This means that
we can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be a part of this prospectus, and later
information filed with the SEC will update and supersede
information in prior filings. We incorporate by reference into
this prospectus our documents listed below (other than
information furnished pursuant to Items 2.02 and 7.01 of
Form 8-K
and any related exhibits):
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Annual Report on
Form 10-K
for the year ended December 31, 2007;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2008, June 30, 2008
and September 30, 2008;
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Current Reports on
Form 8-K
filed on January 4, 2008, September 16, 2008 and
December 15, 2008; and
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Description of our common shares contained in our registration
statement on
Form 8-A/A
dated August 10, 1993.
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All documents filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act of 1934, as amended (the
“Exchange Act”), after the date of this prospectus
will also be deemed to be incorporated by reference in this
prospectus and to be a part hereof from the date of filing those
documents. We are not, however, incorporating by reference any
documents or portions thereof, whether specifically listed above
or filed in the future, that are not deemed “filed”
with the SEC, including, but not limited to, any information
furnished pursuant to Items 2.02 or 7.01 of
Form 8-K.
You may request a copy of these filings, at no cost, by writing
to or telephoning us at the following address:
Equity Residential
Two North Riverside Plaza, Suite 400
Chicago, Illinois 60606
Attention: Investor Relations
Telephone number:
(888) 879-6356
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated or deemed
incorporated by reference as described under “Where You Can
Find More Information About Us” contain certain information
that we intend to be considered “forward-looking
statements” within the meaning of Section 27A of the
Securities Act. These forward-looking statements relate to such
things as our anticipated future economic performance, our plans
and objectives for future operations and projections of revenue
and other financial items, which can be identified by the use of
forward-looking words such as “may,” “will,”
“should,” “expect,” “anticipate,”
“estimate” or “continue” or the negative
thereof or other variations thereon or comparable terms.
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Actual results could differ materially from those contemplated
by these forward-looking statements as a result of many factors.
The cautionary statements under the caption “Risk
Factors” contained in our filings with the SEC incorporated
by reference, and other similar statements contained in this
prospectus, any accompanying prospectus supplement, any related
free writing prospectus and the documents incorporated or deemed
incorporated by reference herein and therein, identify important
factors with respect to forward-looking statements, including
certain risks and uncertainties, that could cause actual results
to differ materially from those in such forward-looking
statements. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial also
may adversely affect us. Should any known or unknown risks and
uncertainties develop into actual events, those developments
could have a material adverse effect on our business, financial
condition and results of operations.
In light of these risks and uncertainties, there can be no
assurance that the results and events contemplated by the
forward-looking information contained in this prospectus and the
documents incorporated by reference or deemed incorporated by
reference herein will in fact transpire. Potential investors are
cautioned not to place undue reliance on these forward-looking
statements. We do not undertake any obligation to update or
revise any forward-looking statements. All subsequent written or
oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety
by these cautionary statements.
EQUITY
RESIDENTIAL
We are a Maryland REIT formed in March 1993 and are an S&P
500 company focused on the acquisition, development and
management of high quality apartment properties in top United
States growth markets. We have elected to be taxed as a REIT.
We are one of the largest publicly traded real estate companies
and the largest publicly traded owner of multifamily properties
in the United States of America (based on the aggregate market
value of our outstanding common shares, the number of apartment
units wholly owned and total revenues earned). Our corporate
headquarters are located in Chicago, Illinois and we also
operate property management offices throughout the United States
of America.
Our principal executive offices are located at Two North
Riverside Plaza, Suite 400, Chicago, Illinois 60606
and our telephone number is
(312) 474-1300.
ANTICIPATED
USE OF PROCEEDS
Unless otherwise indicated in a prospectus supplement
accompanying this prospectus, we intend to use the proceeds from
the sale of the securities for working capital and general
company purposes including, without limitation, the acquisition
or development of multifamily properties and the repayment of
debt. Net proceeds may be temporarily invested prior to use.
RATIOS OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DISTRIBUTIONS
The following table sets forth our ratios of earnings before
combined fixed charges and preferred distributions to total
combined fixed charges and preferred distributions for the
periods shown.
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For the Nine Months Ended
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September 30,(1)
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For the Years Ended December 31,(1)
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For the nine months ended September 30, 2007, the coverage
deficiency approximated $18.6 million. For the years ended
December 31, 2007, 2006, 2004 and 2003, the coverage
deficiency approximated $2.4 million, $29.9 million,
$42.9 million and $82.5 million, respectively. All
ratios have been reduced due to the disposition of properties
which resulted in the inclusion of those properties in
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all periods presented. For all periods presented, the ratios
have been further reduced due to non-cash depreciation expense
charges and premiums on the redemption of preferred shares
and/or preference interests. We were in compliance with our
unsecured public debt covenants for all periods presented. |
Ratios of earnings before combined fixed charges and preferred
distributions to total combined fixed charges and preferred
distributions represents the ratio of income from continuing
operations plus fixed charges (primarily interest and other
financing costs incurred) to fixed charges and preferred
distributions.
DESCRIPTION
OF SECURITIES
The following description sets forth certain general terms and
provisions of the securities to which any prospectus supplement
may relate. The particular terms of the securities being offered
and the extent to which such general provisions may apply will
be described in a prospectus supplement relating to such
securities.
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
Articles of Restatement of Declaration of Trust of the Company
dated December 9, 2004 (“Declaration of Trust”),
as amended
and/or
restated from time to time, and the Sixth Amended and Restated
Bylaws of the Company, as adopted on September 10, 2008, as
amended
and/or
restated from time to time, each of which is incorporated herein
by reference.
Our Declaration of Trust provides that we may issue up to
1,100,000,000 shares of beneficial interest, consisting of
1,000,000,000 Common Shares and 100,000,000 Preferred Shares. As
of September 30, 2008, 272,022,884 Common Shares and
1,961,975 Preferred Shares were issued and outstanding.
Both the Maryland REIT law and our 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 or her
status as a shareholder of the Company. Our Declaration of Trust
further provides that the Company has the power to indemnify
each shareholder against any claim or liability to which the
shareholder may become subject by reason of his or her being or
having been a shareholder and to reimburse each shareholder for
all reasonable expenses incurred by him or her in connection
with any such claim or liability.
Preferred
Shares
The following description of the Preferred Shares sets forth
certain general terms and provisions of the Preferred Shares to
which any prospectus supplement may relate.
The Board of Trustees is empowered by the Declaration of Trust
to designate and issue from time to time one or more series of
Preferred Shares without shareholder approval. The Board of
Trustees may determine the relative rights, preferences and
privileges of each series of Preferred Shares so issued. Because
the Board of Trustees has the power to establish the preferences
and rights of each series of Preferred Shares, it may afford the
holders of any series of Preferred Shares preferences, powers
and rights, voting or otherwise, senior to the rights of holders
of Common Shares. The Preferred Shares will, when issued, be
fully paid and nonassessable.
As of September 30, 2008, the Company had outstanding
338,616 Series E Preferred Shares (liquidation preference
$25.00 per share), 23,359 Series H Preferred Shares
(liquidation preference $25.00 per share), 1,000,000
Series K Preferred Shares (liquidation preference $50.00
per share) and 600,000 Series N Preferred Shares
(liquidation preference $250.00 per share). The Series E
Preferred Shares, Series H Preferred Shares and
Series N Preferred Shares are listed on the New York Stock
Exchange under the symbols “EQR-PrE,”
“EQR-PrH” and “EQR-PrN,” respectively.
Distributions on the Series E Preferred Shares are
cumulative from the date of original issue and payable quarterly
on the first business day of January, April, July and October of
each year, at the rate of 7.00% of the liquidation preference
per annum of such shares. Distributions on the Series H
Preferred Shares and the Series K Preferred Shares are
cumulative from the date of original issue and
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generally payable quarterly on the last day of March, June,
September and December of each year, at the rate of 7.00% and
8.29%, respectively, of the liquidation preference per annum of
such shares. Distributions on the Series N Preferred Shares
are cumulative from the date of original issue and payable
quarterly on or about the fifteenth day of January, April, July
and October of each year, at the rate of 6.48% of the
liquidation preference per annum of such shares.
Each Series E Preferred Share is convertible at the option
of the holder thereof at any time into Common Shares, at a
conversion price of $22.47 per Common Share (equivalent to a
conversion rate of approximately 1.1128 Common Share for each
Series E Preferred Share), subject to adjustments under
certain conditions. The Series E Preferred Shares may be
redeemed for cash at the option of the Company in whole or in
part, at $25.00 per share, plus accrued and unpaid
distributions, if any, to the redemption date. Each
Series H Preferred Share is convertible at the option of
the holder thereof at any time into Common Shares, at a
conversion price of $17.27 per Common Share (equivalent to a
conversion rate of approximately 1.448 Common Share for each
Series H Preferred Share), subject to adjustments under
certain conditions. The Series H Preferred Shares may be
redeemed for Common Shares at the option of the Company in whole
or in part, at a redemption price per share based upon the
contractual conversion rate, plus cash in respect of accrued and
unpaid distributions, if any, to the redemption date. The
Series K Preferred Shares are not redeemable prior to
December 10, 2026. On or after December 10, 2026, the
Series K Preferred Shares may be redeemed for cash at the
option of the Company in whole or in part, at a redemption price
equal to the liquidation price per share, plus accrued and
unpaid distributions, if any, to the redemption date. The
redemption price of the Series K Preferred Shares (other
than the portion thereof consisting of accrued and unpaid
distributions) is payable solely out of the sale proceeds of
other shares of beneficial interest of the Company which may
include other series of Preferred Shares. The Series N
Preferred Shares may be redeemed for cash at the option of the
Company in whole or in part, at a redemption price equal to the
liquidation price per share, plus accrued and unpaid
distributions, if any, to the redemption date.
The Series E Preferred Shares, the Series H Preferred
Shares, the Series K Preferred Shares and the Series N
Preferred Shares have no stated maturity and are not subject to
any sinking fund or mandatory redemption and, with the exception
of the Series E Preferred Shares and the Series H
Preferred Shares, are not convertible into any other securities
of the Company. The Company may redeem the Series E
Preferred Shares, the Series H Preferred Shares, the
Series K Preferred Shares or the Series N Preferred
Shares in certain circumstances relating to maintenance of its
status as a REIT for federal income tax purposes. See
“— Redemption” and
“— Restrictions on Ownership and Transfer”
below. The other terms of the Preferred Shares are described
generally below.
The prospectus supplement relating to any Preferred Shares
offered thereby will contain the specific terms thereof,
including, without limitation:
(1) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the
liquidation preference per share and the offering price of such
Preferred Shares;
(3) The distribution rate(s), period(s) and /or payment
date(s) or method(s) of calculation thereof applicable to such
Preferred Shares;
(4) The date from which distributions on such Preferred
Shares shall accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any,
for such Preferred Shares;
(6) The provision for a sinking fund, if any, for such
Preferred Shares;
(7) The provision for redemption, if applicable, of such
Preferred Shares;
(8) Any listing of such Preferred Shares on any securities
exchange;
(9) The terms and conditions, if applicable, upon which
such Preferred Shares will be convertible into Common Shares,
including the conversion price (or manner of calculation
thereof);
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(10) Whether interests in such Preferred Shares will be
represented by Depositary Shares;
(11) Any other specific terms, preferences, rights,
limitations or restrictions of such Preferred Shares;
(12) A discussion of all material federal income tax
considerations, if any, applicable to such Preferred Shares that
are not discussed in this prospectus;
(13) The relative ranking and preferences of such Preferred
Shares as to distribution rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(14) Any limitations on issuance of any series of Preferred
Shares ranking senior to or on a parity with such series of
Preferred Shares as to distribution rights and rights upon
liquidation, dissolution or winding up of the affairs of the
Company; and
(15) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
Rank. Unless otherwise specified in the
applicable prospectus supplement, the Preferred Shares will,
with respect to distribution rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior
to all classes or series of Common Shares, and to all equity
securities ranking junior to such Preferred Shares; (ii) on
a parity with all equity securities issued by the Company the
terms of which specifically provide that such equity securities
rank on a parity with the Preferred Shares; and
(iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity
securities rank senior to the Preferred Shares. The term
“equity securities” does not include convertible debt
securities.
Distributions. Holders of the Preferred Shares
of each series will be entitled to receive, when, as and if
declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash distributions
(or distributions in kind or in other property if expressly
permitted and described in the applicable prospectus supplement)
at such rates and on such dates as will be set forth in the
applicable prospectus supplement. Each such distribution shall
be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be
fixed by the Board of Trustees of the Company.
Distributions on any series of Preferred Shares may be
cumulative or non-cumulative, as provided in the applicable
prospectus supplement. Distributions, if cumulative, will be
cumulative from and after the date set forth in the applicable
prospectus supplement. If the Board of Trustees of the Company
fails to declare a distribution payable on a distribution
payment date on any series of the Preferred Shares for which
distributions are non-cumulative, then the holders of such
series of the Preferred Shares will have no right to receive a
distribution in respect of the distribution period ending on
such distribution payment date, and the Company will have no
obligation to pay the distribution accrued for such period,
whether or not distributions on such series are declared payable
on any future distribution payment date.
Unless otherwise specified in the prospectus supplement, if any
Preferred Shares of any series are outstanding, no full
distributions shall be declared or paid or set apart for payment
on any shares of beneficial interest of the Company of any other
series ranking, as to distributions, on a parity with or junior
to the Preferred Shares of such series for any period unless
(i) if such series of Preferred Shares has a cumulative
distribution, full cumulative distributions have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on
the Preferred Shares of such series for all past distribution
periods and the then current distribution period or (ii) if
such series of Preferred Shares does not have a cumulative
distribution, full distributions for the then current
distribution period have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on the Preferred Shares of
such series. When distributions are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon
Preferred Shares of any series and the shares of any other
series of Preferred Shares ranking on a parity as to
distributions with the Preferred Shares of such series, all
distributions declared upon Preferred Shares of such series and
any other series of Preferred Shares ranking on a parity as to
distributions with such Preferred Shares shall be declared pro
rata so that the amount of
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distributions declared per share of Preferred Shares of such
series and such other series of Preferred Shares shall in all
cases bear to each other the same ratio that accrued
distributions per share on the Preferred Shares of such series
(which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such Preferred
Shares do not have a cumulative distribution) and such other
series of Preferred Shares bear to each other. No interest, or
sum of money in lieu of interest, shall be payable in respect of
any distribution payment or payments on Preferred Shares of such
series which may be in arrears.
Except as provided in the immediately preceding paragraph,
unless (i) if such series of Preferred Shares has a
cumulative distribution, full cumulative distributions on the
Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past distribution
periods and the then current distribution period, and
(ii) if such series of Preferred Shares does not have a
cumulative distribution, full distributions on the Preferred
Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment, for the then current
distribution period, no distributions (other than in Common
Shares or other shares of beneficial interest ranking junior to
the Preferred Shares of such series as to distributions and upon
liquidation) shall be declared or paid or set aside for payment
or other distribution upon the Common Shares, or any other
shares of beneficial interest of the Company ranking junior to
or on a parity with the Preferred Shares of such series as to
distributions or upon liquidation, nor shall any Common Shares,
or any other shares of beneficial interest of the Company
ranking junior to or on a parity with the Preferred Shares of
such series as to distributions or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Company (except by
conversion into or exchange for other shares of beneficial
interest of the Company ranking junior to the Preferred Shares
of such series as to distributions and upon liquidation).
If, for any taxable year, the Company elects to designate as
“capital gain dividends” (as defined in
Section 857 of the Internal Revenue Code of 1986, as
amended (the “Internal Revenue Code”)) any portion
(the “Capital Gains Amount”) of the dividends (within
the meaning of the Internal Revenue Code) paid or made available
for the year to holders of all classes of shares of beneficial
interest (the “Total Dividends”), then the portion of
the Capital Gains Amount that will be allocable to the holders
of Preferred Shares will be the Capital Gains Amount multiplied
by a fraction, the numerator of which will be the total
dividends (within the meaning of the Internal Revenue Code) paid
or made available to the holders of the Preferred Shares for the
year and the denominator of which shall be the Total Dividends.
Redemption. If so provided in the applicable
prospectus supplement, the Preferred Shares will be subject to
mandatory redemption or redemption at the option of the Company,
in whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such prospectus
supplement.
The prospectus supplement relating to a series of Preferred
Shares that is subject to mandatory redemption will specify the
number of such Preferred Shares that shall be redeemed by the
Company in each year commencing after a date to be specified, at
a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid distributions thereon
(which shall not, if such Preferred Shares do not have a
cumulative distribution, include any accumulation in respect of
unpaid distributions for prior distribution periods) to the date
of redemption. The redemption price may be payable in cash or
other property, as specified in the applicable prospectus
supplement. If the redemption price for Preferred Shares of any
series is payable only from the net proceeds of the issuance of
shares of beneficial interest of the Company, the terms of such
Preferred Shares may provide that, if no such shares of
beneficial interest shall have been issued or to the extent the
net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Shares
shall automatically and mandatorily be converted into the
applicable shares of beneficial interest of the Company pursuant
to conversion provisions specified in the applicable prospectus
supplement.
Notwithstanding the foregoing, unless (i) if such series of
Preferred Shares has a cumulative distribution, full cumulative
distributions on all Preferred Shares of any series shall have
been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment
for all past distribution periods and the current distribution
period and (ii) if such series of Preferred Shares does not
have
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a cumulative distribution, full distributions on the Preferred
Shares of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment
thereof set apart for payment for the then current distribution
period, no Preferred Shares of any series shall be redeemed
unless all outstanding Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing
shall not prevent the purchase or acquisition of Preferred
Shares of such series to preserve the REIT status of the Company
or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Shares of such
series. In addition, unless (i) if such series of Preferred
Shares has a cumulative distribution, full cumulative
distributions on all outstanding shares of any series of
Preferred Shares have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past distributions periods and the
then current distribution period, and (ii) if such series
of Preferred Shares does not have a cumulative distribution,
full distributions on the Preferred Shares of any series have
been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment
for the then current distribution period, the Company shall not
purchase or otherwise acquire directly or indirectly any
Preferred Shares of such series (except by conversion into or
exchange for shares of beneficial interest of the Company
ranking junior to the Preferred Shares of such series as to
distributions and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase or acquisition of
Preferred Shares of such series to assist in maintaining the
REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding
Preferred Shares of such series.
If fewer than all of the outstanding Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed
will be determined by the Company and such shares may be
redeemed pro rata from the holders of record of such shares in
proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares) or by lot in a manner
determined by the Company.
Notice of redemption will be mailed at least 30 days but
not more than 60 days before the redemption date to each
holder of record of Preferred Shares of any series to be
redeemed at the address shown on the share transfer books of the
Company. Each notice shall state: (i) the redemption date;
(ii) the number and series of Preferred Shares to be
redeemed; (iii) the place or places where certificates for
such Preferred Shares are to be surrendered for payment of the
redemption price; (iv) that distributions on the shares to
be redeemed will cease to accrue on such redemption date; and
(v) the date upon which the holder’s conversion
rights, if any, as to such shares shall terminate. If fewer than
all of the Preferred Shares of any series are to be redeemed,
the notice mailed to each such holder thereof shall also specify
the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been
given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders
of any Preferred Shares so called for redemption, then from and
after the redemption date distributions will cease to accrue on
such Preferred Shares, and all rights of the holders of such
shares will terminate, except the right to receive the
redemption price.
Liquidation Preference. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the Company, then, before any distribution or payment
shall be made to the holders of any Common Shares or any other
class or series of shares of beneficial interest of the Company
ranking junior to the Preferred Shares in the distribution of
assets upon any liquidation, dissolution or winding up of the
Company, the holders of each series of Preferred Shares shall be
entitled to receive out of assets of the Company legally
available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per
share (set forth in the applicable prospectus supplement), plus
an amount equal to all distributions accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such Preferred
Shares do not have a cumulative distribution). After payment of
the full amount of the liquidating distributions to which they
are entitled, the holders of Preferred Shares will have no right
or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company
are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or
series of shares beneficial interest of the Company ranking on a
parity
9
with the Preferred Shares in the distribution of assets, then
the holders of the Preferred Shares and all other such classes
or series of shares of beneficial interest shall share ratably
in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be
respectively entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Shares, the remaining assets of the Company
shall be distributed among the holders of any other classes or
series of shares of beneficial interest ranking junior to the
Preferred Shares upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each
case according to their respective number of shares. For such
purposes, the consolidation or merger of the Company with or
into any other corporation, trust or entity, or the sale, lease
or conveyance of all or substantially all of the property or
business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
Voting Rights. Holders of Preferred Shares
will not have any voting rights, except as set forth below or as
otherwise from time to time required by law or as indicated in
the applicable prospectus supplement.
Whenever distributions on any Preferred Shares shall be in
arrears for six or more quarterly periods, the holders of such
Preferred Shares (voting separately as a class with all other
series of Preferred Shares upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for
the election of two additional Trustees of the Company at a
special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Shares so in arrears
(unless such request is received less than 90 days before
the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and
at each subsequent annual meeting until (i) if such series
of Preferred Shares has a cumulative distribution, all
distributions accumulated on such series of Preferred Shares for
the past distribution periods and the then current distribution
period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment or
(ii) if such series of Preferred Shares do not have a
cumulative distribution, four consecutive quarterly
distributions shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In
such case, the entire Board of Trustees of the Company will be
increased by two Trustees.
Unless provided otherwise for any series of Preferred Shares, so
long as any Preferred Shares remain outstanding, the Company
will not, without the affirmative vote or consent of the holders
of at least two-thirds of each series of Preferred Shares
outstanding at the time, given in person or by proxy, either in
writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized
or issued amount of, any class or series of shares of beneficial
interest ranking prior to such series of Preferred Shares with
respect to the payment of distributions or the distribution of
assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of beneficial interest of the Company into
such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase
any such shares; or (ii) amend, alter or repeal the
provisions of our Declaration of Trust or the
Articles Supplementary for such series of Preferred Shares,
whether by merger, consolidation or otherwise (an
“Event”), so as to materially and adversely affect any
right, preference, privilege or voting power of such series of
Preferred Shares or the holders thereof; provided, however, with
respect to the occurrence of any of the Events set forth in
(ii) above, so long as the Preferred Shares remain
outstanding with the terms thereof materially unchanged, taking
into account that upon the occurrence of an Event, the Company
may not be the surviving entity, the occurrence of any such
Event shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting power of holders
of Preferred Shares and provided further that (x) any
increase in the amount of the authorized Preferred Shares or the
creation or issuance of any other series of Preferred Shares, or
(y) any increase in the amount of authorized shares of such
series or any other series of Preferred Shares, in each case
ranking on a parity with or junior to the Preferred Shares of
such series with respect to payment of distributions or the
distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior
to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding
Preferred Shares of such series shall have been redeemed or
called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
10
Conversion Rights. The terms and conditions,
if any, upon which any series of Preferred Shares is convertible
into Common Shares will be set forth in the applicable
prospectus supplement relating thereto. Such terms will include
the number of Common Shares into which the Preferred Shares are
convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred
Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Shares.
Registrar and Transfer Agent. The registrar
and transfer agent for the Preferred Shares will be set forth in
the applicable prospectus supplement.
Common
Shares
Distributions. All Common Shares offered
hereby will be duly authorized, fully paid and nonassessable.
Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of our 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.
Voting Rights. Subject to the provisions of
our 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.
Conversion, Redemption, Liquidation
Rights. 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 our 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.
Our Declaration of Trust provides that a merger, and amendments
to the Declaration of Trust in connection with a merger, may be
approved by the affirmative vote of the holders of not less than
a majority of the shares then outstanding and entitled to vote
thereon. 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 Internal Revenue Code or the
Maryland REIT law without the affirmative vote or written
consent of the shareholders. Our Declaration of Trust permits
such action by the Board of Trustees.
Registrar and Transfer Agent. The registrar
and transfer agent for the Common Shares is Computershare
Trust Company, N.A.
Restrictions
on Ownership and Transfer
For the Company to qualify as a REIT under the Internal Revenue
Code, no more than 50% in value of its outstanding shares of
beneficial interest may be owned, actually or constructively, by
five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) during the last half of a
11
taxable year (other than the first year for which an election to
be treated as a REIT has been made) or during a proportionate
part of a shorter taxable year. A REIT’s shares also must
be beneficially owned by 100 or more persons during at least
335 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year (other than the
first year for which an election to be treated as a REIT has
been made). To facilitate maintenance of its qualification as a
REIT for federal income tax purposes, we generally will prohibit
ownership, directly or by virtue of the attribution provisions
of the Internal Revenue Code, by any single shareholder of more
than 5% of the issued and outstanding Common Shares and
generally will prohibit ownership, directly or by virtue of the
attribution provisions of the Internal Revenue Code, by any
single shareholder of more than 5% of the issued and outstanding
shares of any class or series of the Company’s Preferred
Shares (collectively, the “Ownership Limit”).
Because the Board of Trustees believes it is desirable for the
Company 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
Internal Revenue Code, more than the Ownership Limit. The
ownership attribution rules under the Internal Revenue Code are
complex and may cause Common Shares owned actually or
constructively by a group of related individuals
and/or
entities to be owned constructively by one individual or entity.
As a result, the acquisition of less than 5% of the Common
Shares (or the acquisition of an interest in an entity that
owns, actually or constructively, Common Shares) by an
individual or entity could nevertheless cause that individual or
entity, or another individual or entity, to own constructively
in excess of 5% of the outstanding Common Shares and thus
subject such Common Shares to the Ownership Limit. The Board of
Trustees shall grant an exemption from the Ownership Limit with
respect to one or more persons who would not be treated as
“individuals” for purposes of the Internal Revenue
Code if it is satisfied that such ownership will not cause a
person who is an individual to be treated as owning Common
Shares in excess of the Ownership Limit, applying the applicable
constructive ownership rules, and will not otherwise jeopardize
the Company’s status as a REIT. As a condition of such
waiver, the Board of Trustees may require undertakings or
representations from the applicant with respect to preserving
the REIT status of the Company. Under certain circumstances, the
Board of Trustees may, in its sole and absolute discretion,
grant an exemption for individuals to acquire Preferred Shares
in excess of the Ownership Limit, provided that certain
conditions are met and any representations and undertakings that
may be required by the Board of Trustees are made.
The Board of Trustees of the Company will have the authority to
increase the Ownership Limit from time to time, but will not
have the authority to do so to the extent that after a giving
effect to such increase, five beneficial owners of Common Shares
could beneficially own in the aggregate more than 49.5% of the
outstanding Common Shares.
The Declaration of Trust further prohibits (a) any person
from actually or constructively owning shares of beneficial
interest of the Company that would result in the Company being
“closely held” under Section 856(h) of the
Internal Revenue Code or otherwise cause the Company to fail to
qualify as a REIT and (b) any person from transferring
shares of beneficial interest of the Company if such transfer
would result in shares of beneficial interest of the Company
being owned by fewer than 100 persons.
Any person who acquires or attempts or intends to acquire actual
or constructive ownership of shares of beneficial interest of
the Company that will or may violate any of the foregoing
restrictions on transferability and ownership is required to
give notice to the Company and provide the Company with such
other information as the Company may request in order to
determine the effect of such transfer on the Company’s
status as a REIT.
If any purported transfer of shares of beneficial interest of
the Company or any other event would otherwise result in any
person violating the Ownership Limit or the other restrictions
in the Declaration of Trust, then any such purported transfer
will be void and of no force or effect with respect to the
purported transferee (the “Prohibited Transferee”) as
to that number of shares that exceeds the Ownership Limit
(referred to as “excess shares”) and the Prohibited
Transferee shall acquire no right or interest (or, in the case
of any event other than a purported transfer, the person or
entity holding record title to any such shares in excess of the
Ownership Limit (the “Prohibited Owner”) shall cease
to own any right or interest) in such excess shares.
12
Any such excess shares described above will be transferred
automatically, by operation of law, to a trust, the beneficiary
of which will be a qualified charitable organization selected by
the Company (the “Beneficiary”). Such automatic
transfer shall be deemed to be effective as of the close of
business on the Business Day (as defined in the Declaration of
Trust) prior to the date of such violating transfer. Within
20 days of receiving notice from the Company of the
transfer of shares to the trust, the trustee of the trust (who
shall be designated by the Company and be unaffiliated with the
Company and any Prohibited Transferee or Prohibited Owner) will
be required to sell such excess shares to a person or entity who
could own such shares without violating the Ownership Limit, and
distribute to the Prohibited Transferee an amount equal to the
lesser of the price paid by the Prohibited Transferee for such
excess shares or the sales proceeds received by the trust for
such excess shares. In the case of any excess shares resulting
from any event other than a transfer, or from a transfer for no
consideration (such as a gift), the trustee will be required to
sell such excess shares to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser
of the fair market value of such excess shares as of the date of
such event or the sales proceeds received by the trust for such
excess shares. In either case, any proceeds in excess of the
amount distributable to the Prohibited Transferee or Prohibited
Owner, as applicable, will be distributed to the Beneficiary.
Prior to a sale of any such excess shares by the trust, the
trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the
Company with respect to such excess shares, and also will be
entitled to exercise all voting rights with respect to such
excess shares. Subject to Maryland law, effective as of the date
that such shares have been transferred to the trust, the trustee
shall have the authority (at the trustee’s sole discretion
and subject to applicable law) (i) to rescind as void any
vote cast by a Prohibited Transferee prior to the discovery by
the Company that such shares have been transferred to the trust
and (ii) to recast such vote in accordance with the desires
of the trustee acting for the benefit of the Beneficiary.
However, if the Company has already taken irreversible corporate
action, then the trustee shall not have the authority to rescind
and recast such vote. Any dividend or other distribution paid to
the Prohibited Transferee or Prohibited Owner (prior to the
discovery by the Company that such shares had been automatically
transferred to a trust as described above) will be required to
be repaid to the trustee upon demand for distribution to the
Beneficiary. If the transfer to the trust as described above is
not automatically effective (for any reason) to prevent
violation of the Ownership Limit, then the Declaration of Trust
provides that the transfer of the excess shares will be void.
In addition, shares of beneficial interest of the Company held
in the trust shall be deemed to have been offered for sale to
the Company, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that
resulted in such transfer to the trust (or, in the case of a
devise or gift, the market value at the time of such devise or
gift) and (ii) the market value of such shares on the date
the Company, or its designee, accepts such offer. The Company
shall have the right to accept such offer until the trustee has
sold the shares of beneficial interest held in the trust. Upon
such a sale to the Company, the interest of the Beneficiary in
the shares sold shall terminate and the trustee shall distribute
the net proceeds of the sale to the Prohibited Owner.
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.
All certificates representing shares of beneficial interest
shall bear a legend referring to the restrictions described
above.
All persons who own, directly or by virtue of the attribution
provisions of the Internal Revenue Code, more than 5% (or such
lower percentage as provided in the rules and regulations
promulgated under the Internal Revenue Code) of the outstanding
shares of beneficial interest of the Company must give a written
notice to the Company within 30 days after the end of each
taxable year stating such person’s name and address, the
number of shares owned by such person and a description of the
manner in which such shares are held. Any record holder who
holds shares as nominee for another person who is required to
include in gross income the distributions received on such
shares must give notice stating the name and address of such
other person and the number of shares of such other person with
respect to which such record holder is nominee. In addition,
each shareholder will, upon demand, be required to disclose to
the Company in writing such
13
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 Internal Revenue Code applicable to a REIT or
to ensure compliance with the ownership limitations described
above.
These ownership limitations could have the effect of delaying,
deferring or preventing a takeover or other transaction in which
holders of some, or a majority, of Common Shares might receive a
premium for their Common Shares over the then prevailing market
price or which such holders might believe to be otherwise in
their best interest.
Description
of Depositary Shares
General
The Company may issue receipts (“Depositary Receipts”)
for Depositary Shares, each of which will represent a fractional
interest of a share of a particular series of Preferred Shares,
as specified in the applicable prospectus supplement. Preferred
Shares of each series represented by Depositary Shares will be
deposited under a separate deposit agreement (each, a
“Deposit Agreement”) among the Company, the depositary
named therein (the “Preferred Share Depositary”) and
the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the
fractional interest of a share of a particular series of
Preferred Shares represented by the Depositary Shares evidenced
by such Depositary Receipt, to all the rights and preferences of
the Preferred Shares represented by such Depositary Shares
(including distribution, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts
issued pursuant to the applicable Deposit Agreement. Immediately
following the issuance and delivery of the Preferred Shares by
the Company to the Preferred Share Depositary, the Company will
cause the Preferred Share Depositary to issue, on behalf of the
Company, the Depositary Receipts. Copies of the applicable form
of Deposit Agreement and Depositary Receipt may be obtained from
the Company upon request, and the following summary of the form
thereof is qualified in its entirety by reference thereto.
Distributions. The Preferred Share Depositary
will distribute all cash distributions received in respect of
the Preferred Shares to the record holders of Depositary
Receipts evidencing the related Depositary Shares in proportion
to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges
and expenses to the Preferred Share Depositary.
In the event of a distribution other than in cash, the Preferred
Share Depositary will distribute property received by it to the
record holders of Depositary Receipts entitled thereto, subject
to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to
the Preferred Share Depositary, unless the Preferred Share
Depositary determines that it is not feasible to make such
distribution, in which case the Preferred Share Depositary may,
with the approval of the Company, sell such property and
distribute the net proceeds from such sale to such holders.
No distribution will be made in respect of any Depositary Share
to the extent that it represents any Preferred Shares converted
into excess shares.
Withdrawal of Shares. Upon surrender of the
Depositary Receipts at the corporate trust office of the
Preferred Share Depositary (unless the related Depositary Shares
have previously been called for redemption or converted into
excess shares), the holders thereof will be entitled to delivery
at such office, to or upon such holder’s order, of the
number of whole or fractional Preferred Shares and any money or
other property represented by the Depositary Shares evidenced by
such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related
Preferred Shares on the basis of the proportion of the Preferred
Shares represented by each Depositary Share as specified in the
applicable prospectus supplement, but holders of such Preferred
Shares will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the number of Preferred
Shares
14
to be withdrawn, the Preferred Share Depositary will deliver to
such holder at the same time a new Depositary Receipt evidencing
such excess number of Depositary Shares.
Redemption. Whenever the Company redeems
Preferred Shares held by the Preferred Share Depositary, the
Preferred Share Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full
to the Preferred Share Depositary the redemption price of the
Preferred Shares to be redeemed plus an amount equal to any
accrued and unpaid distributions thereon to the date fixed for
redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share
payable with respect to the Preferred Shares. If fewer than all
the Depositary Shares are to be redeemed, the Depositary Shares
to be redeemed will be selected pro rata (as nearly as may be
practicable without creating fractional Depositary Shares) or by
any other equitable method determined by the Company that will
not result in the issuance of any excess shares.
From and after the date fixed for redemption, all distributions
in respect of the Preferred Shares so called for redemption will
cease to accrue, the Depositary Shares so called for redemption
will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary
Shares so called for redemption will cease, except the right to
receive any monies payable upon such redemption and any money or
other property to which the holders of such Depositary Receipts
were entitled upon such redemption upon surrender thereof to the
Preferred Share Depositary.
Voting Rights. Upon receipt of notice of any
meeting at which the holders of the Preferred Shares are
entitled to vote, the Preferred Share Depositary will mail the
information contained in such notice of meeting to the record
holders of the Depositary Receipts evidencing the Depositary
Shares which represent such Preferred Shares. Each record holder
of Depositary Receipts evidencing Depositary Shares on the
record date (which will be the same date as the record date for
the Preferred Shares) will be entitled to instruct the Preferred
Share Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Shares represented by such
holder’s Depositary Shares. The Preferred Share Depositary
will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the
Company will agree to take all reasonable action which may be
deemed necessary by the Preferred Share Depositary in order to
enable the Preferred Share Depositary to do so. The Preferred
Share Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the
extent it does not receive specific instructions from the
holders of Depositary Receipts evidencing such Depositary
Shares. The Preferred Share Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as any such
action or non-action is in good faith and does not result from
negligence or willful misconduct of the Preferred Share
Depositary.
Liquidation Preference. In the event of the
liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the holders of each Depositary Receipt
will be entitled to the fraction of the liquidation preference
accorded each Preferred Share represented by the Depositary
Share evidenced by such Depositary Receipt, as set forth in the
applicable prospectus supplement.
Conversion. The Depositary Shares, as such,
are not convertible into Common Shares or any other securities
or property of the Company, except in connection with certain
conversions in connection with the preservation of the
Company’s status as a REIT. Nevertheless, if so specified
in the applicable prospectus supplement relating to an offering
of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the Preferred Share Depositary with
written instructions to the Preferred Share Depositary to
instruct the Company to cause conversion of the Preferred Shares
represented by the Depositary Shares evidenced by such
Depositary Receipts into whole Common Shares, other Preferred
Shares (including excess shares) of the Company or other shares
of beneficial interest, and the Company has agreed that upon
receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of Preferred Shares to
effect such conversion. If the Depositary Shares evidenced by a
Depositary Receipt are to be converted in part only, a new
Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional Common Shares will be
issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be
15
paid in cash by the Company equal to the value of the fractional
interest based upon the closing price of the Common Shares on
the last business day prior to the conversion.
Amendment
and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares
which represent the Preferred Shares and any provision of the
Deposit Agreement may at any time be amended by agreement
between the Company and the Preferred Share Depositary. However,
any amendment that materially and adversely alters the rights of
the holders of Depositary Receipts or that would be materially
and adversely inconsistent with the rights granted to the
holders of the related Preferred Shares will not be effective
unless such amendment has been approved by the existing holders
of at least a majority of the Depositary Shares evidenced by the
Depositary Receipts then outstanding. No amendment shall impair
the right, subject to certain exceptions in the Deposit
Agreement, of any holder of Depositary Receipts to surrender any
Depositary Receipt with instructions to deliver to the holder
the related Preferred Shares and all money and other property,
if any, represented thereby, except in order to comply with law.
Every holder of an outstanding Depositary Receipt at the time
any such amendment becomes effective shall be deemed, by
continuing to hold such Depositary Receipt, to consent and agree
to such amendment and to be bound by the Deposit Agreement as
amended thereby.
The Deposit Agreement may be terminated by the Company upon not
less than 30 days’ prior written notice to the
Preferred Share Depositary if (i) such termination is
necessary to assist in maintaining the Company’s status as
a REIT or (ii) a majority of each series of Preferred
Shares affected by such termination consents to such
termination, whereupon the Preferred Share Depositary shall
deliver or make available to each holder of Depositary Receipts,
upon surrender of the Depositary Receipts held by such holder,
such number of whole or fractional Preferred Shares as are
represented by the Depositary Shares evidenced by such
Depositary Receipts together with any other property held by the
Preferred Share Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement
is terminated to assist in maintaining the Company’s status
as a REIT, then, if the Depositary Shares are listed on a
national securities exchange, the Company will use its best
efforts to list the Preferred Shares issued upon surrender of
the related Depositary Shares on a national securities exchange.
In addition, the Deposit Agreement will automatically terminate
if (i) all outstanding Depositary Shares shall have been
redeemed or (ii) there shall have been a final distribution
in respect of the related Preferred Shares in connection with
any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of
Depositary Receipts evidencing the Depositary Shares
representing such Preferred Shares.
Charges
of Preferred Share Depositary
The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of the
Deposit Agreement. In addition, the Company will pay the fees
and expenses of the Preferred Share Depositary in connection
with the performance of its duties under the Deposit Agreement.
Resignation
and Removal of Depositary
The Preferred Share Depositary may resign at any time by
delivering to the Company notice of its election to do so, and
the Company may at any time remove the Preferred Share
Depositary, any such resignation or removal to take effect upon
the appointment of a successor Preferred Share Depositary. A
successor Preferred Share Depositary must be appointed within
60 days after delivery of the notice of resignation or
removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and
surplus of at least $50,000,000.
Miscellaneous
The Preferred Share Depositary will forward to holders of
Depositary Receipts any reports and communications from the
Company which are received by the Preferred Share Depositary
with respect to the related Preferred Shares.
16
Neither the Preferred Share Depositary nor the Company will be
liable if it is prevented from or delayed in, by law or any
circumstances beyond its control, performing its obligations
under the Deposit Agreement. The obligations of the Company and
the Preferred Share Depositary under the Deposit Agreement will
be limited to performing their duties thereunder in good faith
and without negligence (in the case of any action or inaction in
the voting of Preferred Shares represented by the Depositary
Shares), gross negligence or willful misconduct, and the Company
and the Preferred Share Depositary will not be obligated to
prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or Preferred Shares
represented thereby unless satisfactory indemnity is furnished.
The Company and the Preferred Share Depositary may rely on
written advice of counsel or accountants, or information
provided by persons presenting Preferred Shares represented
thereby for deposit, holders of Depositary Receipts or other
persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be
genuine and signed by a proper party.
In the event the Preferred Share Depositary shall receive
conflicting claims, requests or instructions from any holders of
Depositary Receipts, on the one hand, and the Company, on the
other hand, the Preferred Share Depositary shall be entitled to
act on such claims, requests or instructions received from the
Company.
FEDERAL
INCOME TAX CONSIDERATIONS
General
The following discussion summarizes all the federal income tax
considerations anticipated to be material to a holder of Common
Shares. The applicable prospectus supplement will contain
information about additional federal income tax considerations,
if any, relating to Securities other than Common Shares. The
following discussion, which is not exhaustive of all possible
tax considerations, does not give a detailed discussion of any
state, local or foreign tax considerations. Nor does it discuss
all of the aspects of federal income taxation that may be
relevant to a prospective shareholder in light of his or her
particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons
who are not citizens or residents of the United States) who are
subject to special treatment under the federal income tax laws.
The specific tax attributes of a particular shareholder could
have a material impact on the tax considerations associated with
the purchase, ownership and disposition of common shares.
Therefore, it is essential that each prospective shareholder
consult with his or her own tax advisors with regard to the
application of the federal income tax laws to the
shareholder’s personal tax situation, as well as any tax
consequences arising under the laws of any state, local or
foreign taxing jurisdiction.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT
WITH HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER, IN LIGHT OF HIS OR HER 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.
The information in this section is based on the current Internal
Revenue Code, current, temporary and proposed Treasury
regulations, the legislative history of the Internal Revenue
Code, current administrative interpretations and practices of
the Internal Revenue Service, including its practices and
policies as set forth in private letter rulings, which are not
binding on the Internal Revenue Service, and existing court
decisions. Future legislation, regulations, administrative
interpretations and court decisions could change current law or
adversely affect existing interpretations of current law. Any
change could apply retroactively. Thus, it is possible that the
Internal Revenue Service could challenge the statements in this
discussion, which do not bind the Internal Revenue Service or
the courts, and that a court could agree with the Internal
Revenue Service.
17
Our
Taxation
We elected REIT status beginning with the year that ended
December 31, 1992. In any year in which we qualify as a
REIT, we generally will not be subject to federal income tax on
the portion of our REIT taxable income or capital gain that we
distribute to our shareholders. This treatment substantially
eliminates the double taxation that applies to most
corporations, which pay a tax on their income and then
distribute dividends to shareholders who are in turn taxed on
the amount they receive. We elected taxable REIT subsidiary
status for certain of our corporate subsidiaries, primarily
those engaged in condominium conversion and sale activities. We
will be subject to federal income taxes for activities performed
by our taxable REIT subsidiaries.
We will be subject to federal income tax at regular corporate
rates upon our REIT taxable income or capital gain that we do
not distribute to our shareholders. In addition, we will be
subject to a 4% excise tax if we do not satisfy specific REIT
distribution requirements. We could also be subject to the
“alternative minimum tax” on our items of tax
preference. In addition, any net income from “prohibited
transactions” (i.e., dispositions of property, other
than property held by a taxable REIT subsidiary, held primarily
for sale to customers in the ordinary course of business) will
be subject to a 100% tax. We could also be subject to a 100%
penalty tax on certain payments received from or on certain
expenses deducted by a taxable REIT subsidiary if any such
transaction is not respected by the Internal Revenue Service. If
we fail to satisfy the 75% gross income test or the 95% gross
income test (described below) but have maintained our
qualification as a REIT because we satisfied certain other
requirements, we will still generally be subject to a 100%
penalty tax on the amount by which we fail such gross income
test. If we fail to satisfy any of the REIT asset tests
(described below) by more than a de minimis amount, due
to reasonable cause, and we nonetheless maintain our REIT
qualification because of specified cure provisions, we will be
required to pay a tax equal to the greater of $50,000 or the
highest corporate tax rate multiplied by the net income
generated by the non-qualifying assets. If we fail to satisfy
any provision of the Internal Revenue Code that would result in
our failure to qualify as a REIT (other than a violation of the
REIT gross income or asset tests described below) and the
violation is due to reasonable cause, we may retain our REIT
qualification but we will be required to pay a penalty of
$50,000 for each such failure. Moreover, we may be subject to
taxes in certain situations and on certain transactions that we
do not presently contemplate.
Our qualification and taxation as a REIT depend upon our ability
to satisfy on a continuing basis, through actual annual
operating and other results, various requirements under the
Internal Revenue Code, with regard to, among other things, the
sources of our gross income, the composition of our assets, the
level of our dividends to shareholders, and the diversity of our
share ownership. We believe that we have qualified as a REIT for
each of our taxable years commencing with our taxable year ended
December 31, 1992, and that our current structure and
method of operation is such that we will continue to qualify as
a REIT.
DLA Piper LLP (US), special tax counsel to us, has provided an
opinion to the effect that we were organized and have operated
in conformity with the requirements for qualification and
taxation as a REIT under the Internal Revenue Code for its
taxable years ended December 31, 1992 through
December 31, 2007, and that our current organization and
method of operation should enable us to continue to meet the
requirements for qualification and taxation as a REIT for our
taxable year ending December 31, 2008 and thereafter. It
must be emphasized that this opinion is based on various
assumptions and factual representations made by us and the
Operating Partnership relating to our organization, prior and
expected operations, the Operating Partnership, and all of the
various partnerships, limited liability companies and corporate
entities in which we presently have an ownership interest, or in
which we had an ownership interest in the past. DLA Piper LLP
(US) will not review our compliance with these requirements on a
continuing basis. No assurance can be given that the actual
results of our operations, the Operating Partnership, and the
subsidiary entities, the sources of their gross income, the
composition of their assets, the level of our dividends to
shareholders and the diversity of our share ownership for any
given taxable year will satisfy the requirements under the
Internal Revenue Code for qualification and taxation as a REIT.
If we fail to qualify for taxation as a REIT in any taxable year
and the relief provisions described herein do not apply, we will
be subject to tax on our taxable income at regular corporate
rates. We also may be subject to the corporate “alternative
minimum tax.” As a result, our failure to qualify as a REIT
would
18
significantly reduce the cash we have available to distribute to
our shareholders. Unless entitled to statutory relief, we would
be disqualified as a REIT for the four taxable years following
the year during which qualification was lost. It is not possible
to state whether we would be entitled to statutory relief.
Our qualification and taxation as a REIT depend on our ability
to satisfy various requirements under the Internal Revenue Code.
We are required to satisfy these requirements on a continuing
basis through actual annual operating and other results.
Accordingly, there can be no assurance that we will be able to
continue to operate in a manner so as to remain qualified as a
REIT.
Ownership of Taxable REIT Subsidiaries by
Us. The Internal Revenue Code provides that REITs
may own greater than ten percent of the voting power and value
of the securities of “taxable REIT subsidiaries” or
“TRSs”, which are corporations subject to tax as a
regular “C” corporation that have elected, jointly
with a REIT, to be a TRS. Generally, a taxable REIT subsidiary
may own assets that cannot otherwise be owned by a REIT and can
perform impermissible tenant services (discussed below), which
would otherwise taint our rental income under the REIT income
tests. However, the REIT will be obligated to pay a 100% penalty
tax on some payments that we receive or on certain expenses
deducted by our TRSs if the economic arrangements between us,
our tenants and the TRS are not comparable to similar
arrangements among unrelated parties. A TRS may also receive
income from prohibited transactions without incurring the 100%
federal income tax liability imposed to REITs. Income from
prohibited transactions may include the purchase and sale of
land, the purchase and sale of completed development properties
and the sale of condominium units.
TRSs pay federal and state income tax at the full applicable
corporate rates. The amount of taxes paid on impermissible
tenant services income and the sale of real estate held
primarily for sale to customers in the ordinary course of
business may be material in amount. The TRSs will attempt to
minimize the amount of these taxes, but we cannot guarantee
whether, or the extent to which, measures taken to minimize
these taxes will be successful. To the extent that these
companies are required to pay taxes, less cash may be available
for distributions to shareholders.
Share Ownership Test and Organizational
Requirement. In order to qualify as a REIT, our
shares of beneficial interest must be held by a minimum of
100 persons for at least 335 days of a taxable year
that is 12 months, or during a proportionate part of a
taxable year of less than 12 months. Also, not more than
50% in value of our shares of beneficial interest may be owned
directly or indirectly by applying certain constructive
ownership rules, by five or fewer individuals during the last
half of each taxable year. In addition, we must meet certain
other organizational requirements, including, but not limited
to, that (i) the beneficial ownership in us is evidenced by
transferable shares and (ii) we are managed by one or more
trustees. We believe that we have satisfied all of these tests
and all other organizational requirements and that we will
continue to do so in the future. In order to ensure compliance
with the 100 person test and the 50% share ownership test
discussed above, we have placed certain restrictions on the
transfer of our shares that are intended to prevent further
concentration of share ownership. However, such restrictions may
not prevent us from failing these requirements, and thereby
failing to qualify as a REIT.
Gross Income Tests. To qualify as a REIT, we
must satisfy two gross income tests:
(1) At least 75% of our gross income for each taxable year
must be derived directly or indirectly from rents from real
property, investments in real estate
and/or real
estate mortgages, dividends paid by another REIT and from some
types of temporary investments (excluding certain hedging income
for hedges entered into after July 30, 2008); and
(2) At least 95% of our gross income for each taxable year
must be derived from any combination of income qualifying under
the 75% test and dividends, non-real estate mortgage interest
and gain from the sale or disposition of stock or securities
(excluding certain hedging income for hedges entered into after
July 30, 2008).
To qualify as rents from real property for the purpose of
satisfying the gross income tests, rental payments must
generally be received from unrelated persons and not be based on
the net income of the resident. Also, the rent attributable to
personal property must not exceed 15% of the total rent. We may
generally provide services to residents without
“tainting” our rental income only if such services are
“usually or customarily
19
rendered” in connection with the rental of real property
and not otherwise considered “impermissible services”.
If such services are impermissible, then we may generally
provide them without deriving non-qualified income only if they
are considered de minimis in amount, or are provided through an
independent contractor from whom we derive no revenue and that
meets other requirements, or through a taxable REIT subsidiary.
We believe that the services provided to residents by us either
are usually or customarily rendered in connection with the
rental of real property and not otherwise considered
impermissible, or, if considered impermissible services, will
meet the de minimis test or will be provided by an
independent contractor or taxable REIT subsidiary. However, we
cannot provide any assurance that the Internal Revenue Service
will agree with these positions.
If we fail to satisfy one or both of the gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the
year if we are entitled to relief under certain provisions of
the Internal Revenue Code. In this case, a penalty tax would
still be applicable as discussed above. Generally, it is not
possible to state whether in all circumstances we would be
entitled to the benefit of these relief provisions and in the
event these relief provisions do not apply, we will not qualify
as a REIT.
Asset Tests. In general, at the close of each
quarter of our taxable year, we must satisfy four tests relating
to the nature of our assets:
(1) At least 75% of the value of our total assets must be
represented by real estate assets (which include for this
purpose shares in other real estate investment trusts) and
certain cash related items;
(2) Not more than 25% of the value of our total assets may
be represented by securities other than those in the 75% asset
class;
(3) Except for equity investments in other REITs, qualified
REIT subsidiaries (i.e., corporations owned 100% by a REIT that
are not TRSs or REITs), or taxable REIT subsidiaries:
(a) the value of any one issuer’s securities owned by
us may not exceed 5% of the value of our total assets and
(b) we may not own more than 10% of the value of or the
voting securities of any one issuer; and
(4) Not more than 20% (25% for taxable years beginning
after December 31, 2008) of the value of our total
assets may be represented by securities of one or more taxable
REIT subsidiaries.
The 10% value test described in clause (3)(b) above does not
apply to certain debt securities that fall within a safe harbor
under the Internal Revenue Code. Under the safe harbor, the
following are not considered “securities” held by us
for purposes of this 10% value test: (i) straight debt
securities, (ii) any loan of an individual or an estate,
(iii) certain rental agreements for the use of tangible
property, (iv) any obligation to pay rents from real
property, (v) any security issued by a state or any
political subdivision thereof, foreign government or Puerto Rico
only if the determination of any payment under such security is
not based on the profits of another entity or payments on any
obligation issued by such other entity, or (vi) any
security issued by a REIT. The timing and payment of interest or
principal on a security qualifying as straight debt may be
subject to a contingency provided that (A) such contingency
does not change the effective yield to maturity, not considering
a de minimis change which does not exceed the greater of
1/4
of 1% or 5% of the annual yield to maturity or we own $1,000,000
or less of the aggregate issue price or value of the particular
issuer’s debt and not more than 12 months of unaccrued
interest can be required to be prepaid or (B) the
contingency is consistent with commercial practice and the
contingency is effective upon a default or the exercise of a
prepayment right by the issuer of the debt. If we hold
indebtedness from any issuer, including a REIT, the indebtedness
will be subject to, and may cause a violation of, the asset
tests, unless it is a qualifying real estate asset or otherwise
satisfies the above safe harbor. We currently own equity
interests in certain entities that have elected to be taxed as
REITs for federal income tax purposes and are not publicly
traded. If any such entity were to fail to qualify as a REIT, we
would not meet the 10% voting stock limitation and the 10% value
limitation and we would fail to qualify as a REIT. We believe
that we and each of the REITs we own an interest in have and
will comply with the foregoing asset tests for REIT
qualification. However, we cannot provide any assurance that the
Internal Revenue Service will agree with our determinations.
20
If we fail to satisfy the 5% or 10% asset tests described above
after a
30-day cure
period provided in the Internal Revenue Code, we will be deemed
to have met such tests if the value of our non-qualifying assets
is de minimis (i.e., does not exceed the lesser of 1% of
the total value of our assets at the end of the applicable
quarter or $10,000,000) and we dispose of the non-qualifying
assets within six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered. For
violations due to reasonable cause and not willful neglect that
are in excess of the de minimis exception described
above, we may avoid disqualification as a REIT under any of the
asset tests, after the
30-day cure
period, by disposing of sufficient assets to meet the asset test
within such six month period, paying a tax equal to the greater
of $50,000 or the highest corporate tax rate multiplied by the
net income generated by the non-qualifying assets and disclosing
certain information to the Internal Revenue Service. If we
cannot avail ourselves of these relief provisions, or if we fail
to timely cure any noncompliance with the asset tests, we would
cease to qualify as a REIT.
Annual Distribution Requirements. To qualify
as a REIT, we are generally required to distribute dividends,
other than capital gain dividends, to our shareholders each year
in an amount at least equal to 90% of our REIT taxable income.
These distributions must be paid either in the taxable year to
which they relate, or in the following taxable year if declared
before we timely file our tax return for the prior year and if
paid with or before the first regular dividend payment date
after the declaration is made. We intend to make timely
distributions sufficient to satisfy our annual distribution
requirements. To the extent that we do not distribute all of our
net capital gain or distribute at least 90%, but less than 100%
of our REIT taxable income, as adjusted, we are subject to tax
on these amounts at regular corporate rates. We will be subject
to a 4% excise tax on the excess of the required distribution
over the sum of amounts actually distributed and amounts
retained for which federal income tax was paid, if we fail to
distribute during each calendar year at least the sum of:
(1) 85% of our REIT ordinary income for the year;
(2) 95% of our REIT capital gain net income for the year;
and (3) any undistributed taxable income from prior taxable
years. A REIT may elect to retain rather than distribute all or
a portion of its net capital gains and pay the tax on the gains.
In that case, a REIT may elect to have its shareholders include
their proportionate share of the undistributed net capital gains
in income as long-term capital gains and receive a credit for
their share of the tax paid by the REIT. For purposes of the 4%
excise tax described above, any retained amounts would be
treated as having been distributed.
Ownership of Partnership Interests By Us. As a
result of our ownership of the Operating Partnership, we will be
considered to own and derive our proportionate share of the
assets and items of income of the Operating Partnership,
respectively, for purposes of the REIT asset and income tests,
including its share of assets and items of income of any
subsidiaries that are partnerships or limited liability
companies.
State and Local Taxes. We may be subject to
state or local taxation in various jurisdictions, including
those in which we transact business or reside. Our state and
local tax treatment may not conform to the federal income tax
treatment discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in common
shares.
Taxation
of Domestic Shareholders Subject to United States
Tax
General. If we qualify as a REIT,
distributions made to our taxable domestic shareholders with
respect to their common shares, other than capital gain
distributions and distributions attributable to taxable REIT
subsidiaries, will be treated as ordinary income to the extent
that the distributions come out of earnings and profits. These
distributions will not be eligible for the dividends received
deduction for shareholders that are corporations nor will they
constitute “qualified dividend income” under the
Internal Revenue Code, meaning that such dividends will be taxed
at marginal rates applicable to ordinary income rather than the
special capital gain rates applicable to qualified dividend
income distributed to shareholders who satisfy applicable
holding period requirements. In determining whether
distributions are out of earnings and profits, we will allocate
our earnings and profits first to preferred shares and second to
the common shares. The portion of ordinary dividends which
represent ordinary dividends we receive from a TRS, will be
designated as “qualified dividend income” to REIT
shareholders and are eligible for preferential tax rates if paid
to our non-corporate shareholders.
21
To the extent we make distributions to our taxable domestic
shareholders in excess of our earnings and profits, such
distributions will be considered a return of capital. Such
distributions will be treated as a tax-free distribution and
will reduce the tax basis of a shareholder’s common shares
by the amount of the distribution so treated. To the extent such
distributions cumulatively exceed a taxable domestic
shareholder’s tax basis, such distributions are taxable as
a gain from the sale of shares. Shareholders may not include in
their individual income tax returns any of our net operating
losses or capital losses.
Dividends declared by a REIT in October, November, or December
are deemed to have been paid by the REIT and received by its
shareholders on December 31 of that year, so long as the
dividends are actually paid during January of the following
year. However, this treatment only applies to the extent of the
REIT’s earnings and profits existing on December 31.
To the extent the shareholder distribution paid in January
exceeds available earnings and profits as of December 31,
the excess is treated as a distribution taxable to shareholders
in the year paid. As such, for tax reporting purposes, January
distributions paid to our shareholders may be split between two
tax years.
Distributions made by us that we properly designate as capital
gain dividends will be taxable to taxable domestic shareholders
as gain from the sale or exchange of a capital asset held for
more than one year. This treatment applies only to the extent
that the designated distributions do not exceed our actual net
capital gain for the taxable year. It applies regardless of the
period for which a domestic shareholder has held his or her
common shares. Despite this general rule, corporate shareholders
may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
Generally, we will classify a portion of our designated capital
gain dividends as a 15% rate gain distribution and the remaining
portion as an unrecaptured Section 1250 gain distribution.
A 15% rate gain distribution would be taxable to taxable
domestic shareholders that are individuals, estates or trusts at
a maximum rate of 15%. An unrecaptured Section 1250 gain
distribution would be taxable to taxable domestic shareholders
that are individuals, estates or trusts at a maximum rate of 25%.
If, for any taxable year, we elect to designate as capital gain
dividends any portion of the dividends paid or made available
for the year to holders of all classes of shares of beneficial
interest, then the portion of the capital gains dividends that
will be allocable to the holders of common shares will be the
total capital gain dividends multiplied by a fraction. The
numerator of the fraction will be the total dividends paid or
made available to the holders of the common shares for the year.
The denominator of the fraction will be the total dividends paid
or made available to holders of all classes of shares of
beneficial interest.
We may elect to retain (rather than distribute as is generally
required) net capital gain for a taxable year and pay the income
tax on that gain. If we make this election, shareholders must
include in income, as long-term capital gain, their
proportionate share of the undistributed net capital gain.
Shareholders will be treated as having paid their proportionate
share of the tax paid by us on these gains. Accordingly, they
will receive a tax credit or refund for the amount. Shareholders
will increase the basis in their common shares by the difference
between the amount of capital gain included in their income and
the amount of the tax they are treated as having paid. Our
earnings and profits will be adjusted appropriately.
In general, a shareholder will recognize gain or loss for
federal income tax purposes on the sale or other disposition of
common shares in an amount equal to the difference between:
(a) the amount of cash and the fair market value of any
property received in the sale or other disposition; and
(b) the shareholder’s adjusted tax basis in the common
shares.
The gain or loss will be capital gain or loss if the common
shares were held as a capital asset. Generally, the capital gain
or loss will be long-term capital gain or loss if the common
shares were held for more than one year.
In general, a loss recognized by a shareholder upon the sale of
common shares that were held for six months or less,
determined after applying certain holding period rules, will be
treated as long-term capital loss to the extent that the
shareholder received distributions that were treated as
long-term capital gains.
22
Taxation
of Domestic Tax-Exempt Shareholders
Most tax-exempt organizations are not subject to federal income
tax except to the extent of their unrelated business taxable
income, which is often referred to as “UBTI.” Unless a
tax-exempt shareholder holds its common shares as debt financed
property or uses the common shares in an unrelated trade or
business, distributions to the shareholder should not constitute
UBTI. Similarly, if a tax-exempt shareholder sells common
shares, the income from the sale should not constitute UBTI
unless the shareholder held the shares as debt financed property
or used the shares in a trade or business.
However, for tax-exempt shareholders that are social clubs,
voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services
plans, income from owning or selling common shares will
constitute UBTI unless the organization is able to properly
deduct amounts set aside or placed in reserve so as to offset
the income generated by its investment in common shares. These
shareholders should consult their own tax advisors concerning
these set aside and reserve requirements which are set forth in
the Internal Revenue Code.
In addition, certain pension trusts that own more than 10% of a
“pension-held REIT” must report a portion of the
distributions that they receive from the REIT as UBTI. We have
not been and do 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 United
States federal income tax consequences of the ownership and
disposition of common shares applicable to a foreign
shareholder. For purposes of this discussion, a “foreign
shareholder” is any person other than:
(a) a citizen or resident of the United States;
(b) 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
(c) an estate or trust whose income is includable in gross
income for United States federal income tax purposes regardless
of its source.
Distributions by Us. Distributions by us to a
foreign shareholder that are neither attributable to gain from
sales or exchanges by us of United States real property
interests nor designated by us as capital gains dividends will
be treated as dividends of ordinary income to the extent that
they are made out of our earnings and profits. These
distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis at a 30% rate,
or a lower treaty rate, unless the dividends are treated as
effectively connected with the conduct by the foreign
shareholder of a United States trade or business. Please note
that under certain treaties lower withholding rates generally
applicable to dividends do not apply to dividends from REITs.
Dividends that are effectively connected with a United States
trade or business will be subject to tax on a net basis at
graduated rates, and are generally not subject to withholding.
Certification and disclosure requirements must be satisfied
before a dividend is exempt from withholding under this
exemption. A foreign shareholder that is a corporation also may
be subject to an additional branch profits tax at a 30% rate or
a lower treaty rate.
We expect to withhold United States income tax at the rate of
30% on any distributions made to a foreign shareholder unless:
(a) a lower treaty rate applies and any required form or
certification evidencing eligibility for that reduced rate is
filed with us; or
(b) the foreign shareholder files an IRS
Form W-8ECI
with us claiming that the distribution is effectively connected
income.
A distribution in excess of our current or accumulated earnings
and profits will not be taxable to a foreign shareholder to the
extent that the distribution does not exceed the adjusted basis
of the shareholder’s common shares. Instead, the
distribution will reduce the adjusted basis of the common
shares. To the extent that the
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distribution exceeds the adjusted basis of the common shares, it
will give rise to gain from the sale or exchange of the
shareholder’s common shares. The tax treatment of this gain
is described below.
We intend to withhold at a rate of 30%, or a lower applicable
treaty rate, on the entire amount of any distribution not
designated as a capital gain distribution. In such event, a
foreign shareholder may seek a refund of the withheld amount
from the Internal Revenue Service if it is subsequently
determined that the distribution was, in fact, in excess of our
earnings and profits, and the amount withheld exceeded the
foreign shareholder’s United States tax liability with
respect to the distribution.
Any capital gain dividend with respect to any class of our stock
which is “regularly traded” on an established
securities market, will be treated as an ordinary dividend
described above, if the foreign shareholder did not own more
than 5% of such class of stock at any time during the one year
period ending on the date of the distribution. Foreign
shareholders generally will not be required to report
distributions received from us on United States federal income
tax returns and all distributions treated as dividends for
United States federal income tax purposes, including any capital
gain dividends, will be subject to a 30% United States
withholding tax (unless reduced or eliminated under an
applicable income tax treaty), as described above. In addition,
the branch profits tax will no longer apply to such
distributions.
Distributions to a foreign shareholder that we designate at the
time of the distributions as capital gain dividends, other than
those arising from the disposition of a United States real
property interest, generally will not be subject to United
States federal income taxation unless:
(a) the investment in the common shares is effectively
connected with the foreign shareholder’s United States
trade or business, in which case the foreign shareholder will be
subject to the same treatment as domestic shareholders, except
that a shareholder that is a foreign corporation may also be
subject to the branch profits tax, as discussed above; or
(b) the foreign shareholder is a nonresident alien
individual who is present in the United States for 183 days
or more during the taxable year and has a “tax home”
in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual’s
capital gains.
Except as described above, under the Foreign Investment in Real
Property Tax Act (“FIRPTA”), distributions to a
foreign shareholder that are attributable to gain from sales or
exchanges of United States real property interests will cause
the foreign shareholder to be treated as recognizing the gain as
income effectively connected with a United States trade or
business. This rule applies whether or not a distribution is
designated as a capital gain dividend. Accordingly, foreign
shareholders generally would be taxed on these distributions at
the same rates applicable to United States shareholders, subject
to a special alternative minimum tax in the case of nonresident
alien individuals. In addition, a foreign corporate shareholder
might be subject to the branch profits tax discussed above. We
are required to withhold 35% of these distributions. The
withheld amount can be credited against the foreign
shareholder’s United States federal income tax liability.
Although the law is not entirely clear on the matter, it appears
that amounts we designate as undistributed capital gains in
respect of the common shares held by United States shareholders
would be treated with respect to foreign shareholders in the
same manner as actual distributions of capital gain dividends.
Under that approach, foreign shareholders would be able to
offset as a credit against the United States federal income tax
liability their proportionate share of the tax paid by us on
these undistributed capital gains. In addition, foreign
shareholders would be able to receive from the Internal Revenue
Service a refund to the extent their proportionate share of the
tax paid by us were to exceed their actual United States federal
income tax liability.
Foreign Shareholders’ Sales of Common
Shares. Gain recognized by a foreign shareholder
upon the sale or exchange of common shares generally will not be
subject to United States taxation unless the shares constitute a
“United States real property interest” within the
meaning of FIRPTA. The common shares will not constitute a
United States real property interest so long as we are 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 stock is held directly or
indirectly by foreign shareholders. We believe that we are a
domestically controlled REIT. Therefore, we believe that the
sale of common shares will not be subject to taxation under
FIRPTA. However, because common shares and preferred shares are
publicly traded, we cannot
24
guarantee that we will continue to be a domestically controlled
REIT. In any event, gain from the sale or exchange of common
shares not otherwise subject to FIRPTA will be subject to United
States tax, if either:
(a) the investment in the common shares is effectively
connected with the foreign shareholder’s United States
trade or business, in which case the foreign shareholder will be
subject to the same treatment as domestic shareholders with
respect to the gain; or
(b) the foreign shareholder is a nonresident alien
individual who is present in the United States for 183 days
or more during the taxable year and has a tax home in the United
States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual’s capital gains.
Even if we do not qualify as or cease to be a domestically
controlled REIT, gain arising from the sale or exchange by a
foreign shareholder of common shares still would not be subject
to United States taxation under FIRPTA as a sale of a United
States real property interest if:
(a) the class or series of shares being sold is
“regularly traded,” as defined by applicable IRS
regulations, on an established securities market such as the New
York Stock Exchange; and
(b) the selling foreign shareholder owned 5% or less of the
value of the outstanding class or series of shares being sold
throughout the five-year period ending on the date of the sale
or exchange.
If gain on the sale or exchange of common shares were subject to
taxation under FIRPTA, the foreign shareholder would be subject
to regular United States income tax with respect to the gain in
the same manner as a taxable United States shareholder, subject
to any applicable alternative minimum tax, a special alternative
minimum tax in the case of nonresident alien individuals and the
possible application of the branch profits tax in the case of
foreign corporations. The purchaser of the common shares would
be required to withhold and remit to the Internal Revenue
Service 10% of the purchase price.
Information
Reporting Requirement and Backup Withholding
We will report to our domestic shareholders and the Internal
Revenue Service the amount of distributions paid during each
calendar year and the amount of tax withheld, if any. Under
certain circumstances, domestic shareholders may be subject to
backup withholding. Backup withholding will apply only if such
domestic shareholder fails to furnish certain information to us
or the Internal Revenue Service. Backup withholding will not
apply with respect to payments made to certain exempt
recipients, such as corporations and tax-exempt organizations.
Domestic shareholders should consult their own tax advisors
regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
Backup withholding is not an additional tax. Rather, the amount
of any backup withholding with respect to a payment to a
domestic shareholder will be allowed as a credit against such
person’s United States federal income tax liability and may
entitle such person to a refund, provided that the required
information is timely furnished to the Internal Revenue Service.
Additional
Tax Consequences for Holders of Preferred Shares and Depositary
Shares
If we offer one or more series of Preferred Shares or Depositary
Shares, then there may be additional tax consequences for the
holders of such Preferred Shares or Depositary Shares. For a
discussion of any such additional consequences, see the
applicable prospectus supplement.
PLAN OF
DISTRIBUTION
We may sell the Securities to one or more underwriters for
public offering and sale by them or may sell the Securities to
investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the Securities will be
named in the applicable prospectus supplement.
We may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market
prices at the time of sale or at negotiated prices for cash or
assets in transactions that do not constitute a business
combination within the meaning of Rule 145 promulgated
under the Securities Act.
25
The Company also may, from time to time, authorize underwriters
acting as our agents to offer and sell the Securities upon the
terms and conditions as are set forth in the applicable
prospectus supplement. In connection with the sale of the
Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent.
Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters
and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to
underwriters or agents in connection with the offering of the
Securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set
forth in the applicable prospectus supplement. Underwriters,
dealers and agents participating in the distribution of the
Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them
on resale of the Securities may be deemed to be underwriting
discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable prospectus supplement, we will
authorize dealers acting as our agents to solicit offers by
certain institutions to purchase Securities from the Company at
the public offering price set forth in such prospectus
supplement pursuant to Delayed Delivery Contracts
(“Contracts”) providing for payment and delivery on
the date or dates stated in such prospectus supplement. Each
Contract will be for an amount not less than, and the aggregate
principal amount of Securities sold pursuant to Contracts shall
be not less nor more than, the respective amounts stated in the
applicable prospectus supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and
savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other
institutions but will in all cases be subject to the approval of
the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities
covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United
States to which such institution is subject, and (ii) if
the Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the
Securities less the principal amount thereof covered by
Contracts.
Certain of the underwriters and their affiliates may engage in
transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
EXPERTS
Our consolidated financial statements and schedule appearing in
our Current Report on
Form 8-K
dated December 15, 2008, the effectiveness of internal
control over financial reporting as of December 31, 2007
included in our
Form 10-K
for the year ended December 31, 2007, and the Statements of
Revenue and Certain Expenses of the Florida Portfolio, Berkeley
Portfolio, Teresina at Lomas Verdes, Upper West Side Portfolio
and Greenwood Properties included in our Current Report on
Form 8-K
dated January 4, 2008, have been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as set forth in their reports thereon included
therein, and incorporated herein by reference. Such consolidated
financial statements and schedule, the effectiveness of our
internal control over financial reporting and the statements of
revenue and certain expenses are incorporated herein by
reference, in reliance upon such reports given on the authority
of such firm as experts in accounting and auditing.
LEGAL
MATTERS
Unless otherwise noted in a prospectus supplement, Sidley Austin
LLP, Chicago, Illinois, will pass on the legality of the
securities to be offered hereby. Certain tax matters have been
passed upon for us by DLA Piper LLP (US), Chicago, Illinois, our
special tax counsel.
26
Equity
Residential
10,000,000
Common Shares
PROSPECTUS
SUPPLEMENT
February 3, 2011
BofA
Merrill Lynch
BNY
Mellon Capital Markets, LLC
J.P.
Morgan
Morgan
Stanley