Prospectus
As
filed with the Securities and Exchange Commission on March 2,
2006
Registration
No. 333- 131276
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
Prospectus
Filed Pursuant to Rule 424(b)(3)
UNDER
THE
SECURITIES ACT OF 1933
ESSEX
PROPERTY TRUST, INC.
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ESSEX
PORTFOLIO, L.P.
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(Exact
name of registrant as specified in its charter)
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(Exact
name of registrant as specified in its
charter)
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Maryland
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77-0369576
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California
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77-0369575
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
Number)
|
|
|
925
East Meadow Drive
Palo
Alto, California 94303
(650)
494-3700
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925
East Meadow Drive
Palo
Alto, California 94303
(650)
494-3700
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(Address,
including zip code, and telephone,
including
area code, of registrar’s principal executive
offices)
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(Address,
including zip code, and telephone,
including
area code, of registrar’s principal executive
offices)
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Keith
R. Guericke
President
and Chief Executive Officer
925
East Meadow Drive
Palo
Alto, California 94303
(650)
494-3700
(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-131276
PROSPECTUS
$225,000,000
Essex
Portfolio, L.P.
3.625%
Exchangeable Senior Notes due 2025
Fully
and
Unconditionally Guaranteed by
Essex
Property Trust, Inc.
and
Shares
of
Essex Property Trust, Inc. Common Stock Issuable Upon Exchange of the
Notes
We
issued
a total of $225 million aggregate principal amount of our 3.625% Exchangeable
Senior Notes due 2025 in a private placement completed in November
2005.
The
notes
bear interest at the rate of 3.625% per year, payable on November 1 and May
1 of
each year, beginning May 1, 2006. The notes will mature on November 1, 2025.
However, on or after November 4, 2010, we may redeem the notes in whole or
in
part for cash at 100% of the principal amount of the notes to be redeemed plus
accrued and unpaid interest (including additional interest, if any). We may
not
redeem the notes prior to November 4, 2010 except to the extent necessary to
preserve the status of Essex Property Trust, Inc. as a real estate investment
trust. On November 1, 2010, November 1, 2015 and November 1, 2020, as well
as
upon the occurrence of a fundamental change (defined herein), holders may
require us to repurchase notes in whole or in part for cash at 100% of the
principal amount of the notes to be repurchased plus accrued and unpaid interest
(including additional interest, if any).
The
notes
are exchangeable for shares of common stock, par value $0.0001 per share, of
Essex Property Trust, Inc., which we refer to as the “Essex common shares,”
prior to the close of business on the second business day prior to maturity
at
any time on or after November 1, 2020, and also prior to November 1, 2020 but
only under the following circumstances: (i) if the closing sale price of the
Essex common shares reaches a specified threshold over a specified time period;
(ii) if the trading price of the notes is below a specified threshold for a
specified time period; (iii) if those notes have been called for redemption;
(iv) upon the occurrence of the specified corporate transactions described
in
this prospectus; (v) upon the occurrence of a fundamental change; or (vi) if
Essex common shares cease to be listed on a U.S. national or regional securities
exchange or quoted on the Nasdaq National Market for a 30 consecutive trading
day period. Subject to the exceptions described under “Description
of Notes”
in
this
prospectus, upon an exchange of notes we will deliver cash and Essex common
shares, if any, with an aggregate value, which we refer to as the “exchange
value,” equal to the exchange rate multiplied by the average price of Essex
common shares over a stated period as follows: (1) an amount in cash, which
we
refer to as the “principal return,” equal to the lesser of (a) the principal
amount of the exchanged notes and (b) the exchange value; and (2) if the
exchange value is greater than the principal return, an amount with a value
equal to the difference between the exchange value and the principal return,
which we refer to as the “net amount.” We may pay the net amount, at our option,
in cash, Essex common shares or a combination of cash and Essex common
shares.
The
initial exchange rate for each $1,000 principal amount of notes is 9.6852 Essex
common shares. This is equivalent to an initial exchange price of $103.25 per
Essex common share. For a discussion of the circumstances in which the exchange
rate will be subject to adjustment, see “Description
of Notes—Exchange Rate Adjustments”
in
this
prospectus. In addition, if certain fundamental changes occur prior to November
4, 2010 and a holder elects to exchange notes in connection with any such
transaction, we will increase the exchange rate for the time period specified
herein unless such transaction constitutes a public acquirer change in control
(defined herein) and we elect to modify the exchange right for a right to
exchange the notes for cash and shares of public acquirer common stock, if
any,
as described in this prospectus.
The
notes
are senior unsecured obligations of Essex Portfolio, L.P. and ranks equally
with
all of our other senior unsecured indebtedness and be effectively subordinated
to our secured indebtedness to the extent of the collateral securing such
indebtedness and to all liabilities and preferred equity of our subsidiaries.
The notes are fully and unconditionally guaranteed by Essex Property Trust,
Inc., our general partner, but Essex Property Trust, Inc. has no operations
and
no material assets, other than its investment in us. Essex Portfolio, L.P.
and
Essex Property Trust, Inc. do not intend to apply for listing of the notes
on
any securities exchange or for inclusion of the notes in any automated quotation
system. The notes are designated for trading on The PORTALSM
Market
of
the National Association of Securities Dealers, Inc. The notes sold using this
prospectus, however, will no longer be eligible for trading on The
PORTALSM
Market.
Pursuant to a registration rights agreement, we and Essex Property Trust, Inc.
have agreed to file a shelf registration statement of which this prospectus
is a
part, permitting the resale of the notes and Essex common shares issued upon
the
exchange of the notes. If we or Essex Property Trust, Inc. fail to comply with
specified obligations under the registration rights agreement, additional
interest will be payable on the notes.
The
selling securityholders identified in this prospectus may offer from time to
time up to $225 million aggregate principal amount of the notes and Essex common
shares issuable upon exchange of the notes. The notes and the Essex common
shares may be offered, in market transactions, in negotiated transactions or
otherwise, and at prices and on terms which will be determined by the then
prevailing market price or at negotiated prices directly or through a broker
or
brokers, who may act as agent or as principal or by a combination of such
methods of sale. See“Plan
of Distribution”
on page
85 for additional information on the methods of sale.
Essex
common shares are listed on the New York Stock Exchange under the symbol “ESS.”
On March 1, 2006, the last reported sales price for Essex common shares on
the New York Stock Exchange was $100.00 per share.
See
“Risk
Factors”
beginning on page 11 to read about important factors you should consider before
buying the notes and the Essex common shares issuable upon exchange of the
notes.”
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, NOR
ANY
OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE
CONTRARY IS A CRIMINAL OFFENSE.
The
date
of this prospectus is March 2, 2006.
TABLE
OF CONTENTS
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PAGE
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ABOUT
THIS PROSPECTUS
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1
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WHERE
YOU CAN FIND MORE INFORMATION
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2
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FORWARD-LOOKING
STATEMENTS
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3
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SUMMARY
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5
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THE
OFFERING
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6
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RISK
FACTORS
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11
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USE
OF PROCEEDS
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30
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RATIO
OF EARNINGS TO FIXED CHARGES
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30
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PRICE
RANGE OF ESSEX PROPERTY TRUST, INC. SHARES OF COMMON STOCK
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30
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DESCRIPTION
OF NOTES
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31
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DESCRIPTION
OF CAPITAL STOCK
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59
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MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
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62
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SELLING
SECURITYHOLDERS
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82
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PLAN
OF DISTRIBUTION
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85
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LEGAL
MATTERS
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87
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EXPERTS
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87
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You
should rely only on the information contained or incorporated by reference
in
this prospectus and, if applicable, any prospectus supplement. We have not
authorized anyone to provide you with any other information. If you receive
any
other information, you should not rely on it. We are not making an offer to
sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information contained in this prospectus and,
if
applicable, any prospectus supplement or any document incorporated by reference
in this prospectus or any prospectus supplement is accurate as of any date
other
than the date on the front cover of this prospectus or on the front cover of
the
applicable documents or as specifically indicated in the document. Our business,
financial condition, results of operations and prospects may have changed since
that date.
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or the SEC, using a “shelf” registration process for
the delayed offering and sale of securities pursuant to Rule 415 under the
Securities Act of 1933. Under the shelf process, the selling stockholders may,
from time to time, sell the offered securities described in this prospectus
in
one or more offerings. Additionally, under the shelf process, in certain
circumstances, we may provide a prospectus supplement that will contain specific
information about the terms of a particular offering by one or more
stockholders. We may also provide a prospectus supplement to add, update or
change information contained in this prospectus.
This
prospectus and any accompanying prospectus supplement do not contain all of
the
information included in the 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 is a part, including its exhibits. Statements contained
in this prospectus and any accompanying prospectus supplement about the
provisions or contents of any agreement or other document are not necessarily
complete. If the SEC rules and regulations require that an agreement or document
be filed as an exhibit to the registration statement, please see that agreement
or document for a complete description of these matters. You should not assume
that the information in this prospectus, any prospectus supplement or in any
document incorporated herein or therein by reference is accurate as of any
date
other than the date on the front of each document.
You
should read both this prospectus and any prospectus supplement together with
the
additional information described under the heading “Where
You Can Find More Information”
on page
2 in this prospectus.
WHERE
YOU CAN FIND MORE INFORMATION
Essex
Property Trust, Inc. and Essex Portfolio, L.P. file annual, quarterly and
special reports, proxy statements and other information with the Securities
and
Exchange Commission. You may read and copy any document that Essex Property
Trust, Inc. or Essex Portfolio, L.P. files with the SEC at the SEC’s public
reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room.
The
SEC also maintains a web site that contains reports, proxy and information
statements, and other information regarding registrants that Essex Property
Trust, Inc. or Essex Portfolio, L.P. files electronically with the SEC
(http://www.sec.gov). You can inspect reports and other information that Essex
Property Trust, Inc. or Essex Portfolio, L.P. files at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York
10005.
The
information incorporated by reference is an important part of this prospectus.
Any statement contained in a document which is incorporated by reference in
this
prospectus is automatically updated and superseded if information contained
in
this prospectus, or information that Essex Property Trust, Inc. or Essex
Portfolio, L.P. later files with the SEC, modifies or replaces this information.
Incorporated by reference are the following documents that are filed with the
SEC:
· |
Annual
Report on Form 10-K of Essex Property Trust, Inc. for the year ended
December 31, 2004; and as amended on Form 8-K dated January 20,
2006;
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· |
Annual
Report on Form 10-K of Essex Portfolio, L.P. for the year ended December
31, 2004, and as amended on Form 8-K dated January 25,
2006;
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· |
Quarterly
Reports on Form 10-Q of Essex Property Trust, Inc. for the quarters
ended
March 31, 2005, June 30, 2005 and September 30,
2005;
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· |
Quarterly
Reports on Form 10-Q of Essex Portfolio, L.P. for the quarters ended
March
31, 2005, June 30, 2005 and September 30,
2005;
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· |
Current
Reports on Form 8-K of Essex Property Trust, Inc. filed on February
14,
2005, April 13, 2005, October 25, 2005, November 2, 2005 (other than
the
current report furnished under Item 2.02 of Form 8-K), December 1,
2005,
January 4, 2006, January 9, 2006, January 20, 2006, February 1, 2006,
February 2, 2006 and February 6,
2006;
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· |
Current
Reports on Form 8-K of Essex Portfolio, L.P. filed on October 25,
2005,
November 2, 2005, December 1, 2005, January 4, 2006 and January 25,
2006;
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· |
the
description of Essex Property Trust, Inc. common stock contained
in a
Registration Statement on Form 8-A filed with the SEC on May 27,
1994, as
amended on September 19, 2003; and
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· |
all
documents filed by either Essex Property Trust, Inc. or Essex Portfolio,
L.P. with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the
Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) (other
than current reports furnished under Item 2.02 or 7.01 of Form 8-K)
after
the date of this prospectus and prior to the termination of this
prospectus.
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To
receive a free copy of any of the documents incorporated by reference in this
prospectus (other than exhibits, unless they are specifically incorporated
by
reference in the documents), call or write Essex Property Trust, Inc., 925
East
Meadow Drive, Palo Alto, California 94303, Attention: Secretary, Tel: (650)
494-3700.
FORWARD-LOOKING
STATEMENTS
This
prospectus contains or incorporates by reference forward-looking statements
within the meaning of Section 27A of the Securities Act, and Section 21E of
the
Exchange Act, and are subject to the ‘‘safe harbor’’ provisions created by these
statutes. All statements, other than statements of historical facts, that
address activities, events or developments that we intend, expect, project,
believe or anticipate will or may occur in the future are forward-looking
statements. Such statements are characterized by terminology such as
‘‘anticipates,’’ ‘‘believes,’’ ‘‘expects,’’ ‘‘future,’’ ‘‘intends,’’
‘‘assuming,’’ ‘‘projects,’’ ‘‘plans’’ and similar expressions or the negative of
those terms or other comparable terminology. These forward-looking statements
which include statements about our expectations, objectives, anticipations,
intentions and strategies regarding the future, expected operation results,
revenues and earnings, reflect only management’s current expectations and are
not guarantees of future performance and are subject to risks and uncertainties,
including those risks described under the heading ‘‘Risk
Factors’’
in
this prospectus, or in the documents incorporated by reference in this
prospectus, that could cause actual results to differ materially from the
results contemplated by the forward-looking statements. Some of these
forward-looking statements include the following:
· |
Our
expectations regarding our ability to finance all of our balloon
payments
when due under our mortgages and our line of credit
borrowings;
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· |
Our
intent to continue to acquire multifamily residential
properties;
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· |
Our
expectation to finance future acquisitions, in whole or in part,
under
various forms of secured or unsecured financing or through the issuance
of
partnership units by the Operating Partnership or additional
equity;
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· |
Our
intent to continue to use leverage to increase the rate of return
on our
investments and to provide for additional investments that we could
not
otherwise make;
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· |
Our
ability to obtain additional debt financing in the future through
mortgages on some or all of our
properties;
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· |
Essex
Property Trust’s ability to enter into business combinations with Messrs.
Marcus and Millichap and The Marcus & Millichap Company, without
compliance with the super-majority vote requirements and other provisions
of the Maryland General Corporation
Law;
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· |
Essex
Property Trust’s ability to establish one or more series of preferred
stock that could delay, defer or prevent a transaction or a change
in
control;
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· |
Our
expectation to engage in tax-exempt financings in the
future;
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· |
Our
anticipation to maintain sufficient influence over any joint venture
to
achieve its objectives;
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· |
Our
plan to hold contributed assets or defer recognition of taxable gain
on
their sale pursuant to like-kind exchanges under Section 1031 of
the
Internal Revenue Code and their impact on our financial
position;
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· |
Our
intention to withhold U.S. income tax at the rate of 30% on the gross
amount of any distributions of ordinary income made to a non-U.S.
holder;
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· |
Essex
Property Trust’s expectation to continue to be a domestically controlled
REIT;
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· |
Essex
Property Trust’s intention to structure any hedging transactions in a
manner that does not jeopardize its status as a REIT;
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· |
Essex
Property Trust’s belief that the amount of its assets that are not
qualifying assets for purposes of the 75% asset test will continue
to
represent less than 25% of its total assets and will satisfy the
5% and
both 10% asset tests;
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· |
Essex
Property Trust’s belief that it is not, and it does not expect to become,
a ‘‘pension-held REIT’’;
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· |
Our
anticipation to maintain sufficient influence over the Essex Apartment
Value Fund II, L.P. to permit it to achieve its business objectives;
and
|
· |
Essex
Property Trust’s belief that it will continue to qualify as a
REIT.
|
All
forward-looking statements included or incorporated by reference in this
prospectus are made as of the date hereof, based on information available to
us
as of the date hereof, and we assume no obligation to update any forward-looking
statement or statements, except as required by law. It is important to note
that
such forward-looking statements are subject to risks and uncertainties and
that
our actual results could differ materially from those in such forward-looking
statements. The foregoing factors, as well as those under the heading
“Risk
Factors”
in
this
prospectus and in the Section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”
in
our
most recent Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q that we file with the SEC from time to time, among others, in
some cases have affected, and in the future could affect, our actual operating
results and could cause our actual consolidated operating results to differ
materially from those expressed in any forward-looking statement made by us.
You
are cautioned not to place undue reliance on forward-looking statements
contained in this prospectus.
The
information below is only a summary of more detailed information included
elsewhere in this prospectus or the documents incorporated herein by reference.
This summary does not contain all the information that is important to you
or
that you should consider before investing in the notes and the Essex common
shares for which the notes, in certain circumstances, are exchangeable. As
a
result, you should read this entire prospectus, as well as the information
incorporated herein by reference, carefully.
As
used in this prospectus, unless the context otherwise requires, the terms “we,”
“us,” “our” “Essex Portfolio” or “Operating Partnership” refer to Essex
Portfolio, L.P. and its subsidiaries and not to Essex Property Trust, Inc.,
and
the terms “Essex” and “Essex Property Trust” refer to Essex Property Trust, Inc.
and its subsidiaries, including Essex Portfolio, L.P.
Essex
Property Trust, Inc., and Essex Portfolio, L.P.
General
Essex
Property Trust is a self-administered and self-managed real estate investment
trust, or “REIT,” that acquires, develops, redevelops and manages multifamily
residential properties in selected communities located primarily in the west
coast of the United States. Essex Property Trust owns all of its interests
in
its real properties, directly or indirectly, through Essex Portfolio, L.P.
Essex
Property Trust is the sole general partner of Essex Portfolio and, as of
September 30, 2005, had an approximately 90.5% general partner interest in
Essex
Portfolio.
Our
investment strategy has two components: constant monitoring of existing markets,
and evaluation of new markets to identify areas with the characteristics that
underlie rental growth. Our strong financial condition supports our investment
strategy by providing access to a wide range of capital alternatives. This
enhances our ability to quickly shift our acquisition, development, and
disposition activities to markets that will optimize the performance of the
portfolio.
As
of
September 30, 2005, we had ownership interests in 125 multifamily properties,
comprising 25,950 apartment units. In addition, at September 30, 2005, we along
with our affiliated entities and joint venturers were also developing three
multifamily residential properties, which are expected to comprise 505 units.
Our multifamily residential properties are located in Southern California (Los
Angeles, Ventura, Orange, Riverside and San Diego counties), Northern California
(the San Francisco Bay Area) and the Pacific Northwest (the Seattle, Washington
and Portland, Oregon metropolitan areas) and other areas (Houston, Texas).
At
September 30, 2005, we also had ownership interests in three office buildings
(with approximately 166,340 square feet), three recreational vehicle parks
(comprising 562 spaces) and one manufactured housing community (containing
157
sites). Essex Property Trust became a public company in 1994. Its web site
address is http://www.essexpropertytrust.com. Information on its web site does
not constitute a part of this prospectus and is not incorporated by reference
herein. Essex’s common stock is listed on the New York Stock Exchange under the
Symbol “ESS.” Essex is a Maryland corporation. Essex’s executive offices are
located at 925 East Meadow Drive, Palo Alto, California 94303.
The
Offering
We
provide the following summary solely for your convenience. This summary is
not a
complete description of the notes. You should read the full text and more
specific details contained elsewhere in this prospectus. For a more detailed
description of the notes, see the section entitled “Description
of Notes”
in
this
prospectus.
Issuer
of Notes
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Essex
Portfolio, L.P.
|
Guarantor
of Notes
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Essex
Property Trust, Inc., our general partner.
|
Issuer
of Common Shares Upon Exchange of Notes
|
Essex
Property Trust, Inc., our general partner
|
Notes
Offered
|
$225.0
million aggregate principal amount of 3.625% Exchangeable Senior
Notes due
2025.
|
Maturity
Date
|
November
1, 2025, unless earlier repurchased, redeemed, or exchanged in accordance
with their terms prior to such date.
|
Interest
|
The
notes bear interest at an annual rate of 3.625%. Interest is payable
semi-annually in arrears on May 1 and November 1 of each year beginning
May 1, 2006.
|
Ranking
|
The
notes are our senior unsecured obligations and rank equal in right
of
payment with all of our existing and future indebtedness that is
not
contractually subordinated to the notes and senior to all of our
subordinated indebtedness. The notes are effectively subordinated
to all
of our existing and future secured indebtedness to the extent of
the
collateral securing such indebtedness, and to all liabilities and
preferred equity of our subsidiaries.
As
of September 30, 2005, we had $1.31 billion of senior indebtedness,
$1.26
billion of which was secured, and our entities which we account for
under
the equity method of accounting had $190.6 million of liabilities,
and
$24.4 million of preferred equity.
|
Parent
Guarantee
|
The
notes are fully and unconditionally guaranteed by Essex Property
Trust,
Inc., our general partner. However, Essex Property Trust has no material
assets other than its investment in us.
|
Exchange
Rights
|
Holders
may exchange their notes based on the applicable exchange rate (described
below) (i) prior to the close of business on the second business
day prior
to the stated maturity date at any time on or after November 1, 2020
and
(ii) prior to November 1, 2020 only under the following
circumstances:
· during
any calendar quarter (and only during such calendar quarter) commencing
after December 31, 2005, if, and only if, the closing sale price
of Essex
common shares for at least 20 trading days (whether or not consecutive)
in
the period of 30 consecutive trading days ending on the last trading
day
of the preceding calendar quarter is greater than 125% of the exchange
price per Essex common share in effect on the applicable trading
day;
|
|
· during
the five consecutive trading-day period following any 20 consecutive
trading-day period in which the average trading price of the notes
was
less than 98% of the product of the closing sale price of Essex common
shares during such five trading-day period multiplied by the applicable
exchange rate;
· if
we have called the notes for redemption, until the close of business
on
the second trading day immediately preceding the redemption
date;
· during
prescribed periods upon the occurrence of specified corporate transactions
as described under “Description
of Notes — Exchange Rights — Exchange Upon Specified Corporate
Transactions”
in this prospectus;
· during
prescribed periods upon the occurrence of a fundamental change;
or
· if
Essex common shares cease to be listed on a U.S. national or regional
securities exchange or quoted on the Nasdaq National Market for a
30
consecutive trading day period.
By
delivering to the holder cash and shares of Essex common shares,
if any,
we will satisfy our obligations with respect to the notes exchanged.
Accordingly, upon exchange of a note, accrued and unpaid interest
will be
deemed paid in full rather than cancelled, extinguished or
forfeited.
|
Exchange
Rate
|
The
initial exchange rate for each $1,000 principal amount of notes is
9.6852
Essex common shares, payable in cash and Essex common shares, if
any, as
described below under “Description
of Notes— Exchange Settlement.”
This is equivalent to an initial exchange price of $103.25 per Essex
common share. In addition, if certain fundamental change transactions
occur prior to November 4, 2010 and a holder elects to exchange notes
in
connection with any such transaction, we will increase the exchange
rate
in connection with such transaction by a number of additional Essex
common
shares, based on the date such transaction becomes effective and
the price
paid per Essex common share in such transaction as described under
“Description
of Notes — Exchange Rate Adjustments — Exchange Rate Adjustment Upon
Certain Fundamental Changes”
in this prospectus, unless such transaction constitutes a public
acquirer
change of control and we elect to modify the exchange right for a
right to
exchange the notes for cash and shares of public acquirer common
stock, if
any. The exchange rate may also be adjusted under other circumstances
as
described below under “Description
of Notes — Exchange Rate Adjustments.”
|
Exchange
Rate Adjustments
|
As
described under “Description
of Notes — Exchange Rate Adjustments,”
the exchange rate may be adjusted upon the occurrence of certain
events,
including the payment of quarterly cash dividends in excess of $0.84
per
share on the Essex common shares, but will not be adjusted for accrued
and
unpaid interest. The exchange rate will not be adjusted to the extent
that
such adjustments would reduce the exchange price below
$10.00.
|
Exchange
Settlement
|
Subject
to certain exceptions described under “Description
of Notes”
in this prospectus, for each $1,000 principal amount of notes exchanged,
a
holder will be entitled to receive cash and, if applicable, Essex
common
shares, the aggregate value of which (the “exchange value”) will be
determined by multiplying the applicable exchange rate by the average
of
the daily volume weighted average price per share of Essex common
shares
for each of the 20 consecutive trading days beginning on the second
trading day immediately following the day the notes are tendered
for
exchange.
|
|
Except as described in this prospectus, we will
deliver the exchange value of the notes surrendered for exchange
to
exchanging holders as follows: (1) a cash amount (the “principal return”)
equal to the lesser of (a) the aggregate exchange value of the notes
to be
exchanged and (b) the aggregate principal amount of the notes to
be
exchanged; (2) if the aggregate exchange value of the notes to be
exchanged is greater than the principal return, an amount payable
in cash
or, at our election, in whole Essex common shares, determined as
set forth
in this prospectus, or a combination thereof, equal to the aggregate
exchange value less the principal return (the “net amount”); and (3) a
cash amount in lieu of any fractional Essex common shares. Exchange
settlement will occur no later than the third business day following
the
determination of the average price.
|
Optional
Redemption
|
Prior
to November 4, 2010, we may not redeem the notes except to preserve
the
status of Essex as a REIT. However, on or after November 4, 2010,
we may
redeem the notes in whole or in part, upon not less than 30 nor more
than
60 days’ prior written notice to holders of the notes, for cash equal to
100% of the principal amount of the notes to be redeemed, plus any
accrued
and unpaid interest (including additional interest, if any) to, but
not
including, the redemption date.
|
Repurchase
at Option of Holders on Certain Dates
|
Holders
of notes may require us to repurchase all or a portion of their notes
for
cash on November 1, 2010, 2015 and 2020 at a repurchase price equal
to
100% of the principal amount of the notes to be repurchased plus
any
accrued and unpaid interest (including additional interest, if any)
to,
but not including, the repurchase date.
|
Repurchase
at Option of Holders Upon a Fundamental Change
|
Upon
the occurrence of a fundamental change, as defined in this prospectus,
holders may require us to repurchase all or a portion of their notes
for
cash at a repurchase price equal to 100% of the principal amount
of the
notes to be repurchased plus any accrued and unpaid interest (including
additional interest, if any) to, but not including, the repurchase
date.
|
Ownership
Limit
|
In
order to maintain Essex’s qualification as a REIT under the Internal
Revenue Code, ownership by any person of more than 6.0% of Essex’s
outstanding common shares is, subject to certain exceptions, restricted.
Shares owned in excess of such limits shall be deemed “excess stock”
pursuant to Essex’s charter, in which case the holder will lose certain
ownership rights with respect to such shares. See “Description
of Notes — Ownership Limit” and “Description of Capital
Stock.”
|
Registration
Rights
|
We
and Essex have agreed to file, at our expense, with the SEC within
90
calendar days after the original issuance of the notes, and to use
our and
Essex’s reasonable best efforts to cause to become effective within 180
calendar days after the original issuance of the notes, a shelf
registration statement with respect to the resale of the notes and
the
Essex common shares issuable upon exchange of the notes. See “Description
of Notes — Registration Rights; Additional Interest.”
We
and Essex have also agreed to use our and their reasonable best efforts
to
keep the shelf registration statement effective until the earliest
of the
following:
|
|
· the
date when all registrable securities have been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
· the
date when all registrable securities may be resold without restriction
pursuant to Rule 144(k) under the Securities Act.
To
sell your notes or any Essex common shares issued upon exchange of
the
notes pursuant to the shelf registration statement, you must, among
other
things, be named as a selling securityholder in the prospectus. To
be so
named, you must complete and deliver a notice and questionnaire,
which is
available upon request from us.
If
we and Essex fail to comply with specified obligations under the
registration rights agreement, additional interest will be payable
on the
notes. See “Description
of Notes — Registration Rights; Additional Interest.”
This
prospectus is part of the shelf registration statement filed pursuant
to
the terms of the registration rights agreement.
|
The
PORTALSM
Market
|
The
notes are designated for trading in The PORTALSM
Market.
The notes sold using this prospectus, however, will no longer be
eligible
for trading on The PORTALSM
Market.
We do not intend to apply for listing of the notes on any securities
exchange or for the inclusion of the notes in any automated quotation
system.
|
New
York Stock Exchange Symbol for Common Stock
|
Essex
common shares are listed on the New York Stock Exchange under the
symbol
“ESS.”
|
Use
of Proceeds
|
We
will not receive any cash proceeds from the sale of the notes or
Essex
common shares issuable upon exchange of the notes offered under this
prospectus.
|
Book-Entry
Form
|
The
notes are issued in book-entry only form and are represented by a
permanent global certificate deposited with a custodian for, and
registered in the name of a nominee of The Depository Trust Company,
commonly known as DTC, in New York, New York. Beneficial interest
in the
global certificate representing the notes will be shown on, and transfer
will be effected only through, records maintained by DTC and its
direct
and indirect participants and such interests may not be exchanged
for
certificated notes, except in limited circumstances described in
“Description
of Notes — Book-Entry System.”
|
Material
U.S. Federal Income Tax Considerations
|
The
notes and the Essex common shares issuable upon exchange of the notes
are
subject to special and complex United States federal income tax rules.
Holders are urged to consult their own tax advisors with respect
to the
federal, state, local and foreign tax consequences of purchasing,
owning
and disposing of the notes and Essex common shares issuable upon
exchange
of the notes. See “Material
U.S. Federal Income Tax Considerations.”
|
Risk
Factors
|
You
should read carefully the “Risk
Factors”
section of this prospectus beginning on page 11 of this prospectus
to
ensure that you understand the risks associated with an investment
in the
notes and the Essex common shares that may be issued upon exchange
of the
notes.
|
You
should carefully consider the risks described below before making a decision
to
invest in the notes and the Essex common shares for which the notes, in certain
circumstances, are exchangeable. These risks are not the only ones faced by
Essex Portfolio and Essex Property Trust. Additional risks not presently known
or that are currently deemed immaterial could also materially and adversely
affect the financial condition, results of operations, business and prospects
of
Essex Property Trust and its subsidiaries, including Essex Portfolio. The
trading price of the notes and the Essex common shares for which the notes,
under certain circumstances, are exchangeable could decline due to any of these
risks, and you may lose all or part of your investment.
Risks
Related to this Offering
The
effective subordination of the notes may limit our ability to satisfy our
obligations under the notes.
The
notes
are senior unsecured obligations of Essex Portfolio and rank equally with all
of
our other indebtedness that is not expressly subordinated to the notes. However,
the notes are effectively subordinated to all of the secured indebtedness of
Essex Portfolio to the extent of the value of the collateral securing such
indebtedness. As of September 30, 2005, the total secured indebtedness of Essex
Portfolio was approximately $1.26 billion. The indenture governing the notes
does not prohibit us from incurring additional secured indebtedness in the
future. Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to us, the holders of any
secured indebtedness will be entitled to proceed directly against the collateral
that secures such secured indebtedness. Therefore, such collateral will not
be
available for satisfaction of any amounts owed under our unsecured indebtedness,
including the notes, until such secured indebtedness is satisfied in
full.
The
notes
also are effectively subordinated to all unsecured and secured liabilities
and
preferred equity of the subsidiaries of Essex Portfolio. In the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with
respect to any such subsidiary, Essex Portfolio, as an equity owner of such
subsidiary, and therefore holders of our debt, including the notes, will be
subject to the prior claims of such subsidiary’s creditors, including trade
creditors, and preferred equity holders. As of September 30, 2005, the total
liabilities (exclusive of intercompany debt, trade payables, dividends payable
and accrued expenses) of Essex Portfolio was approximately $1.31 billion. In
addition, as of September 30, 2005, the total liabilities (exclusive of
intercompany indebtedness, trade payables, dividends payable and accrued
expenses) of the entities which we account for under the equity method of
accounting was approximately $190.6 million. The indenture governing the notes
does not prohibit our subsidiaries from incurring additional indebtedness or
issuing preferred equity in the future.
We
may not have the cash necessary to pay the principal return and any net amount
upon an exchange of notes or to repurchase the notes on specified dates or
following certain fundamental change transactions.
Upon
an
exchange of notes in accordance with their terms, we will be required to pay
the
principal return of such notes in cash. Furthermore, there may be circumstances
that prevent us from issuing Essex common shares for all or any portion of
any
net amount deliverable upon an exchange of notes, thereby requiring us to
satisfy our net amount obligation in cash. Holders of notes also have the right
to require us to repurchase the notes for cash on November 1, 2010, 2015 and
2020 or upon the occurrence of certain fundamental change transactions. Any
of
our future debt agreements or securities may contain similar provisions. We
may
not have sufficient funds to pay the principal return and any such net cash
amount or make the required repurchase of notes, as the case may be, in cash
at
the applicable time and, in such circumstances, may not be able to arrange
the
necessary financing on favorable terms. In addition, our ability to pay the
principal return and any such net cash amount or make the required repurchase,
as the case may be, may be limited by law or the terms of other debt agreements
or securities. Our failure to pay the principal return and any such net cash
amount or make the required repurchase, as the case may be, would constitute
an
event of default under the indenture governing the notes which, in turn, could
constitute an event of default under other debt agreements or securities,
thereby resulting in their acceleration and required prepayment and further
restrict our ability to make such payments and repurchases.
Essex
Property Trust has no operations, other than as our general partner, and no
material assets, other than its investment in us.
The
notes
are fully and unconditionally guaranteed by Essex Property Trust. However,
Essex
Property Trust has no operations, other than as our general partner, and no
material assets, other than its investment in us. Furthermore, Essex Property
Trust’s guarantee of notes are effectively subordinated to all unsecured and
secured liabilities and preferred equity of its subsidiaries (including the
entities we account for under the equity method of accounting).
There
is currently no active public trading market for the notes, and an active public
trading market for the notes may not develop or, if it develops, be maintained
or be liquid.
There
is
no established public trading market for the notes. The notes originally issued
in the private placement are eligible for trading, and are currently designated
for trading, on The Portal Market. However, notes sold pursuant to this
prospectus will no longer be eligible for trading on The Portal Market. We
do
not intend to apply for listing of the notes on any securities exchange or
for
quotation of the notes on any automated dealer quotation system. Although the
initial purchasers have advised us that they intend to make a market in the
notes, they are not obligated to do so and may discontinue any market-making
at
any time without notice. Accordingly, an active public trading market may not
develop for the notes and, even if one develops, may not be maintained or be
liquid. If an active public trading market for the notes does not develop or
is
not maintained, the market price and liquidity of the notes is likely to be
adversely affected and holders may not be able to sell their notes at desired
times and prices or at all. If any of the notes are traded after their purchase,
they may trade at a discount from their purchase price.
The
liquidity of the trading market, if any, and future trading prices of the notes
will depend on many factors, including, among other things, the market price
of
Essex common shares, prevailing interest rates, the financial condition, results
of operations, business, prospects and credit quality of Essex Property Trust
and its subsidiaries, including us, and other comparable entities, the market
for similar securities and the overall securities market, and may be adversely
affected by unfavorable changes in any of these factors, some of which are
beyond our control and others of which would not affect debt that is not
convertible or exchangeable into capital stock. Historically, the market for
convertible or exchangeable debt has been volatile. Market volatility could
materially and adversely affect the notes, regardless of the financial
condition, results of operations, business, prospects or credit quality of
Essex
Property Trust and its subsidiaries, including us.
Additional
notes issued pursuant to the exercise of the initial purchasers’ option may not
be fungible with the notes issued on the original issue date.
We
intend
to treat the notes issued pursuant to the initial purchasers’ exercise of their
option to purchase additional notes as a “qualified reopening” of the original
issuance, within the meaning of the U.S. Treasury regulations governing original
issue discount on debt instruments (the “OID Regulations”). Accordingly, for
purposes of the OID Regulations, we will treat the notes issued upon exercise
of
the option as having the same issue date and the same issue price as the notes
issued on the original issue date. If the additional notes issued upon exercise
of the option did not constitute a “qualified reopening” of the original
issuance under the OID Regulations, such additional notes may have a different
amount of original issue discount for tax purposes than the original issue,
and
may not be fungible for tax purposes with the original issue. If any additional
notes are not fungible with the original issue for tax purposes, they would
be
assigned a separate CUSIP number and would not trade together with the original
notes as of the date of determination. As a result, the trading market for
such
additional notes would be substantially reduced, and holders of such additional
notes at the time of such determination may not be able to sell their notes
at
desired times and prices or at all. Any such additional notes may trade at
a
substantial discount from their purchase price.
Holders
of notes are not entitled to any rights with respect to Essex common shares,
but
are subject to all changes made with respect to Essex common
shares.
Holders
of notes are not entitled to any rights with respect to Essex common shares
(including, without limitation, voting rights and rights to receive any
dividends or other distributions on Essex common shares), but holders of notes
are subject to all changes affecting Essex common shares. Holders of notes
are
entitled to the rights afforded Essex common shares only if and when Essex
common shares are delivered to them upon an exchange of notes. For example,
in
the event that an amendment is proposed to the charter or bylaws of Essex
Property Trust requiring stockholder approval and the record date for
determining the stockholders of record entitled to vote on the amendment occurs
prior to a holder’s receipt of Essex common shares upon an exchange of notes,
such holder will not be entitled to vote on the amendment, although such holder
will nevertheless be subject to any changes affecting Essex common
shares.
The
price of Essex common shares may fluctuate significantly.
The
market price of Essex common shares may fluctuate significantly in response
to
many factors, including:
· |
actual
or anticipated changes in operating results or business
prospects;
|
· |
changes
in financial estimates by securities
analysts;
|
· |
an
inability to meet or exceed securities analysts’ estimates or
expectations;
|
· |
conditions
or trends in our industry or
sector;
|
· |
the
performance of other multifamily residential REITs and related market
valuations;
|
· |
announcements
by Essex or its competitors of significant acquisitions, strategic
partnerships, divestitures, joint ventures or other strategic initiatives;
|
· |
hedging
or arbitrage trading activity in Essex common
shares;
|
· |
changes
in interest rates;
|
· |
additions
or departures of key personnel; and
|
· |
future
sales of Essex common shares or securities convertible into, or
exchangeable or exercisable for, Essex common
shares.
|
Holders
who receive Essex common shares upon exchange of their notes will be subject
to
the risk of volatile and depressed market prices of Essex common shares. In
addition, many of the factors listed above are beyond our control. These factors
may cause the market price of Essex common shares to decline, regardless of
the
financial condition, results of operations, business or prospects of Essex
Property Trust and its subsidiaries. It is impossible to assure exchanging
holders that the market prices of Essex common shares will not fall in the
future.
The
conditional exchange feature of the notes may prevent an exchange of notes
prior
to November 1, 2020. We also have the right to deliver all cash upon an exchange
of notes and holders may not receive any Essex common shares upon
exchange.
The
notes
are exchangeable (i) prior to the close of business on the second business
day
prior to the stated maturity date at any time on or after November 1, 2020
and
(ii) prior to November 1, 2020 but only if the closing
sale
price of Essex common shares reaches a specified threshold over a specified
time
period, if the trading price of the notes is below a specified threshold for
a
specified time period, if those notes have been called for redemption, if
certain specified corporate transactions or events or a fundamental change
occurs, and then only at prescribed times, or if Essex common shares cease
to be
listed on a U.S. national or regional securities exchange or the Nasdaq National
Market for 30 consecutive trading days. See “Description
of Notes—Exchange Rights”
in
this
prospectus. If these conditions are not met, holders of notes will not be able
to exchange their notes prior to November 1, 2020 and therefore may not be
able
to receive the value of the consideration for which the notes would otherwise
be
exchangeable. In addition, even if such conditions are met, upon an exchange
of
notes, we are required to pay the principal return in cash and, to the extent
any net amount exists, we may elect to pay the entire net amount in cash. As
a
result, we are not required to deliver any Essex common shares upon an exchange
of notes. Therefore, holders may not be able to obtain any benefits of future
ownership of Essex common shares upon any such exchange and would be required
to
incur the related transaction costs to purchase Essex common shares with the
cash consideration received upon such exchange, including Essex common shares
that holders may require in order to cover short positions.
The
increase in the exchange rate for notes exchanged in connection with certain
fundamental change transactions may not adequately compensate holders for the
lost option time value of their notes as a result of any such fundamental
change.
If
certain transactions that constitute a fundamental change occur prior to
November 4, 2010, under certain circumstances, we will increase the exchange
rate by a number of additional Essex common shares for a stated period as
provided herein. This increased exchange rate will apply only to holders who
exchange their notes in connection with any such transaction. The number of
additional Essex common shares will be determined based on the date on which
the
transaction becomes effective and the price paid per Essex common share in
such
transaction, as described under “Description
of Notes — Exchange Rate Adjustments — Exchange Rate Adjustment After Certain
Fundamental Changes”
in
this
prospectus. Although the number of additional Essex common shares is designed
to
compensate holders for the lost option time value of the notes as a result
of
such transaction, the amount of the increase in the exchange rate is only an
approximation of such lost value and may not adequately compensate holders
for
such loss. In addition, notwithstanding the foregoing, if (i) such transaction
occurs on or after November 4, 2010, (ii) the price paid per Essex common share
in the transaction is less than $87.39 or in excess of $170.00 or (iii) we
elect, in the case of a public acquirer change of control, to modify the
exchange right in lieu of increasing the exchange rate, the exchange rate will
not be increased.
The
exchange rate of the notes may not be adjusted to the extent that the
adjustments would reduce the exchange price to below $10.00.
The
exchange rate of the notes may not be adjusted, including in connection with
a
fundamental change, to the extent that the adjustments would reduce the exchange
rate to below $10.00. See “Description
of Notes — Exchange Rate Adjustments.”
As
a
result, holders of the notes will not realize the benefits of an increase to
the
exchange rate otherwise described in this prospectus if such increase, together
with previous increases, would result in the exchange price falling below
$10.00.
The
exchange rate of the notes is subject to adjustment for certain events,
including, but not limited to, certain dividends on Essex common shares, the
issuance of certain rights, options or warrants to holders of Essex common
shares, subdivisions or combinations of Essex common shares, certain
distributions of assets, debt securities, capital stock or cash to holders
of
Essex common shares and certain tender or exchange offers, and in certain
circumstances, in connection with a fundamental change, as described under
“Description
of Notes — Exchange Rate Adjustments”
in
this
prospectus. The exchange rate will not be adjusted for other events, such as
an
issuance of Essex common shares for cash, that may adversely affect the trading
price of the notes and Essex common shares. An event may occur that is adverse
to the interests of the holders of the notes and their value but does not result
in an adjustment to the exchange rate.
The
definition of a fundamental change requiring us to repurchase notes is limited
and therefore the market price of the notes may decline if Essex Portfolio
or
Essex Property Trust enters into a transaction that is not a fundamental change
under the indenture.
The
term
“fundamental change,” as used in the notes and the indenture, is limited and may
not include every event that might cause the market price of the notes to
decline. As a result, our obligation to repurchase the notes upon a fundamental
change may not preserve the value of the notes in the event of a highly
leveraged transaction, reorganization, merger or similar
transaction.
Upon
exchange of the notes, holders may receive less consideration than expected
because the value of Essex common shares may decline between the day that the
exchange right is exercised and the day the value of the Essex common shares
is
determined.
The
exchange value that holders will receive upon exchange of notes will be
determined on the basis of the average of the daily volume weighted average
price per price of Essex common shares on the New York Stock Exchange for each
of the 20 consecutive trading days beginning on the second trading day following
the date the notes are tendered for exchange. Accordingly, if the price of
Essex
common shares decreases after the exchange right is exercised, the exchange
value will be adversely affected.
The
net share settlement feature of the notes may have adverse
consequences.
The
net
share settlement feature of the notes, as described under “Description
of Notes — Exchange Settlement”
in
this
prospectus, may:
· |
result
in holders receiving no shares upon exchange or fewer shares relative
to
the exchange value of the notes;
|
· |
reduce
our liquidity because we will be required to pay the principal return
in
cash and may, at our option, pay the net amount in cash as
well;
|
· |
delay
holders’ receipt of the proceeds upon exchange;
and
|
· |
subject
holders to market risk before receiving any shares upon
exchange.
|
Ownership
limitations in the charter of Essex Property Trust may impair the ability of
holders to exchange notes for Essex common shares.
In
order
to assist Essex Property Trust in maintaining its qualification as a REIT for
federal income tax purposes, ownership by any person of more than 6.0% of
outstanding Essex common shares is, with certain exceptions, restricted. Shares
owned in excess of such limit will be deemed “excess stock” pursuant to Essex
Property Trust’s charter, in which case the applicable holder will lose certain
ownership rights with respect to such shares. The Board of Directors may also
exempt a stockholder from the ownership limit if it received satisfactory
evidence that such stockholder’s ownership of Essex common shares in excess of
the ownership limit will not jeopardize Essex’s status as a REIT. As a condition
to providing such an exemption, the Board of Directors must receive an opinion
of counsel and representations and agreements from the applicant with respect
to
preserving Essex’s REIT status. See “Description
of Capital Stock”
in
this
prospectus. Notwithstanding any other provision of the notes, no holder of
notes
will be entitled to receive Essex common shares upon an exchange of notes to
the
extent that receipt of such Essex common shares would cause such holder
(together with such holder’s affiliates) to exceed the ownership limit contained
in the charter of Essex Property Trust. In such case, such holder would receive
cash upon exchange, as provided herein. See “Description
of Capital Stock.”
U.S.
Federal Income Tax Risks Related to the Notes
Certain
of the possible adjustments to the exchange rate may result in a deemed
distribution from Essex Property Trust or in a deemed payment of interest by
us
to a holder of a debenture.
The
exchange rate of the notes is subject to adjustment under certain circumstances.
If certain of the possible adjustments to the exchange rate of the notes are
made, a holder may be deemed to have received a distribution from Essex Property
Trust or additional interest from us. See “Material
U.S. Federal Income Tax Considerations.”
The
notes will have original issue discount (“OID”) for U.S. federal income tax
purposes and accordingly U.S. holders of notes will be required to include
OID
in income in advance of the receipt of cash attributable to such income.
The
notes
will have OID for U.S. federal income tax purposes. U.S. holders generally
must
include OID in income for U.S. federal income tax purposes under a constant
yield accrual method regardless of their regular method of tax accounting.
As a
result, U.S. holders will include OID in income in advance of the receipt of
cash attributable to such income. See “Material
U.S. Federal Income Tax Considerations — U.S. Holders of the Notes — Original
Issue Discount.”
The
exchange of notes for cash and any Essex common shares will be taxable for
holders.
Upon
any
exchange of notes for cash and any Essex common shares or shares of public
acquirer common stock, as applicable, a U.S. holder will recognize gain or
loss
equal to the difference between the amount realized and such holder’s adjusted
basis in such notes.
We
will withhold on payments to non-U.S. holders of notes in a redemption or
exchange of notes for cash and any Essex common shares or shares of public
acquirer common stock.
We
intend
to withhold U.S. federal income tax from any amount paid to non-U.S. holders
of
notes in a redemption or exchange of notes for cash and any Essex common shares
or shares of public acquirer common stock, as applicable. We also intend to
withhold U.S federal income tax from any amount paid to non-U.S. holders with
respect to deemed distributions from Essex Property Trust that may result in
connection with certain adjustments made to the exchange rate of the notes.
See
“Material
U.S. Federal Income Tax Considerations.”
Risks
Related to our Business and the Essex Common Shares
We
depend on our key personnel
Our
success depends on our ability to attract and retain the services of executive
officers, senior officers and company managers. There is substantial competition
for qualified personnel in the real estate industry and the loss of several
of
Essex Property Trust’s key personnel could have an adverse effect on
us.
Debt
Financing
At
September 30, 2005, we had approximately $1.31 billion of indebtedness
(including $344.6 million of variable rate indebtedness, of which $138.9 million
is subject to interest rate protection agreements).
We
are
subject to the risks normally associated with debt financing, including the
following:
· |
cash
flow may not be sufficient to meet required payments of principal
and
interest;
|
· |
inability
to refinance existing indebtedness, including on encumbered
properties;
|
· |
the
terms of any refinancing may not be as favorable as the terms of
existing
indebtedness;
|
· |
inability
to comply with debt covenants which could cause an acceleration of
the
maturity date; and
|
· |
repaying
debt before the scheduled maturity date could result in prepayment
penalties.
|
Uncertainty
of Ability to Refinance Balloon Payments
At
September 30, 2005, we had an aggregate of approximately $1.31 billion of
mortgage debt and line of credit borrowings, most of which are subject to
balloon payments of principal. We do not expect to have sufficient cash flows
from operations to make all of such balloon payments when due under these
mortgages and the line of credit borrowings. At September 30, 2005, these
mortgages and lines of credit borrowings had the following scheduled principal
payments:
· |
October
1 to December 31, 2005 — $6.5
million;
|
· |
2007
— $182.4 million (includes lines of credit balance of $56 million as
of
September 30, 2005);
|
· |
2009
— $147.7 million (includes lines of credit balance of $93.7 million
as of
September 30, 2005);
|
· |
2010
and thereafter — $795.3 million.
|
We
may
not be able to refinance such mortgage indebtedness or lines of credit. The
properties subject to these mortgages could be foreclosed upon or otherwise
transferred to the mortgagee. This could cause us to lose income and asset
value. Alternatively, we may be required to refinance the debt at higher
interest rates. If we are unable to make such payments when due, a mortgage
lender could foreclose on the property securing the mortgage, which could have
a
material adverse effect on our financial condition and results of
operations.
Economic
Environment and Impact on Operating Results
Both
the
national economy and the economies of the western states in which we own, manage
and develop properties, some of which are concentrated in high-tech sectors,
are
subject to economic downturns. The impact of such downturns on our operating
results can include, without limitation, reduction in rental rates, occupancy
levels, property valuations and increases in operating costs such as
advertising, turnover and repair and maintenance expenses. Reductions in
occupancy and market rental rates could result in a reduction of rental
revenues, operating income, cash flows, and the market value of our common
stock. A prolonged downturn could also affect our ability to obtain financing
at
acceptable rates of interest and to access funds from the disposition of
properties at acceptable prices.
Risk
of Rising Interest Rates
At
September 30, 2005, we had approximately $194.9 million of long-term variable
rate indebtedness bearing interest at floating rates tied to the rate of
short-term tax-exempt revenue bonds (which mature at various dates from 2006
through 2034), and $149.7 million of variable rate indebtedness under our lines
of credit, of which $56 million bears interest at 1.0% over LIBOR and $93.7
million bearing interest at the Freddie Mac Reference Rate plus from 0.55%
to
0.59%. At September 30, 2005, approximately $205.7 million of our long-term
variable rate indebtedness was not subject to any interest rate protection
agreements. Accordingly, an increase in interest rates may have an adverse
effect on our net income and results of operations.
Current
interest rates are at historic lows and could potentially increase rapidly.
Significant and rapid interest rate increases would result in higher interest
expense on our variable rate indebtedness. Prolonged interest rate increases
could negatively impact our ability to make acquisitions and develop properties
at economic returns on investment and our ability to refinance existing
borrowings at acceptable rates.
Risk
of Inflation/Deflation
Substantial
inflationary or deflationary pressures could have a negative effect on rental
rates and property operating expenses, which would adversely affect our
financial position and our results of operations.
Risk
of Losses on Interest Rate Hedging Arrangements
We
have,
from time to time, entered into agreements to reduce the risks associated with
increases in interest rates, and may continue to do so. Although these
agreements may partially protect against rising interest rates, these agreements
also may reduce the benefits to us when interest rates decline. We cannot assure
you that we can refinance any such hedging arrangements or that we will be
able
to enter into other hedging arrangements to replace existing ones if interest
rates decline. Furthermore, interest rate movements during the term of interest
rate hedging arrangements may result in a gain or loss on our investment in
the
hedging arrangement. In addition, if a hedging arrangement is not indexed to
the
same rate as the indebtedness that is hedged, we may be exposed to losses to
the
extent that the rate governing the indebtedness and the rate governing the
hedging arrangement change independently of each other. Finally, nonperformance
by the other party to the hedging arrangement may subject us to increased credit
risks. In order to minimize counterparty credit risk, our policy is to enter
into hedging arrangements only with large financial institutions.
On
February 16, 2005, Essex entered into a $50.0 million notional forward-starting
swap with a commercial bank at a fixed rate of 4.927% and a settlement date
on
or around October 1, 2007. This 10-year forward starting interest rate swap
issued to hedge the cash flows associated with the forecasted issuance of debt
expected to occur in 2007.
On
August
18, 2005, Essex entered into a $50.0 million notional forward-starting swap
with
a commercial bank as a fixed rate of 4.869% and a settlement date between
January 1, and December 1, 2008. This 10-year forward starting
interest rate swap is used to hedge the cash flows associated with the
forecasted issuance of debt expected to occur in 2008.
At
September 30, 2005, derivative instruments designated as cash flow hedges were
recorded as a net derivative asset of $91,000 and were included in prepaid
expenses and other assets. The net change in fair value of the derivative
instruments for the nine months was a net unrealized gain of $91,000.
Derivatives designated as cash flow hedges are separately disclosed in the
statement of changes in shareholders’ equity accumulated other comprehensive
income. No hedge ineffectiveness on cash flow hedges was recognized during
2005.
Essex did not have accumulated other comprehensive income in 2004.
Acquisition
Activities: Risks that Acquisitions Will Fail to Meet
Expectations
We
intend
to continue to acquire multifamily residential properties. There are risks
that
acquired properties will fail to perform as expected. Our estimates of future
income, expenses and the costs of improvements or redevelopment that are
necessary to allow us to market an acquired property as originally intended
may
prove to be inaccurate. We expect to finance future acquisitions, in whole
or in
part, under various forms of secured or unsecured financing or through the
issuance of partnership units by the Operating Partnership or related
partnerships or additional equity by Essex. The use of equity financing, rather
than debt, for future developments or acquisitions could dilute the interest
of
Essex’s existing stockholders. If we finance new acquisitions under existing
lines of credit, there is a risk that, unless we obtain substitute financing,
Essex may not be able to secure further lines of credit for new development
or
such lines of credit may be not available on advantageous terms.
Further,
acquisitions of properties are subject to the general risks associated with
real
estate investments. For further information regarding these risks, please see
‘‘---Adverse
Effect to Property Income and Value Due to General Real Estate Investment
Risks.’’
Risks
that Development Activities Will Be Delayed, not Completed, and/or Fail to
Achieve Expected Results
We
pursue
multifamily residential property development projects and these projects
generally require various governmental and other approvals, which we cannot
assure you that we will receive. Our development activities generally entail
certain risks, including the following:
· |
funds
may be expended and management’s time devoted to projects that may not be
completed;
|
· |
construction
costs of a project may exceed original estimates, possibly making
the
project economically unfeasible;
|
· |
development
projects may be delayed due to, without limitation, adverse weather
conditions, labor shortages, or unforeseen
complications;
|
· |
occupancy
rates and rents at a completed project may be less than anticipated;
and
|
· |
operating
costs at a completed development may be higher than
anticipated.
|
These
risks may reduce the funds available for distribution to Essex’s stockholders.
Further, the development of properties is also subject to the general risks
associated with real estate investments. For further information regarding
these
risks, please see ‘‘---Adverse
Effect to Property Income and Value Due to General Real Estate Investment
Risks.’’
The
Geographic Concentration of the Properties and Fluctuations in Local Markets
May
Adversely Impact Our Financial Conditions and Results of
Operations
We
derived significant amounts of rental revenues for the nine months ended
September 30, 2005 from properties concentrated in Southern California (Los
Angeles, Ventura, Orange, San Diego and Riverside counties), Northern California
(the San Francisco Bay Area), and the Pacific Northwest (the Seattle, Washington
and Portland, Oregon metropolitan areas). As of September 30, 2005, of our
125
ownership interests in multifamily residential properties, 91 are located in
California. As a result of this geographic concentration, if a local property
market performs poorly, the income from the properties in that market could
decrease. As a result of such a decrease in income, we may be unable to pay
expected dividends to our stockholders. The performance of the economy in each
of these areas affects occupancy, market rental rates and expenses and,
consequently, impacts the income generated from the properties and their
underlying values. The financial results of major local employers also may
impact the cash flow and value of certain of the properties. Economic downturns
in the local markets in which we own properties could have a negative impact
on
our financial condition and results of operations.
Competition
in the Multifamily Residential Market May Adversely Affect Operations and the
Rental Demand for Our Properties
There
are
numerous housing alternatives that compete with our multifamily properties
in
attracting residents. These include other multifamily rental apartments and
single-family homes that are available for rent in the markets in which the
properties are located. The properties also compete for residents with new
and
existing homes and condominiums that are for sale. If the demand for our
properties is reduced or if competitors develop and/or acquire competing
properties on a more cost-effective basis, rental rates and occupancy may drop,
which may have a material adverse affect on our financial condition and results
of operations.
We
also
face competition from other real estate investment trusts, businesses and other
entities in the acquisition, development and operation of properties. Some
of
the competitors are larger and have greater financial resources than we do.
This
competition may result in increased costs of properties we acquire and/or
develop.
Debt
Financing on Properties May Result in Insufficient Cash Flow
Where
possible, we intend to continue to use leverage to increase the rate of return
on our investments and to provide for additional investments that we could
not
otherwise make. There is a risk that the cash flow from the properties will
be
insufficient to meet both debt payment obligations and the distribution
requirements of the real estate investment trust provisions of the Internal
Revenue Code. We may obtain additional debt financing in the future through
mortgages on some or all of the properties. These mortgages may be recourse,
non-recourse, or cross-collateralized. As of September 30, 2005, Essex had
81 of
its 115 consolidated multifamily properties encumbered by debt. Of the 81
properties, 62 are secured by deeds of trust relating solely to those
properties, and with respect to the remaining 19 properties, 4
cross-collateralized mortgages are secured by 8 properties, 6 properties, 3
properties, and 2 properties, respectively. The holders of this indebtedness
will have a claim against these properties and, to the extent indebtedness
is
cross-collateralized, lenders may seek to foreclose upon properties, which
are
not the primary collateral for their loan. This, in turn, may accelerate other
indebtedness secured by properties. Foreclosure of properties would reduce
our
income and asset value.
Dividend
Requirements as a Result of Preferred Stock May Lead to a Possible Inability
to
Sustain Dividends
The
Operating Partnership currently has $130 million in aggregate of Series B
Cumulative Redeemable Preferred Units (the ‘‘Series B Preferred Units’’) and
Series D Cumulative Redeemable Preferred Units (the ‘‘Series D Preferred
Units’’) outstanding. In addition, Essex has approximately $25 million of Series
F Cumulative Redeemable Preferred Stock (the ‘‘Series F Preferred Stock’’)
outstanding. The Series B Preferred Units, the Series D Preferred Units, and
the
Series F Preferred Stock are collectively referred to as the ‘‘Preferred
Equity’’.
The
terms
of the Series F Preferred Stock and of the preferred stock into which each
series of Preferred Units are exchangeable provide for certain cumulative
preferential cash distributions per each share of preferred stock. These terms
also provide that while such preferred stock is outstanding, Essex cannot
authorize, declare, or pay any distributions on Essex common shares, unless
all
distributions accumulated on all shares of such preferred stock have been paid
in full. The distributions payable on such preferred stock may impair Essex’s
ability to pay dividends on its common stock.
If
Essex
wishes to issue any common stock in the future (including, upon exercise of
stock options), the funds required to continue to pay cash dividends at current
levels will be increased. Essex’s ability to pay dividends will depend largely
upon the performance of the properties currently owned by us and other
properties that may be acquired in the future.
Essex’s
ability to pay dividends on its stock is further limited by the Maryland General
Corporation Law. Under the Maryland General Corporation Law, Essex may not
make
a distribution on stock if, after giving effect to such distribution,
either:
· |
Essex
would not be able to pay its indebtedness as it becomes due in the
usual
course of business; or
|
· |
Essex
total assets would be less than its total
liabilities.
|
If
Essex
cannot pay dividends on its stock, Essex’s status as a real estate investment
trust for U.S. federal income tax purposes may be jeopardized.
Resale
of Shares Pursuant to Current and Future Registration Statements May Have an
Adverse Effect on the Market Price of the Shares
Pursuant
to the acquisition of John M. Sachs, Inc., a real estate company, in December
2002, we issued 2,719,875 shares of common stock, as partial consideration
for
the acquisition, to the trusts that were the shareholders of that company.
In
connection with the acquisition, Essex entered into a registration rights
agreement with these trusts, pursuant to which in January 2003 we filed a
registration statement on Form S-3 in order to enable the resale of these shares
of common stock. In an amendment to such registration statement filed in April
2003, Essex also registered, pursuant to certain registration rights, 50,000
shares of common stock which are issuable to
the
trusts in connection with certain contractual obligations and 2,270,490 shares
of common stock which are issuable upon exchange of limited partnership
interests in the Operating Partnership. These limited partnership interests
are
held by senior members of our management, certain members of our Board of
Directors and certain outside investors, or the Operating Partnership holders,
and comprise approximately 9.5% of the limited partnership interests of the
Operating Partnership as of December 31, 2005. In addition, the Operating
Partnership has invested in certain real estate partnerships. In the 2003
registration statement, we also registered, pursuant to certain registration
rights, 1,473,125 shares of common stock, which are issuable upon redemption
of
all of the limited partnership interests in such real estate partnerships.
In
sum, the 2003 registration statement covers in aggregate 6,513,490 shares of
our
common stock. In addition, on March 31, 2004, the Operating Partnership issued
109,874 operating partnership units in connection with the acquisition of
Waterford Place, a 238-unit apartment community located in San Jose, California.
Essex has redeemed certain of these operating partnership units for cash. As
to
the remaining operating partnership units, Essex granted certain registration
rights to the holders of such units with respect to the shares of Essex common
shares that are issuable upon exchange of such units. Also, on August 6, 2004,
the Operating Partnership issued 73,088 operating partnership units in
connection with the acquisition of Vista Belvedere, a 76-unit apartment
community located in the Marin County town of Tiburon, California. Essex granted
certain registration rights to the holders of such units with respect to the
shares of Essex common shares that are issuable upon exchange of such units.
On
January 20, 2006, we filed a registration statement that covers the resale
of
the shares of Essex common shares issuable in connection with the Waterford
Place and Vista Belvedere acquisitions. Furthermore, on November 29, 2005,
the
Operating Partnership completed a transaction in which it issued a total of
$225
million aggregate principal amount of 3.625% Exchangeable Senior Notes, which
are exchangeable under certain conditions for shares of Essex common shares.
Essex granted certain registration rights to the purchasers of such notes.
This
prospectus covers the resale of such notes and the Essex common shares issuable
upon the exchange of such notes. The resale of the shares of common stock
pursuant to current and future registration statements may have an adverse
effect on the market price of Essex common shares.
Essex’s
Chairman is Involved in Other Real Estate Activities and Investments, Which
May
Lead to Conflicts of Interest
Essex’s
Chairman, George M. Marcus, is not an employee of Essex. Mr. Marcus owns
interests in various other real estate-related businesses and investments.
He is
the Chairman of The Marcus & Millichap Company, or ‘‘MM’’, which is a
holding company for certain real estate brokerage, services and real estate
investment companies. MM has an interest in Pacific Property Company, a company
that invests in West Coast multifamily residential properties. In 1999, we
sold
an office building to MM, which Essex previously occupied as its corporate
headquarters. Mr. Marcus has agreed not to divulge any information that may
be
received by him in his capacity as Chairman of Essex to any of his affiliated
companies and that he will recuse himself from any and all discussions by the
Essex Board of Directors regarding any proposed acquisition and/or development
of a multifamily property where it appears that there may be a conflict of
interest with any of his affiliated companies. Notwithstanding this agreement,
Mr. Marcus and his affiliated entities may potentially compete with us in
acquiring and/or developing multifamily properties, which competition may be
detrimental to us. In addition, due to such potential competition for real
estate investments, Mr. Marcus and his affiliated entities may have a conflict
of interest with us, which may be detrimental to the interests of Essex’s
stockholders.
The
Influence of Executive Officers, Directors and Significant Stockholders May
Be
Detrimental to Holders of Common Stock
As
of
September 30, 2005, George M. Marcus, the Chairman of Essex’s Board of
Directors, directly or indirectly owned 1,752,111 shares of common stock
(including shares issuable upon exchange of limited partnership interests in
the
Operating Partnership and certain other partnerships and assuming exercise
of
all vested options). This represented approximately 7.6% of the outstanding
Essex common shares at such time. Mr. Marcus currently does not have majority
control over us. However, he currently has, and likely will continue to have,
significant influence with respect to the election of directors and approval
or
disapproval of significant corporate actions. Consequently, his influence could
result in decisions that do not reflect the interests of all Essex’s
stockholders. Under the partnership agreement of the Operating Partnership,
the
consent of the holders of limited partnership interests is generally required
for any amendment of the agreement and for certain extraordinary actions.
Through their ownership of limited partnership interests and their positions
with us, our directors and executive officers, including Mr. Marcus and Mr.
William A. Millichap, a director of Essex, have substantial influence on Essex.
Consequently, their influence could result in decisions that do not reflect
the
interests of all stockholders.
Further
pursuant to the acquisition of John M. Sachs, Inc. in December 2002, we issued,
as partial consideration for the acquisition, 2,719,875 Essex common shares
and
an additional 35,860 Essex common shares in July 2003 to the trusts that were
the shareholders of that company. As a result of this issuance, these trusts
owned, as of September 30, 2005, in aggregate, approximately 5% of Essex’s
outstanding common shares. Pursuant to their ownership interest in Essex, these
trusts may have significant influence over us. Such influence could result
in
decisions that do not reflect the interest of all our stockholders.
The
Voting Rights of Preferred Stock May Allow Holders of Preferred Stock to Impede
Actions that Otherwise Benefit Holders of Common Stock
In
general, the holders of Series F Preferred Stock and of the preferred stock
into
which our preferred units are exchangeable do not have any voting rights.
However, if full distributions are not made on any outstanding preferred stock
for six quarterly distributions periods, the holders of preferred stock who
have
not received distributions, voting together as a single class, will have the
right to elect two additional directors to serve on Essex’s Board of Directors.
These voting rights continue until all distributions in arrears and
distributions for the current quarterly period on the preferred stock have
been
paid in full. At that time, the holders of the preferred stock are divested
of
these voting rights, and the term and office of the directors so elected
immediately terminates. In addition, while any shares of Series F Preferred
Stock or shares of preferred stock into which the preferred units are
exchangeable are outstanding, Essex may not without the consent of the holders
of two-thirds of the outstanding shares of each series of preferred stock,
each
voting separately as a single class:
· |
authorize
or create any class or series of stock that ranks senior to such
preferred
stock with respect to the payment of dividends, rights upon liquidation,
dissolution or winding-up of Essex’s
business;
|
· |
amend,
alter or repeal the provisions of Essex’s charter or bylaws, that would
materially and adversely affect the rights of such preferred stock;
or
|
· |
in
the case of the preferred stock into which our preferred units are
exchangeable, merge or consolidate with another entity or transfer
substantially all of its assets to another entity, except if such
preferred stock remains outstanding with the surviving entity and
has the
same terms and in certain other
circumstances.
|
These
voting rights of the preferred stock may allow holders of preferred stock to
impede or veto actions that would otherwise benefit the holders of Essex’s
common shares.
The
Redemption Rights of the Series B Preferred Units, Series D Preferred Units
and
Series F Preferred Stock may be Detrimental to Holders of Essex Common
Shares
Upon
the
occurrence of one of the following events, the terms of the Operating
Partnership’s Series B and D Preferred Units require it to redeem all of
such units and the terms of Essex’s Series F Preferred Stock provide the holders
of the majority of the outstanding Series F Preferred Stock the right to require
Essex to redeem all of such stock:
· |
Essex
completes a ‘‘going private’’ transaction and its common shares are no
longer registered under the Securities Exchange Act of 1934, as
amended:
|
· |
Essex
completes a consolidation or merger or sale of substantially all
of its
assets and the surviving entity’s debt securities do not possess an
investment grade rating; or
|
· |
Essex
fails to qualify as a REIT.
|
The
aggregate redemption price of the Series B Preferred Units would be $80 million,
the aggregate redemption price of the Series D Preferred Units would be $50
million and the aggregate redemption price of the Series F Preferred Stock
would
be $25 million, plus, in each case, any accumulated distributions.
These
redemption rights may discourage or impede transactions that might otherwise
be
in the interest of holders of Essex common shares. Further, these redemption
rights might trigger in situations where Essex needs to conserve its cash
reserves, in which event such redemption might adversely affect Essex and its
common holders.
Maryland
Business Combination Law May Not Allow Certain Transactions Between Essex and
Its Affiliates to Proceed Without Compliance with Such Law
The
Maryland General Corporation Law establishes special requirements for ‘‘business
combinations’’ between a Maryland corporation and ‘‘interested stockholders’’
unless exemptions are applicable. An interested stockholder is any person who
beneficially owns ten percent or more of the voting power of the
then-outstanding voting stock.
The
law
also requires a supermajority stockholder vote for such transactions. This
means
that the transaction must be approved by at least:
· |
80%
of the votes entitled to be cast by holders of outstanding voting
shares;
and
|
· |
66%
of the votes entitled to be cast by holders of outstanding voting
shares
other than shares held by the interested stockholder with whom the
business combination is to be
effected.
|
However,
as permitted by the statute, the board of directors of Essex irrevocably has
elected to exempt any business combination by it, George M. Marcus, William
A.
Millichap, who are the chairman and a director of Essex, respectively, and
MM or
any entity owned or controlled by Messrs. Marcus and Millichap and MM.
Consequently, the supermajority vote requirement described above will not apply
to any business combination between Essex and Mr. Marcus, Mr. Millichap, or
MM.
As a result, we or Essex may in the future enter into business combinations
with
Messrs. Marcus and Millichap and MM, without compliance with the super-majority
vote requirements and other provisions of the Maryland General Corporation
Law.
Anti-Takeover
Provisions Contained in the Operating Partnership Agreement, Charter, Bylaws,
and Certain Provisions of Maryland Law Could Delay, Defer or Prevent a Change
in
Control
While
Essex is the sole general partner of the Operating Partnership, and generally
has full and exclusive responsibility and discretion in the management and
control of the Operating Partnership, certain provisions of the Operating
Partnership’s partnership agreement place limitations on Essex’s ability to act
with respect to the Operating Partnership. Such limitations could delay, defer
or prevent a transaction or a change in control that might involve a premium
price for Essex common shares or otherwise be in the best interest of the
stockholders or that could otherwise adversely affect the interest of Essex’s
stockholders. The partnership agreement provides that if the limited partners
own at least 5% of the outstanding units of limited partnership interest in
the
Operating Partnership, Essex cannot, without first obtaining the consent of
a
majority-in-interest of the limited partners in the Operating Partnership,
transfer all or any portion of Essex’s general partner interest in the Operating
Partnership to another entity. Such limitations on Essex’s ability to act may
result in it being precluded from taking action that the board of directors
believes is in the best interests of Essex’s stockholders. In addition, as of
September 30, 2005, one individual, George M. Marcus, held or controlled more
than 50% of the outstanding units of limited partnership interest in the
Operating Partnership, allowing such actions to be blocked by a small number
of
limited partners.
Essex’s
charter authorizes the issuance of additional Essex common shares or preferred
stock and the setting of the preferences, rights and other terms of such
preferred stock without the approval of the holders of the common shares. Essex
may establish one or more series of preferred stock that could delay, defer
or
prevent a transaction or a change in control. Such a transaction might involve
a
premium price for our shares or otherwise be in the best interests of the
holders of common shares. Also, such a class of preferred stock could have
dividend, voting or other rights that could adversely affect the interest of
holders of common shares.
Essex’s
charter, as well as Essex’s stockholder rights plan, also contains other
provisions that may delay, defer or prevent a transaction or a change in control
that might be in the best interest of Essex’s stockholders. Essex’s stockholder
rights plan is designed, among other things, to prevent a person or group from
gaining control of us without offering a fair price to all of Essex’s
stockholders. Also, Essex’s bylaws may be amended by its board of directors
(upon which no assurance can be given) to include provisions that would have
a
similar effect, although Essex presently has no such intention. The charter
contains ownership provisions limiting the transferability and ownership of
shares of capital stock, which may have the effect of delaying, deferring or
preventing a transaction or a change in control. For example, subject to
receiving an exemption from the board of directors, potential acquirers may
not
purchase more than 6% in value of the stock (other than qualified pension trusts
which can acquire 9.9%). This may discourage tender offers that may be
attractive to the holders of common stock and limit the opportunity for
stockholders to receive a premium for their shares of common stock.
In
addition, the Maryland General Corporations Law restricts the voting rights
of
shares deemed to be ‘‘control shares.’’ Under the Maryland General Corporations
Law, ‘‘control shares’’ are those which, when aggregated with any other shares
held by the acquirer, entitle the acquirer to exercise voting power within
specified ranges. Although the Essex Bylaws exempt Essex from the control share
provisions of the Maryland General Corporations Law, the Essex board of
directors may amend or eliminate the provisions of the bylaws at any time in
the
future. Moreover, any such amendment or elimination of such provision of the
bylaws may result in the application of the control share provisions of the
Maryland General Corporations Law not only to control shares which may be
acquired in the future, but also to control shares previously acquired. If
the
provisions of the bylaws are amended or eliminated, the control share provisions
of the Maryland General Corporations Law could delay, defer or prevent a
transaction or change in control that might involve a premium price for the
stock or otherwise be in the best interests of Essex’s
stockholders.
Bond
Compliance Requirements May Limit Income From Certain
Properties
At
September 30, 2005, we had approximately $187 million of variable rate
tax-exempt financing relating to the Inglenook Court Apartments, Wandering
Creek
Apartments, Treetops Apartments, Huntington Breakers Apartments, Camarillo
Oaks
Apartments, Fountain Park, Anchor Village, and Parker Ranch Apartments and
$15
million of fixed rate tax-exempt financing related to Meadowood Apartments.
This
tax-exempt financing subjects these properties to certain deed restrictions
and
restrictive covenants. We expect to engage in tax-exempt financings in the
future. In addition, the Internal Revenue Code and rules and regulations
thereunder impose various restrictions, conditions and requirements relating
to
excluding interest on qualified bond obligations from gross income for federal
income tax purposes. The Internal Revenue Code also requires that at least
20%
of apartment units be made available to residents with gross incomes that do
not
exceed a specified percentage, generally 50%, of the median income for the
applicable family size as determined by the Housing and Urban Development
Department of the federal government. In addition to federal requirements,
certain state and local authorities may impose additional rental restrictions.
These restrictions may limit income from the tax-exempt financed properties
if
we are required to lower rental rates to attract residents who satisfy the
median income test. If Essex does not reserve the required number of apartment
homes for residents satisfying these income requirements, the tax-exempt status
of the bonds may be terminated, the obligations under the bond documents may
be
accelerated and we may be subject to additional contractual
liability.
Adverse
Effect to Property Income and Value Due to General Real Estate Investment
Risks
Real
property investments are subject to a variety of risks. The yields available
from equity investments in real estate depend on the amount of income generated
and expenses incurred. If the properties do not generate sufficient income
to
meet operating expenses, including debt service and capital expenditures, cash
flow and the ability to make distributions to stockholders will be adversely
affected. The performance of the economy in each of the areas in which the
properties are located affects occupancy, market rental rates and
expenses.
Consequently,
the income from the properties and their underlying values may be impacted.
The
financial results of major local employers may have an impact on the cash flow
and value of certain of the properties as well.
Income
from the properties may be further adversely affected by, among other things,
the following factors:
· |
the
general economic climate;
|
· |
local
economic conditions in which the properties are located, such as
oversupply of housing or a reduction in demand for rental
housing;
|
· |
the
attractiveness of the properties to
tenants;
|
· |
competition
from other available space;
|
· |
Essex’s
ability to provide for adequate maintenance and insurance;
and
|
· |
increased
operating expenses.
|
Also,
as
leases on the properties expire, tenants may enter into new leases on terms
that
are less favorable to us. Income and real estate values also may be adversely
affected by such factors as applicable laws (e.g., the Americans With
Disabilities Act of 1990 and tax laws), interest rate levels and the
availability and terms of financing. In addition, real estate investments are
relatively illiquid and, therefore, our ability to vary our portfolio promptly
in response to changes in economic or other conditions may be quite
limited.
Essex’s
Joint Ventures and Joint Ownership of Properties and Partial Interests in
Corporations and Limited Partnerships Could Limit Essex’s Ability to Control
Such Properties and Partial Interests
Instead
of purchasing properties directly, Essex has invested and may continue to invest
as a co-venturer. Joint venturers often have shared control over the operation
of the joint venture assets. Therefore, it is possible that the co-venturer
in
an investment might become bankrupt, or have economic or business interests
or
goals that are inconsistent with our business interests or goals, or be in
a
position to take action contrary to our instructions or requests, or our
policies or objectives. Consequently, a co-venturer’s actions might subject
property owned by the joint venture to additional risk. Although Essex seeks
to
maintain sufficient influence of any joint venture to achieve its objectives,
Essex may be unable to take action without its joint venture partners’ approval,
or joint venture partners could take actions binding on the joint venture
without consent. Additionally, should a joint venture partner become bankrupt,
Essex could become liable for such partner’s share of joint venture
liabilities.
From
time
to time, Essex, through the Operating Partnership, invests in corporations,
limited partnerships, limited liability companies or other entities that have
been formed for the purpose of acquiring, developing or managing real property.
In certain circumstances, the Operating Partnership’s interest in a particular
entity may be less than a majority of the outstanding voting interests of that
entity. Therefore, the Operating Partnership’s ability to control the daily
operations of such an entity may be limited. Furthermore, the Operating
Partnership may not have the power to remove a majority of the board of
directors (in the case of a corporation) or the general partner or partners
(in
the case of a limited partnership) of such an entity in the event that its
operations conflict with the Operating Partnership’s objectives. In addition,
the Operating Partnership may not be able to dispose of its interests in such
an
entity. In the event that such an entity becomes insolvent, the Operating
Partnership may lose up to its entire investment in and any advances to the
entity. In addition, Essex has and in the future may enter into transactions
that could require it to pay the tax liabilities of partners, which contribute
assets into joint ventures or the Operating Partnership, in the event that
certain taxable events, which are within Essex’s control, occur. Although Essex
plans to hold the contributed assets or defer recognition of gain on their
sale
pursuant to the like-kind exchange rules under Section 1031 of the Internal
Revenue Code it can provide no assurance that it will be able to do so and
if
such tax liabilities were incurred they could have a material impact on Essex’s
financial position.
Dedicated
Investment Activities and Other Factors Specifically Related to Essex Apartment
Value Fund II, L.P.
In
2004,
Essex organized an investment fund, Essex Apartment Value Fund II, LP. (“Fund
II”), which subject to specific exceptions, is its exclusive investment vehicle
for new investment until at least 90% of Fund II’s committed capital has been
invested or committed for investments, or if earlier, October 31, 2006. Essex
is
committed to invest 28.2% of the aggregate capital committed to Fund II. Fund
II
involves risks to Essex such as the following: its partners in Fund II might
remove Essex as the general partner of Fund II; become bankrupt
(in
which
event it might become generally liable for the liabilities of Fund II); have
economic or business interests or goals that are inconsistent with its business
interests or goals; fail to fund capital commitments as contractually required;
or fail to approve decisions regarding Fund II that are in its best interest.
Essex will, however, generally seek to maintain sufficient influence over Fund
II to permit it to achieve its business objectives.
Investments
In Mortgages And Other Real Estate Securities
Essex
may
invest in securities related to real estate, which could adversely affect its
ability to make distributions to stockholders. Essex may purchase securities
issued by entities that own real estate and may also invest in mortgages or
unsecured debt obligations. These mortgages may be first, second or third
mortgages that may or may not be insured or otherwise guaranteed. In general,
investments in mortgages include the following risks:
· |
that
the value of mortgaged property may be less than the amounts owed,
causing
realized or unrealized losses;
|
· |
the
borrower may not pay indebtedness under the mortgage when due, requiring
Essex to foreclose, and the amount recovered in connection with the
foreclosure may be less than the amount
owed;
|
· |
that
interest rates payable on the mortgages may be lower than our cost
of
funds; and
|
· |
in
the case of junior mortgages, that foreclosure of a senior mortgage
would
eliminate the junior mortgage.
|
If
any of
the above were to occur, cash flows from operations and Essex’s ability to make
expected dividends to its stockholders could be adversely affected.
Possible
Environmental Liabilities
Under
various federal, state and local laws, ordinances and regulations, an owner
or
operator of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on, in, to or migrating from such
property. Such laws often impose liability without regard as to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner’s or
operator’s ability to sell or rent such property or to borrow using such
property as collateral. In addition, persons exposed to such substances, either
through soil vapor or ingestion of the substances, may claim personal injury
damages. Persons who arrange for the disposal or treatment of hazardous or
toxic
substances or wastes also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility to which such
substances or wastes were sent, whether or not such facility is owned or
operated by such person. In addition, certain environmental laws impose
liability for release of asbestos-containing materials (“ACMs”) into the air,
and third parties may seek recovery from owners or operators of real properties
for personal injury associated with ACMs. In connection with the ownership
(direct or indirect), operation, management and development of real properties,
Essex could be considered an owner or operator of such properties or as having
arranged for the disposal or treatment of hazardous or toxic substances and,
therefore, may be potentially liable for removal or remediation costs, as well
as certain other costs, including governmental fines and costs related to
injuries of persons and property.
Investments
in real property create a potential for environmental liabilities on the part
of
the owner of such real property. Essex could carry certain limited insurance
coverage for this type of environmental risk. Essex has conducted environmental
studies which revealed the presence of soil and groundwater contamination at
certain properties. Such contamination at certain of these properties was
reported to have migrated on-site from adjacent industrial manufacturing
operations, and in some cases, from on-site sources. The former industrial
users
of the properties were identified as the source of contamination. The
environmental studies noted that certain properties are located down gradient
from sites with known groundwater contamination, the lateral limits of which
may
extend onto such properties. The environmental studies also noted that at
certain of these properties, contamination existed because of the presence
of
underground fuel storage tanks, which have been removed.
In
general, in connection with the ownership, operation, financing, management
and
development of real properties, Essex may be potentially liable for removal
or
clean-up costs, as well as certain other costs and environmental liabilities.
Essex may also be subject to governmental fines and costs related to injuries
to
persons and property.
Recently
there has been an increasing number of lawsuits against owners and managers
of
multifamily properties alleging personal injury and property damage caused
by
the presence of mold in residential real estate. Some of these lawsuits have
resulted in substantial monetary judgments or settlements. Essex has been sued
for mold related matters and has settled some, but not all, of such matters,
which matters remain unresolved and pending. Insurance carriers have reacted
to
mold related liability awards by excluding mold related claims from standard
policies and pricing mold endorsements at prohibitively high rates. Essex has,
however, purchased pollution liability insurance, which includes limited
coverage for mold, although the insurance may not cover all pending or future
mold claims. Essex has adopted programs designed to manage the existence of
mold
in its properties as well as guidelines for promptly addressing and resolving
reports of mold to minimize any impact mold might have on residents or the
property. Essex cannot assure you that it will not be sued in the future for
mold related matters nor can it assure you that the liabilities resulting from
such current or future mold related matters will not be substantial. The costs
of carrying insurance to address potential mold related claims may also be
substantial.
California
has enacted legislation commonly referred to as “Proposition 65” requiring that
“clear and reasonable” warnings be given to consumers who are exposed to
chemicals known to the State of California to cause cancer or reproductive
toxicity, including tobacco smoke. Essex cannot assure you that it will not
be
adversely affected by litigation relating to Proposition 65.
Methane
gas is a naturally-occurring gas that is commonly found below the surface in
several areas, particularly in the Southern California coastal areas. Methane
is
a non-toxic gas, but can be ignitable in confined spaces. Although
naturally-occurring, methane gas is not regulated at the state or federal level,
some local governments, such as the County of Los Angeles, have imposed
requirements that new buildings install detection systems in areas where methane
gas is known to be located. Methane gas is also associated with certain
industrial activities, such as former municipal waste landfills. Radon is also
a
naturally-occurring gas that is found below the surface. Essex cannot assure
you
that it will not be adversely affected by costs related to its compliance with
methane gas related requirements or litigation costs related to methane or
radon
gas.
Except
with respect to a few properties, Essex has no indemnification agreements from
third parties for potential environmental clean-up costs at its properties.
Essex has no way of determining at this time the magnitude of any potential
liability to which it may be subject arising out of unknown environmental
conditions or violations with respect to the properties formerly owned by Essex.
No assurance can be given that existing environmental studies with respect
to
any of the properties reveal all environmental liabilities, that any prior
owner
or operator of a property did not create any material environmental condition
not known to Essex, or that a material environmental condition does not exist
as
to anyone or more of the properties. Essex has limited insurance coverage for
the types of environmental liabilities described above.
General
Uninsured Losses
Essex
has
a comprehensive insurance program covering its property and operating
activities. There are, however, certain types of extraordinary losses for which
Essex may not have sufficient insurance. Accordingly, Essex may sustain
uninsured losses due to insurance deductibles, self-insured retention, uninsured
claims or casualties, or losses in excess of applicable coverage.
Changes
in Real Estate Tax and Other Laws
Generally,
Essex does not directly pass through costs resulting from changes in real estate
tax laws to residential property tenants. Essex also does not generally pass
through increases in income, service or other taxes, to tenants under leases.
These costs may adversely affect funds from operations and the ability to make
distributions to stockholders. Similarly, compliance with changes in (i) laws
increasing the potential liability for environmental conditions existing on
properties or the restrictions on discharges or other conditions or (ii) rent
control or rent stabilization laws or other laws regulating housing may result
in significant unanticipated expenditures, which would adversely affect funds
from operations and the ability to make distributions to
stockholders.
Changes
in Financing Policy; No Limitation on Debt
Essex
has
adopted a policy of maintaining a debt-to-total-market-capitalization ratio
of
less than 50%. The calculation of debt-to-total-market-capitalization is as
follows: total property indebtedness divided by the sum of total property
indebtedness plus total equity market capitalization. As used in the above
formula, total equity market capitalization is equal to the aggregate market
value of the outstanding Essex common shares (based on the greater of current
market price or the gross proceeds per share from public offerings of the
outstanding shares plus any undistributed net cash flow), assuming the
conversion of all limited partnership interests in the Operating Partnership
into Essex common shares and the gross proceeds of the preferred units of the
Operating Partnership. Based on this calculation (including the current market
price and excluding undistributed net cash flow), our
debt-to-total-market-capitalization ratio was approximately 34.7% as of
September 30, 2005.
Essex’s
organizational documents do not limit the amount or percentage of indebtedness
that may be incurred. Accordingly, the Board of Directors of Essex could change
current policies and the policies of the Operating Partnership regarding
indebtedness. If Essex changed these policies, it could incur more debt,
resulting in an increased risk of default on its obligations and the obligations
of the Operating Partnership, and an increase in debt service requirements
that
could adversely affect its financial condition and results of operations. Such
increased debt could exceed the underlying value of the properties.
Essex
is Subject to Certain Tax Risks
Essex
has
elected to be taxed as a REIT under the Internal Revenue Code. Essex’s
qualification as a REIT requires it to satisfy numerous requirements (some
on an
annual and quarterly basis) established under highly technical and complex
Internal Revenue Code provisions for which there are only limited judicial
or
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within Essex’s control. Although
Essex intends that its current organization and method of operation enable
it to
qualify as a REIT, it cannot assure you that it so qualifies or that it will
be
able to remain so qualified in the future. Future legislation, new regulations,
administrative interpretations or court decisions (any of which could have
retroactive effect) could adversely affect Essex’s ability to qualify as a REIT
or adversely affect its stockholders. If it fails to qualify as a REIT in any
taxable year, Essex would be subject to U.S. federal income tax (including
any
applicable alternative minimum tax) on its taxable income at corporate rates,
and would not be allowed to deduct dividends paid to its shareholders in
computing its taxable income. Essex may also be disqualified from treatment
as a
REIT for the four taxable years following the year in which it failed to
qualify. The additional tax liability would reduce its net earnings available
for investment or distribution to stockholders. In addition, it would no longer
be required to make distributions to its stockholders. Even if Essex continues
to qualify as a REIT, it will continue to be subject to certain federal, state
and local taxes on its income and property.
Essex
has
established several taxable REIT subsidiaries. Despite Essex’s qualification as
a REIT, its taxable REIT subsidiaries must pay U.S. federal income tax on their
taxable income. While Essex will attempt to ensure that its dealings with its
taxable REIT subsidiaries will not adversely affect its REIT qualification,
it
cannot provide assurance that it will successfully achieve that result.
Furthermore, Essex may be subject to a 100% penalty tax, or its taxable REIT
subsidiaries may be denied deductions, to the extent its dealings with its
taxable REIT subsidiaries are not deemed to be arm’s length in nature. No
assurances can be given that Essex’s dealings with its taxable REIT subsidiaries
will be arm’s length in nature.
From
time
to time, we may transfer or otherwise dispose of some of our properties. Under
the Internal Revenue Code, any gain resulting from transfers of properties
that
we hold as inventory or primarily for sale to customers in the ordinary course
of business would be treated as income from a prohibited transaction subject
to
a 100% penalty tax. Since we acquire properties for investment purposes, we
do
not believe that our occasional transfers or disposals of property are
prohibited transactions. However, whether property is held for investment
purposes is a question of fact that depends on all the facts and circumstances
surrounding the particular transaction. The Internal Revenue Service may contend
that certain transfers or disposals of properties by us are prohibited
transactions. If the Internal Revenue Service were to argue successfully that
a
transfer or disposition of property constituted a prohibited transaction, then
Essex would be required to pay a 100% penalty tax on any gain allocable to
Essex
from the prohibited transaction and Essex’s ability to retain future gains on
real property sales may be jeopardized. In addition, income from a prohibited
transaction might adversely affect Essex’s ability to satisfy the
income
tests for qualification as a REIT for U.S. federal income tax purposes.
Therefore, no assurances can be given that Essex will be able to satisfy the
income tests for qualification as a REIT.
USE
OF PROCEEDS
We
will
not receive any cash proceeds from the sale of the notes offered by this
prospectus or the Essex common shares into which the notes are exchangeable.
RATIO
OF EARNINGS TO FIXED CHARGES
The
following table sets forth our ratio of earnings to fixed charges for the period
shown:
|
|
Nine Months
Ended September 30,
|
|
Year
Ended December 31,
|
|
|
|
|
2005
|
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
Ratio
of earnings to fixed charges (excluding preferred return and preferred
unit dividends)
|
|
1.98x
|
|
|
2.44
|
x
|
1.94
|
x
|
2.17
|
x
|
2.49
|
x
|
2.80
|
x
|
The
ratio
of earnings to fixed charges was computed by dividing earnings by fixed charges.
For this purpose, earnings consist of income from continuing operations before
minority interest and fixed charges. Fixed charges consist of interest expense
(including interest costs capitalized), preferred stock dividends and
distributions, and the amortization of debt issuance costs.
The
above
ratios from January 1, 2002 through December 31, 2003 reflect the retroactive
adoption of FIN 46R and SFAS 123. The above ratios from January 1, 2000 through
December 31, 2001 have not been restated to reflect the retroactive adoption
of
FIN 46R and SFAS 123. Because the 2000 and 2001 balances have not been restated,
the results for those periods may not be comparable to the results for the
later
periods set forth above. The above ratios from January 1, 2002 through December
31, 2004 have been reclassified to reflect discontinued operations for
properties sold subsequent to December 31, 2004. The above ratios from January
1, 2000 through December 31, 2001 have not been restated. Because the 2000
and
2001 balances have not been restated, the results for those periods may not
be
comparable to the results for the later periods set forth above.
PRICE
RANGE OF ESSEX PROPERTY TRUST, INC. SHARES OF COMMON STOCK
Essex’s
common shares are listed on the New York Stock Exchange (“NYSE”) under the
symbol “ESS.”
Price
Range
Essex’s
common shares have been traded on the NYSE since June 13, 1994. The high
and low price per share of common stock, as reported on the NYSE, for the
quarters indicated are as follows:
Quarter
Ended
|
|
High
|
|
Low
|
|
|
|
|
|
March
31, 2006 (through March 1, 2006)
|
|
$
|
101.64
|
|
$
|
92.10
|
December
31, 2005
|
|
$
|
93.44
|
|
$
|
80.35
|
September
30, 2005
|
|
$
|
93.14
|
|
$
|
82.86
|
June
30, 2005
|
|
$
|
86.13
|
|
$
|
68.50
|
March
31, 2005
|
|
$
|
84.32
|
|
$
|
68.56
|
December 31,
2004
|
|
$
|
85.43
|
|
$
|
71.65
|
September 30,
2004
|
|
$
|
75.31
|
|
$
|
64.89
|
June 30,
2004
|
|
$
|
69.73
|
|
$
|
58.15
|
March 31,
2004
|
|
$
|
66.64
|
|
$
|
60.65
|
December 31,
2003
|
|
$
|
66.60
|
|
$
|
59.88
|
September 30,
2003
|
|
$
|
64.98
|
|
$
|
56.67
|
June 30,
2003
|
|
$
|
59.40
|
|
$
|
52.20
|
March 31,
2003
|
|
$
|
54.91
|
|
$
|
49.00
|
The
closing price as of March 1, 2006 was $100.00.
Dividends
and Distributions
Since
its
initial public offering on June 13, 1994, Essex has paid regular quarterly
dividends to its stockholders. Essex has paid the following dividends per share
of common stock for the periods indicated below:
Quarter
Ended
|
2003
|
2004
|
2005
|
3/31
|
$0.7800
|
$0.7900
|
$0.8100
|
6/30
|
$0.7800
|
$0.7900
|
$0.8100
|
9/30
|
$0.7800
|
$0.7900
|
$0.8100
|
12/31
|
$0.7800
|
$0.7900
|
$0.8100
|
Future
distributions by Essex will be at the discretion of its Board of Directors
and
will depend on the actual funds from operations of Essex, its financial
condition, capital requirements, the annual distribution requirements under
the
REIT provisions of the Internal Revenue Code, applicable legal restrictions
and
such other factors as Essex’s Board of Directors deems relevant. There are
currently no contractual restrictions on Essex’s present or future ability to
pay dividends.
DESCRIPTION
OF NOTES
The
following summary of certain terms and provisions of the notes, the indenture
and the registration rights agreement that we have entered into in connection
with this offering does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the actual terms and provisions
of
the notes, the indenture and the registration rights agreement, which are
incorporated herein by reference. We will provide copies of the indenture (which
includes the form of the notes) and the registration rights agreement to you
upon request, and, following completion of this offering, they will be available
for inspection at the corporate trust office of the trustee, currently located
at 707 Wilshire Boulevard, 17th Floor, Los Angeles, California 90017. These
documents, and not this description, define your rights as a holder of the
notes.
Capitalized
terms used but not otherwise defined herein shall have the meanings given to
them in the notes, the indenture or the registration rights agreement, as
applicable. As used in this section, unless we specify otherwise, the terms
“we,” “us,” “our,” “Operating Partnership,” “Essex Portfolio, L.P.” or “Essex
Portfolio” refer to Essex Portfolio, L.P. and not to any of its subsidiaries,
and the term “Essex” refers to Essex Property Trust, Inc. and not to any of its
subsidiaries (including the Operating Partnership). Unless the context otherwise
requires, the term “interest” includes additional interest, if any, due under
the registration rights agreement.
General
The
notes
have been issued pursuant to an indenture dated as of October 28, 2005, which
we
have entered into with Wells Fargo Bank, N.A., as trustee.
The
terms
of the notes include those provisions contained in the notes and the indenture
and those made part of the indenture by reference to the Trust Indenture Act
of
1939, as amended (the “Trust Indenture Act”). The notes are subject to all such
terms, and holders of notes are referred to the notes, the indenture and the
Trust Indenture Act for a statement thereof.
The
notes
are senior unsecured obligations of the Operating Partnership and rank equally
with all of our other indebtedness that is not expressly subordinated to the
notes and senior to all of our other indebtedness that is expressly subordinated
to the notes. The notes are effectively subordinated to our mortgages and other
secured indebtedness (to the extent of the value of the collateral securing
the
same) and to all preferred equity and liabilities, whether secured or unsecured,
of our subsidiaries. As of September 30, 2005, we had outstanding $1.31 billion
of senior indebtedness (exclusive of intercompany debt, trade payables,
dividends payable and accrued expenses) and $1.26 billion of secured
indebtedness. Our consolidated subsidiaries had outstanding an aggregate of
$190.6 million in total liabilities (exclusive of intercompany indebtedness,
trade payables, dividends payable and accrued expenses). The indenture governing
the notes does not prohibit us, Essex or any of our subsidiaries from incurring
additional indebtedness, including secured indebtedness, or issuing preferred
equity in the future.
The
notes
are fully and unconditionally guaranteed by Essex. See “—
Guarantee”
below.
Essex has no operations, other than as our general partner, and no material
assets, other than its investment in us.
The
notes
are in an aggregate principal amount of $225.0 million. We may, without the
consent of holders of the notes, issue additional notes from time to time in
the
future in an unlimited principal amount on the same terms and conditions as
the
notes offered hereby, except for any difference in the issue price and interest
accrued prior to the issue date of the additional notes, and with the same
CUSIP
number as the notes offered hereby; provided, that such additional notes
constitute a part of the same issue as the notes offered hereby for U.S. federal
income tax purposes. The notes offered by this prospectus and any additional
notes would rank equally and ratably and would be treated as a single class
of
debt securities for all purposes under the indenture.
The
notes
are issued only in fully registered, book-entry form, in denominations of $1,000
and integral multiples thereof, except under the limited circumstances described
below under “—
Book-Entry System.”
We
will make payments in respect of notes that are represented by global securities
by wire transfer of immediately available funds to DTC or its nominee as the
registered owner of the global securities. We will make payments in respect
of
notes that are issued in certificated form (if any) by wire transfer of
immediately available funds to the account specified by any holder of more
than
$5.0 million aggregate principal amount of notes. However, if the holder of
the
certificated note does not specify an account, or holds $5.0 million or less
in
aggregate principal amount, we will mail a check to that holder’s registered
address.
Holders
may exchange notes at the office of the exchange agent, present notes for
registration of transfer at the office of the registrar for the notes and
present notes for payment at maturity at the office of the paying agent. We
have
appointed the trustee as the initial exchange agent, registrar and paying agent
for the notes.
If
any
interest payment date, stated maturity date, redemption date or repurchase
date
is not a business day, the payment otherwise required to be made on such date
will be made on the next business day without any additional payment as a result
of such delay. The term “business day” means, with respect to any note, each
Monday, Tuesday, Wednesday, Thursday and Friday, other than a day on which
banking institutions in The City of New York are authorized or obligated by
law
or executive order to close. All payments will be made in U.S.
dollars.
The
terms
of the notes provide that we are permitted to reduce interest payments and
payments upon a redemption, repurchase or exchange of notes otherwise payable
to
a holder for any amounts we are required to withhold by law. For example,
non-U.S. holders of notes may be, under some circumstances, subject to U.S.
federal withholding tax with respect to payments of interest on the notes.
Moreover, holders of exchangeable debt instruments such as the notes may, in
certain circumstances, be deemed to have received distributions of stock if
the
exchange price of such instruments is adjusted even though such holders have
not
received any cash or property as a result of such adjustments, which deemed
distribution (in the case of a non-U.S. holder) will be subject to a U.S.
federal withholding tax. See “Material
U.S. Federal Income Tax Considerations — Taxation of Non-U.S. Holders of the
Notes”
in
this
prospectus. We will set-off any such withholding tax that we are required to
pay
against payments of interest payable on the notes and payments upon a
redemption, repurchase or exchange of notes.
The
indenture does not contain any provisions that would necessarily protect holders
of notes if we or Essex were involved in a highly leveraged transaction,
reorganization, merger or other similar transaction that may adversely affect
us
or them. Furthermore, the notes contain certain features that could deter or
discourage third party acquisition proposals that could be beneficial to
holders.
We
or one
of our affiliates may, to the extent permitted by applicable law, at any time
purchase notes in the open market, by tender at any price or by private
agreement. Any note purchased by us or our affiliates (a) after the date that
is
two years from the latest issuance of the notes may, to the extent permitted
by
applicable law, be reissued or sold or may be surrendered to the trustee for
cancellation or (b) on or prior to the date referred to in (a), will be
surrendered to the trustee for cancellation. Any notes surrendered for
cancellation may not be reissued or resold and will be canceled
promptly.
Interest
Interest
on the notes accrues at the rate of 3.625% per year from and including October
28, 2005 or the most recent date to which interest has been paid or provided
for, and are payable semi-annually in arrears on May 1 and November 1 of each
year, beginning May 1, 2006. The interest so payable will be paid to each holder
in whose name a note is registered at the close of business on the April 15
or
October 15 (whether or not a business day in The City of New York) immediately
preceding the applicable interest payment date. Interest on the notes is
computed on the basis of a 360-day year consisting of twelve 30-day months.
In
addition, we will pay additional interest on the notes as provided below under
“— Registration
Rights; Additional Interest.”
Upon
an
exchange of notes, accrued interest thereon will be deemed to be paid by
delivery of the consideration due to the exchanging holder upon such exchange.
Holders of notes on a record date, however, will be entitled to receive interest
payable on the related interest payment date if such notes are exchanged after
such record date and on or prior to the corresponding interest payment date.
In
such event, holders who surrender their notes for exchange after such record
date and prior to the related interest payment date must pay to the exchange
agent upon exchange an amount in cash equal to the interest payable by us on
such interest payment date. The foregoing sentence shall not apply to (1) notes
called for redemption on a redemption date within the period between the close
of business on the record date and on or prior to the corresponding interest
payment date, (2) notes surrendered for exchange in connection with a
fundamental change in which we have specified a fundamental change repurchase
date that is after a record date and on or prior to the corresponding interest
payment date, or (3) notes with overdue interest or additional interest at
the
time of the exchange, with respect to such overdue interest or additional
interest, as applicable. No other payment or adjustment will be made for accrued
interest on an exchanged note.
If
we
redeem the notes, or if a holder surrenders a note for repurchase by us in
accordance with the terms of such note, we will pay any accrued and unpaid
interest (including additional interest, if any) to the holder that surrenders
such note for redemption or repurchase, as the case may be. However, if an
interest payment date falls on or prior to the redemption date or repurchase
date for a note, we will pay any accrued and unpaid interest (including
additional interest, if any) due on that interest payment date instead to the
record holder of such note at the close of business on the related record
date.
Maturity
The
notes
will mature on November 1, 2025 and will be paid against presentation and
surrender thereof at the corporate trust office of the trustee unless (1)
earlier redeemed by us at our option or repurchased by us at a holder’s option
at certain times as described under “—
Optional Redemption,”
“—
Repurchase at Option of Holders on Certain Dates”
or
“—
Repurchase
at Option of Holders Upon a Fundamental Change”
below
or (2) exchanged at a holder’s option as permitted under “—
Exchange Rights”
below.
The notes are not entitled to the benefits of, or be subject to, any sinking
fund.
Exchange
Rights
General
Subject
to the restrictions on ownership of Essex common shares and the conditions
described below, holders may exchange their notes for cash and Essex common
shares, if any, having an aggregate exchange value equal to the applicable
exchange rate multiplied by the average of the daily volume weighted average
price of Essex common shares measured over a specified number of trading days
as
described herein under “— Exchange
Settlement.”
The
initial exchange rate for the notes is 9.6852 Essex common shares per $1,000
principal amount of notes (equivalent to an initial exchange price of $103.25
per Essex common share). Upon exchange, we will deliver the exchange value
to
holders in the manner and as provided under “— Exchange
Settlement.”
The
exchange rate and the equivalent exchange price (which, on any date of
determination, is equal to $1,000 divided by the exchange rate on such date)
in
effect at any given time are referred to in this prospectus as the “exchange
rate” and the “exchange price,” respectively, and will be subject to adjustment
as described herein.
Holders
may surrender their notes for exchange for cash, Essex common shares or a
combination of cash and Essex common shares, at our option as described herein,
at the applicable exchange rate (1) prior to the close of business on the second
business day immediately preceding the stated maturity date at any time on
or
after November 1, 2020 and (2) prior to November 1, 2020 only under the
following circumstances:
· |
during
any calendar quarter beginning after December 31, 2005 (and only
during
such calendar quarter if, and only if, the closing sale price of
Essex
common shares for at least 20 trading days in the period of 30 consecutive
trading days ending on the last trading day of the preceding calendar
quarter is more than 125% of the exchange price per Essex common
share in
effect on the applicable trading
day;
|
· |
during
the five consecutive trading-day period following any 20 consecutive
trading-day period in which the trading price of the notes was less
than
98% of the product of the closing sale price of Essex common shares
during
such five trading-day period multiplied by the applicable exchange
rate;
|
· |
if
those notes have been called for redemption, at any time prior to
5:00
p.m., New York City time, on the second trading day immediately preceding
the redemption date;
|
· |
upon
the occurrence of specified corporate
transactions;
|
· |
upon
the occurrence of a fundamental change;
or
|
· |
if
Essex common shares cease to be listed on a U.S. national or regional
securities exchange or the Nasdaq National Market for a 30 consecutive
trading day period.
|
“Closing
sale price” of Essex common shares or other capital stock or similar equity
interests or other publicly traded securities on any date means the closing
sale
price per share (or, if no closing sale price is reported, the average of the
closing bid and ask prices or, if more than one in either case, the average
of
the average closing bid and the average closing ask prices) on such date as
reported on the principal United States securities exchange on which Essex
common shares or such other capital stock or similar equity interests or other
securities are traded or, if Essex common shares or such other capital stock
or
similar equity interests or other securities are not listed on a United States
national or regional securities exchange, as reported by the Nasdaq National
Market or by the National Quotation Bureau Incorporated or another established
over-the-counter trading market in the United States. The closing sale price
will be determined without regard to after-hours trading or extended market
making. In the absence of the foregoing, we will determine the closing sale
price on such basis as we consider appropriate.
“Trading
day” means a day during which trading in securities generally occurs on the New
York Stock Exchange or, if Essex common shares are not then listed on the New
York Stock Exchange, on the principal other United States national or regional
securities exchange on which Essex common shares are then listed or, if Essex
common shares are not then listed on a United States national or regional
securities exchange, on the Nasdaq National Market or, if Essex common shares
are not then quoted on the Nasdaq National Market, in the principal other market
on which Essex common shares are then traded.
Except
in
the limited circumstances described herein, upon exchange of a note, a holder
will not receive any cash payment of interest, and we will not adjust the
exchange rate to account for any accrued and unpaid interest (including
additional interest, if any). Our delivery to the holder of cash and Essex
common shares, if any, will be deemed to satisfy our obligation with respect
to
notes tendered for exchange.
Accordingly,
upon an exchange of notes, any accrued but unpaid interest will be deemed to
be
paid in full, rather than cancelled, extinguished or forfeited.
Holders
of notes at the close of business on a record date for an interest payment
will
receive payment of interest payable on the corresponding interest payment date
notwithstanding the exchange of such notes at any time after the close of
business on the applicable regular record date and prior to the corresponding
interest payment date. Accordingly, notes tendered for exchange by a holder
after the close of business on any record date for an interest payment and
prior
to the corresponding interest payment date must be accompanied by payment of
an
amount equal to the interest that the holder is to receive on the notes;
provided,
however, that
no
such payment will be made (1) if we have specified a redemption date that is
after such record date and on or prior to such interest payment date, (2) if
we
have specified a fundamental change repurchase date that is after such record
date and on or prior to such interest payment date, or (3) with respect to
overdue interest or additional interest, if any overdue interest or additional
interest, as applicable, exists at the time of exchange with respect to such
notes.
If
a
holder exchanges notes and we elect to deliver Essex common shares as provided
herein, we will pay any documentary, stamp or similar issue or transfer tax
due
on the issue of Essex common shares upon the exchange, if any, unless the tax
is
due because the holder requests the shares to be issued or delivered to a person
other than the holder, in which case the holder will pay that tax prior to
receipt of such Essex common shares.
If
a
holder wishes to exercise its exchange right, such holder must deliver an
irrevocable duly completed exchange notice, together, if the notes are in
certificated form, with the certificated security, to the exchange agent along
with appropriate endorsements and transfer documents, if required, or, if the
notes are in book-entry form, comply with appropriate procedures of DTC, and
pay
any transfer or similar tax, if required. The exchange agent will, on the
holder’s behalf, exchange the notes into cash and Essex common shares, if any.
Holders may obtain copies of the required form of the exchange notice from
the
exchange agent.
If
a
holder has already delivered a repurchase notice as described under either
“—
Repurchase
at Option of Holders on Certain Dates”
or
“—
Repurchase at Option of Holders Upon a Fundamental Change,”
with
respect to a note, that holder may not tender that note for exchange until
the
holder has properly withdrawn the repurchase notice.
Upon
surrender of a note for exchange, the holder shall deliver to us cash equal
to
the amount that we are to deduct and withhold under applicable law in connection
with such exchange; provided,
however, that
if
the holder does not deliver such cash, we may deduct and withhold from the
consideration otherwise deliverable to such holder the amount required to be
deducted and withheld under applicable law.
Exchange
Upon Satisfaction of Market Price Condition
A
holder
may surrender any of its notes for exchange during any calendar quarter
beginning after December 31, 2005 if the closing sale price of Essex common
shares for at least 20 trading days (whether or not consecutive) in the period
of 30 consecutive trading days ending on the last trading day of the preceding
calendar quarter is more than 125% of the exchange price per Essex common share
in effect on the applicable trading day. Essex’s board of directors will make
appropriate adjustments, in its good faith determination, to account for any
adjustment to the exchange rate that becomes effective, or any event requiring
an adjustment to the exchange rate where the ex-dividend date of the event
occurs, during that 30 consecutive trading-day period.
Exchange
Upon Satisfaction of Trading Price Condition
A
holder
may surrender any of its notes for exchange during the five consecutive
trading-day period following any 20 consecutive trading days in which the
trading price per $1,000 principal amount of notes (as determined following
a
reasonable request by a holder of the notes) was less than 98% of the product
of
the closing sale price of Essex common shares during such period multiplied
by
the applicable exchange rate during such period.
The
“trading price” of the notes on any date of determination means the average of
the secondary market bid quotations per $1,000 principal amount of notes
obtained by the trustee for $5.0 million principal amount of notes at
approximately 3:30 p.m., New York City time, on such determination date from
two
independent nationally recognized securities dealers we select, which may
include the underwriter; provided
that
if
at least two such bids cannot reasonably be obtained by the bid solicitation
agent, but one such bid can reasonably be obtained by the bid solicitation
agent, then one bid shall be used. If the bid solicitation agent cannot
reasonably obtain at least one bid for a $5.0 million principal amount of notes
from a nationally recognized securities dealer or, in our reasonable judgment,
the bid quotations are not indicative of the secondary market value of the
notes, then the trading price per $1,000 principal amount of notes will be
deemed to be less than 98% of the product of the closing sale price of Essex
common shares and the exchange rate on such determination date.
The
bid
solicitation agent shall have no obligation to determine the trading price
of
the notes unless we have requested such determination, and we shall have no
obligation to make such request unless a holder provides us with reasonable
evidence that the trading price per $1,000 principal amount of notes would
be
less than 98% of the product of the closing sale price of Essex common shares
and the applicable exchange rate, whereupon we shall instruct the bid
solicitation agent to determine the trading price of the notes beginning on
the
next trading day and on each successive trading day until the trading price
is
greater than or equal to 98% of the product of the closing sale price of Essex
common shares and the applicable exchange rate.
Exchange
Upon Notice of Redemption
A
holder
may surrender for exchange any of the notes called for redemption at any time
prior to 5:00 p.m., New York City time, on the second trading day immediately
preceding the redemption date. The right to exchange notes will expire at that
time, unless we default in making the payment due upon redemption. A holder
may
exchange fewer than all of its notes so long as the notes exchanged are an
integral multiple of $1,000 principal amount and the remaining principal amount
of notes is in an authorized denomination. However, if a holder has already
delivered a notice for a note to be repurchased at such holder’s option on
certain dates or in connection with a fundamental change, such holder may not
surrender that note for exchange until it has withdrawn such notice in
accordance with the terms of the notes.
Exchange
Upon Specified Corporate Transactions
If Essex elects to:
· |
distribute
to all holders of Essex common shares certain rights entitling them
to
purchase, for a period expiring within 60 days, Essex common shares
at
less than the closing sale price of Essex common shares on the trading
day
immediately preceding the declaration date of such distribution;
or
|
· |
distribute
to all holders of Essex common shares assets, debt securities or
certain
rights to purchase securities of the Operating Partnership or Essex,
which
distribution has a per share value exceeding 10% of the closing sale
price
of Essex common shares on the trading day immediately preceding the
declaration date of such distribution,
|
we
must
notify the holders of notes at least 20 days prior to the ex-dividend date
for
such distribution. Once we have given that notice, holders may surrender their
notes for exchange at any time until the earlier of the close of business on
the
business day prior to the ex-dividend date and an announcement that such
distribution will not take place; provided,
however, that
a
holder may not exercise this right to exchange if the holder may participate,
on
an as-exchanged basis, in the distribution without exchange of the notes. The
ex-dividend date is the first date upon which a sale of the Essex common shares
does not automatically transfer the right to receive the relevant distribution
from the seller of the Essex common shares to its buyer.
In
addition, if the Operating Partnership or Essex is a party to a consolidation,
merger, binding share exchange or sale or conveyance of all or substantially
all
of its respective properties and assets, in each case pursuant to which all
of
the Essex common shares would be exchanged for cash, securities and/or other
property that
does
not
also constitute a fundamental change, a holder may surrender its notes for
exchange at any time from and including the date that is 15 business days prior
to the anticipated effective time of the transaction up to and including five
business days after the actual date of such transaction. In such case, then,
at
the effective time of the transaction, the right to exchange a note into Essex
common shares will be changed into a right to exchange the notes into the kind
and amount of cash, securities or other property that the holder would have
received if the holder had exchanged its notes immediately prior to the
transaction. We will notify holders as promptly as practicable following the
date we publicly announce such transaction (but in no event less than 15
business days prior to the effective time of such transaction).
If
the
transaction also constitutes a fundamental change, in lieu of the exchange
right
described in this paragraph, you will have the exchange right described below
under “— Exchange
Upon a Fundamental Change,”
and
you will have the right to require us to repurchase your notes as set forth
below under “— Repurchase at Option of Holders Upon a Fundamental
Change.”
Exchange
Upon a Fundamental Change
If
a
fundamental change (as defined under “— Repurchase
at Option of Holders Upon a Fundamental Change”)
occurs, a holder will have the right to exchange its notes at any time beginning
15 business days prior to the date announced by us as the anticipated effective
date of the fundamental change up to and including the fifth business day
following the effective date of the fundamental change, subject to expiration
of
a holder’s exchange right if such holder has submitted any or all of its notes
for repurchase as described in the next succeeding paragraph.
If
a
holder has submitted any or all of its notes for repurchase as described under
“— Repurchase
at Option of Holders Upon a Fundamental Change,”
the
exchange right in respect of the notes subject to repurchase will expire at
5:00
p.m., New York City time, on the business day preceding the fundamental change
repurchase date, unless we default in making the payment due upon
repurchase.
Exchange
Upon Delisting of Essex Common Shares
A
holder
may surrender any of its notes for exchange at any time beginning on the first
business day after Essex common shares have ceased to be listed on a U.S.
national or regional securities exchange or quoted on the Nasdaq National Market
for a 30 consecutive trading-day period.
Exchange
Settlement
Upon
an
exchange of notes, holders will be entitled to receive for each note so
exchanged cash and, if applicable, Essex common shares, as described below,
the
aggregate value of which (the “exchange value”) will be equal to the product
of:
· |
the
exchange rate then in effect; multiplied
by
|
· |
the
average of the daily volume weighted average price per share of Essex
common shares for each of the 20 consecutive trading days (appropriately
adjusted to take into account the occurrence during such period of
stock
splits and similar events) beginning on the second trading day immediately
following the day the notes are tendered for exchange (the “twenty day
weighted average price”). The “volume weighted average price” per Essex
common share on any trading day will be the volume weighted average
price
on the New York Stock Exchange or, if the Essex common shares are
not
listed on the New York Stock Exchange, on the U.S. national or regional
securities exchange, the Nasdaq National Market or over the counter
market
on which Essex common shares are then listed or traded, from 9:30
a.m. to
4:00 p.m., New York City time, on that trading day as displayed by
Bloomberg (or if such volume weighted average price is not available,
the
market value of one share on such trading day as Essex’s board of
directors determine in good faith using a volume weighted
method).
|
We
will
deliver the exchange value of the notes surrendered for exchange to exchanging
holders as follows:
(1) an
amount
in cash (the “principal return”) equal to the lesser of (a) the aggregate
exchange value of the notes to be exchanged and (b) the aggregate principal
amount of the notes to be exchanged;
(2) if
the
aggregate exchange value of the notes to be exchanged is greater than the
principal return, an amount in cash (the “net cash amount”) or, at our election,
in whole Essex common shares (the “net shares amount”), determined as set forth
below, or a combination thereof equal to such aggregate exchange value less
the
principal return (the “net amount”); and
(3)
an
amount in cash in lieu of any fractional Essex common shares.
The
net
shares amount to be paid will be determined by dividing the net amount by the
twenty day weighted average price. The cash payment for fractional Essex common
shares also will be based on the twenty day weighted average price.
The
exchange value, principal return, net amount, net cash amount and the net shares
amount will be determined by us at the end of the twenty consecutive trading
period beginning on the second trading day immediately following the day the
notes are tendered for exchange (the “determination date”).
We
will
pay the principal return and cash in lieu of fractional shares and deliver
the
net shares amount, if any, or pay the net cash amount as promptly as practicable
after the determination date, but in no event later than three business days
thereafter.
Prior
to
the close of business on the second trading day following the date on which
notes are tendered for exchange, we will inform holders of such notes of our
election to pay cash for all or a portion of the net amount and, if applicable,
the percentage of the net amount that we will pay as the net cash amount and
the
net shares amount or, in lieu of such percentage, the total net amount payable
as the net cash amount.
Exchange
Rate Adjustments
General
We
will
adjust the exchange rate if any of the following events occur:
(1) issuances
of Essex common shares as a dividend or distribution to all or substantially
all
holders of Essex common shares;
(2) subdivisions,
combinations or reclassifications of Essex common shares;
(3) distributions
to all or substantially all holders of Essex common shares, of certain rights
or
warrants to subscribe for or purchase, for a period expiring within 60 days
after the date of issuance thereof, Essex common shares, or securities
convertible into or exchangeable or exercisable for Essex common shares, at
less
(or having an exercise or exchange price less) than the last reported sale
price
of Essex common shares on the business day immediately preceding the date of
the
announcement of such distribution; provided
that
the
exchange rate will be readjusted to the extent that such rights or warrants
are
not exercised prior to the expiration;
(4) distributions
to all or substantially all holders of Essex common shares, of shares of capital
stock, evidences of indebtedness or other assets or property of Essex, including
securities, but excluding the following:
· |
dividends,
distributions, rights, warrants, options, other securities or convertible
securities referred in to clause (1) or (3)
above;
|
· |
dividends
and distributions in connection with a reclassification, change,
consolidation, merger, combination, sale or conveyance resulting
in a
change in the exchange consideration described below;
and
|
· |
cash
dividends or distributions referred to in clause (5)
below;
|
In
the
event that there occurs a distribution to all or substantially all holders
of
Essex common shares, of shares of capital stock of any of its subsidiaries,
the
exchange rate will be adjusted, if at all, based on the market value of the
subsidiary capital stock so distributed relative to the market value of Essex
common shares, in each case over a measurement period following the
distribution;
(5) distributions
of cash to all or substantially all holders of Essex common shares, excluding
(i) any dividend or distribution in connection with the liquidation, dissolution
or winding up of Essex, (ii) any quarterly cash dividend on the Essex common
shares to the extent that the aggregate cash dividend per share paid in any
quarter does not exceed $0.84 (such amount being the “dividend threshold
amount”) and (iii) dividends and distributions in connection with a
reclassification, change, consolidation, merger, combination, sale or conveyance
resulting in a change in the exchange consideration described
below;
If
there
is a dividend or distribution to which this clause (5) applies, the exchange
rate will be adjusted by multiplying the applicable exchange rate by a
fraction,
· |
the
numerator of which will be the current market price of Essex common
shares
minus the dividend threshold amount; and
|
· |
the
denominator of which will be the current market price of Essex common
shares minus the amount per share of such dividend or distribution;
and
|
provided,
that
if
an adjustment is required to be made as a result of a distribution that is
not a
quarterly dividend, the dividend threshold amount will be deemed to be
zero;
(6) Essex
or
any of its subsidiaries makes purchases of Essex common shares pursuant to
a
tender offer or exchange offer for Essex common shares to the extent that the
per share consideration paid in such offer exceeds the average of the daily
last
reported sale prices of Essex common shares for the ten trading days prior
to
the expiration of such offer.
Notwithstanding
the foregoing or any other adjustments to the exchange rate, including as
provided below under “ — Exchange
Rate Adjustment Upon Certain Fundamental Changes,”
we
will not adjust the exchange rate pursuant to these provisions to the extent
that the adjustments would reduce the exchange price to below
$10.00.
To
the
extent that Essex’s rights plan is in effect upon exchange of the notes into
Essex common shares, the holder will receive (except to the extent we settle
our
exchange obligations in cash), in addition to the Essex common shares, the
rights under the rights plan unless the rights have separated from the Essex
common shares prior to the time of exchange, in which case the exchange rate
will be adjusted at the time of separation as if we made a distributed referred
to in clause (4) above.
In
addition to the adjustments pursuant to clauses (1) through (6) above, we may
increase the exchange rate in order to avoid or diminish any income tax to
holders of Essex common shares resulting from any dividend or distribution
of
capital stock (or rights to acquire Essex common shares) or from any event
treated as such for income tax purposes. We may also, from time to time, to
the
extent permitted by applicable law, increase the exchange rate by any amount
for
any period if we have determined that such increase would be in the best
interests of the Operating Partnership or Essex. If we make such determination,
it will be conclusive and we will mail to holders of the notes a notice of
the
increased exchange rate and the period during which it will be in effect at
least 15 days prior to the date the increased exchange rate takes effect in
accordance with applicable law.
We
will
not make any adjustment to the exchange rate if holders of the notes are
permitted to participate, on an as exchanged basis, in the transactions
described above. We will not be required to make an adjustment in the exchange
rate unless the adjustment would require a change of at least one percent
in the
exchange rate. However, any adjustments that are not required to be made
because
they would have required an increase or decrease of less than one percent
will
be carried forward and made upon redemption or a fundamental change, or at
maturity, as applicable. All required calculations will be made to the nearest
cent or 1/1000th of a share, as the case may be.
Except
as
described above in this section, we will not adjust the exchange rate for
any
issuance of Essex common shares or any securities convertible into or
exchangeable or exercisable for Essex common shares or rights to purchase
Essex
common shares or such convertible, exchangeable or exercisable
securities.
The
applicable exchange rate will not be adjusted upon certain events,
including:
· |
the
issuance of any Essex common shares or Essex Portfolio units, pursuant
to
any present or future plan providing for the reinvestment of dividends
or
interest payable on securities of the Operating Partnership or those
of
Essex and the investment of additional optional amounts in Essex
common
shares under any plan;
|
· |
the
issuance of any Essex common shares or options or rights to purchase
those
shares pursuant to any present or future employee, director or consultant
benefit plan or program of the Operating Partnership or
Essex;
|
· |
the
issuance of any Essex common shares pursuant to any option, warrant,
right, or exercisable, exchangeable or convertible security outstanding
as
of the date the notes were first
issued;
|
· |
a
change in the par value of Essex common
shares;
|
· |
accrued
and unpaid interest including additional interest, if any;
and
|
· |
the
issuance of limited partnership units by the Operating Partnership
and the
issuance of Essex common shares or the payment of cash upon redemption
thereof, or the issuance of Essex common shares or the payment of
cash
upon the redemption of certain limited partnership interests in the
Operating Partnership’s “down REIT”
entities.
|
If
certain of the possible adjustments to the exchange price of the notes are
made,
a holder may be deemed to have received a distribution from Essex or additional
interest from us even though such holder has not received any cash or property
as a result of such adjustments. We intend to withhold federal income tax (in
the case of a non-U.S. holder) with respect to any deemed distribution from
Essex, from cash payments of interest and payments in redemption, repurchase
or
exchange of the notes. See “Material
U.S. Federal Income Tax Considerations”
in
this
prospectus.
Change
in Exchange Right Upon Certain Reclassifications, Business Combinations and
Asset Sales
If
Essex
reclassifies or changes Essex common shares (other than a change only in par
value or a change as a result of a subdivision or combination of Essex common
shares) or the Operating Partnership or Essex is a party to a consolidation,
merger or binding share exchange, or if the Operating Partnership or Essex
sells, transfers, leases, conveys or otherwise disposes of all or substantially
all of its respective property or assets, in each case, in a transaction in
which holders of Essex common shares would be entitled to receive stock, other
securities, other property, assets or cash for their Essex common shares, then,
as of the effective time of such transaction, the right to exchange notes into
Essex common shares will be changed into a right to exchange notes into the
kind
and amount of cash, securities or other property that the holder would have
been
entitled to receive if the holder had exchanged its note immediately before
such
transaction.
In
the
event holders of Essex common shares have the opportunity to elect the form
of
consideration to be received in such transaction, the Operating Partnership
and
Essex will make adequate provision whereby the holders of the notes shall have
a
reasonable opportunity to determine the form of consideration into which the
notes shall be exchangeable from and after the effective date of such
transaction, in each case, for purposes of all outstanding notes, treated as
a
single class.
Exchange
Rate Adjustment Upon Certain Fundamental Changes
If
a
transaction described in the first or second bullet of the definition of
fundamental change (as set forth under “— Repurchase
at Option of Holders Upon a Fundamental Change”)
occurs
prior to November 4, 2010 and a holder elects to exchange its notes “in
connection with” such transaction as described above under “— Exchange
Rights — Exchange Upon a Fundamental Change,”
we
will increase the applicable exchange rate for the notes surrendered for
exchange by a number of additional Essex common shares (the “additional change
in control shares”), as described below; provided,
that
the
additional change in control shares will only be payable as set forth below.
An
exchange of notes will be deemed for these purposes to be “in connection with”
such a fundamental change, subject to our rights with respect to a “public
acquirer change of control,” if the notice of exchange of the notes is received
by the exchange agent from and including the date that is 15 business days
prior
to the anticipated effective date of the fundamental change up to and including
the fifth business day following the effective date of the fundamental change.
We will notify holders at least 20 business days prior to the anticipated
effective date of such transaction of such anticipated effective date and
whether we elect, if such transaction is also a public acquirer change of
control, to modify the exchange obligations as described below in lieu of
increasing the exchange rate.
The
number of additional change in control shares will be determined by reference
to
the table below and is based on the date on which such change in control
transaction becomes effective (the “effective date”) and the price (the “stock
price”) paid per Essex common share in such transaction. If the holders of Essex
common shares receive only cash in the change in control transaction, the stock
price shall be the cash amount paid per Essex common share. Otherwise, the
stock
price shall be the average of the closing sale prices of Essex common shares
over the 10 consecutive trading days up to but excluding the effective
date.
The
stock
prices set forth in the first column of the table will be adjusted as of any
date on which the exchange rate of the notes is adjusted as set forth under
“—
Exchange
Rate Adjustments.”
The
adjusted stock prices will equal the stock prices applicable immediately prior
to such adjustment multiplied by a fraction, the numerator of which is the
exchange rate immediately prior to the adjustment giving rise to the stock
price
adjustment and the denominator of which is the exchange rate as so adjusted.
In
addition, the number of additional change in control shares will be subject
to
adjustment in the same manner as the exchange rate as set forth under “—
Exchange
Rate Adjustments.”
If
a
holder tenders notes for exchange after the earlier of the effective date of
the
fundamental change transaction and the record date for receiving distributions
in connection with the fundamental change, the exchange value of each note
will
be determined based on the kind and amount of cash, securities and other assets
or property that a holder of a number of shares of common stock equal to the
exchange rate would have owned or been entitled to receive in such fundamental
change transaction; provided,
that
if
such earlier date is the record date, a holder will receive the exchange value
on the actual effective date of the fundamental change.
The
following table sets forth the stock price and number of additional change
in
control shares of Essex to be received per $1,000 principal amount of
notes:
|
Effective
Date
|
Stock
Price
|
October
25,
2005
|
|
November
1,
2006
|
|
November
1,
2007
|
|
November
1,
2008
|
|
November
1,
2009
|
|
November
4,
2010
|
$
87.39
|
1.95
|
|
2.12
|
|
2.09
|
|
2.03
|
|
1.96
|
|
0.00
|
$
90.00
|
1.75
|
|
1.91
|
|
1.86
|
|
1.79
|
|
1.69
|
|
0.00
|
$
95.00
|
1.42
|
|
1.57
|
|
1.50
|
|
1.41
|
|
1.26
|
|
0.00
|
$100.00
|
1.16
|
|
1.28
|
|
1.21
|
|
1.10
|
|
0.93
|
|
0.00
|
$105.00
|
0.94
|
|
1.05
|
|
0.98
|
|
0.86
|
|
0.69
|
|
0.00
|
$110.00
|
0.76
|
|
0.87
|
|
0.79
|
|
0.68
|
|
0.51
|
|
0.00
|
$115.00
|
0.62
|
|
0.72
|
|
0.64
|
|
0.53
|
|
0.38
|
|
0.00
|
$120.00
|
0.50
|
|
0.59
|
|
0.52
|
|
0.42
|
|
0.29
|
|
0.00
|
$125.00
|
0.40
|
|
0.49
|
|
0.43
|
|
0.34
|
|
0.23
|
|
0.00
|
$130.00
|
0.33
|
|
0.41
|
|
0.35
|
|
0.28
|
|
0.19
|
|
0.00
|
$135.00
|
0.26
|
|
0.35
|
|
0.30
|
|
0.23
|
|
0.16
|
|
0.00
|
$140.00
|
0.21
|
|
0.30
|
|
0.25
|
|
0.20
|
|
0.14
|
|
0.00
|
$145.00
|
0.17
|
|
0.26
|
|
0.22
|
|
0.17
|
|
0.13
|
|
0.00
|
$150.00
|
0.13
|
|
0.22
|
|
0.19
|
|
0.15
|
|
0.12
|
|
0.00
|
$155.00
|
0.10
|
|
0.19
|
|
0.16
|
|
0.14
|
|
0.12
|
|
0.00
|
$160.00
|
0.08
|
|
0.17
|
|
0.15
|
|
0.12
|
|
0.11
|
|
0.00
|
$165.00
|
0.06
|
|
0.15
|
|
0.13
|
|
0.12
|
|
0.11
|
|
0.00
|
$170.00
|
0.05
|
|
0.14
|
|
0.12
|
|
0.11
|
|
0.11
|
|
0.00
|
The
exact
stock prices and effective dates may not be set forth in the table, in which
case:
(1) if
the
stock price is between two stock price amounts in the table or the effective
date is between two dates in the table, the additional change in control shares
will be determined by straight-line interpolation between the number of
additional change in control shares set forth for the higher and lower stock
price amounts and the two dates, as applicable, based on a 365-day
year;
(2) the
stock
price is in excess of $170.00 per Essex common share (subject to adjustment),
no
additional change in control shares will be issued upon exchange; and
(3)
if
the stock price is less than $87.39 per Essex common share (subject to
adjustment), no additional change in control shares will be issued upon
exchange.
Our
obligation to deliver the additional change in control shares could be
considered a penalty, in which case the enforceability thereof would be subject
to general principles of reasonableness of economic remedies.
Exchange
After a Public Acquirer Change of Control
Notwithstanding
the foregoing, and in lieu of adjusting the exchange rate as set forth above,
in
the case of a “public acquirer change of control” (as defined below), we may, at
any time prior to the 20th business day immediately preceding the proposed
effective date of the public acquirer change of control, irrevocably elect
to
change our exchange obligation with respect to the notes into an obligation
to
deliver, upon exchange of the notes, cash and shares of “public acquirer common
stock” (as defined below), if any, equal to the exchange value in the same
manner as we would otherwise be required to satisfy our exchange obligation
as
described above under “— Exchange
Rights”
and
“
—
Exchange
Settlement”
in
respect of Essex common shares. If we make such an election, the exchange rate
at the effective time of the public acquirer change of control will be a number
of shares of public acquirer common stock equal to the exchange rate in effect
immediately before the effective date of the public acquirer change of control
multiplied by a fraction:
· |
the
numerator of which will be (i) in the case of a share exchange,
consolidation, merger, or binding share exchange pursuant to which
Essex
common share are converted into cash, securities, or other property,
the
value of all cash, securities, and other property (as determined
by the
Essex board of directors) paid or payable per Essex common shares
or (ii)
in the case of any other public acquirer change of control, the average
of
the closing sale price of Essex common shares for the five consecutive
trading days prior to but excluding the effective date of such public
acquirer change of control; and
|
· |
the
denominator of which will be the average of the closing sale prices
of the
public acquirer common stock for the five consecutive trading days
commencing on the trading day next succeeding the effective date
of such
public acquirer change of control.
|
A
“public
acquirer change of control” means any event constituting a fundamental change
that would otherwise obligate us to increase the exchange rate as described
above under “—
Exchange Rate Adjustments — Exchange Rate Adjustment Upon Certain Fundamental
Changes”
and
the
acquirer (or any entity that is a directly or indirectly wholly owned subsidiary
of the acquirer) has a class of common stock traded on a national or regional
securities exchange or quoted on the Nasdaq National Market or which will be
so
traded or quoted when issued or exchanged in connection with such fundamental
change or other event (the “public acquirer common stock”).
If
we
elect to adjust the exchange rate and exchange obligation in connection with
a
public acquirer change of control as described above, we must send holders
of
notes written notice not later than 20 business days prior to but excluding
the
expected effective date of the public acquirer change of control. If we make
such an election, holders who tender their notes for exchange will not have
the
right to receive additional change in control shares as described
above.
After
the
adjustment of the exchange rate in connection with a public acquirer change
of
control, the exchange rate will be subject to further adjustments in the event
that any of the events described under “— Exchange
Rate Adjustments”
occur
thereafter.
Optional
Redemption
We
do not
have the right to redeem any notes prior to November 4, 2010; provided, that
if,
at any time, we determine it is necessary to redeem the notes in order to
preserve the status of Essex as a REIT, we may redeem the notes, in whole or
in
part, for cash equal to 100% of the principal amount of the notes to be redeemed
plus any accrued and unpaid interest (including additional interest, if any)
to,
but not including, the redemption date. In addition, on or after November 4,
2010, we will have the right to redeem the notes in whole or in part, at any
time or from time to time, for cash equal to 100% of the principal amount of
the
notes to be redeemed plus any accrued and unpaid interest (including additional
interest, if any) to, but not including, the redemption date. In either case,
if
an interest payment date falls on or prior to the redemption date, we will
pay
any accrued and unpaid interest (including additional interest, if any) due
on
that interest payment date instead to the record holder of such note at the
close of business on the related record date. Written notice of redemption
must
be delivered to holders of the notes not less than 30 nor more than 60 days
prior to the redemption date.
If
the
paying agent holds money sufficient to pay the redemption price due on a note
on
the redemption date in accordance with the terms of the indenture, then, on
and
after the redemption date, the note will cease to be outstanding and interest
on
the note will cease to accrue, whether or not the holder effects book-entry
transfer or delivers the note to the paying agent. Thereafter, all other rights
of the holder terminate, other than the right to receive the redemption price
and additional interest, if any, upon book-entry transfer or delivery of the
note.
If
we
decide to redeem the notes in part, the trustee will select the notes to be
redeemed (in principal amounts of $1,000 and integral multiples thereof) on
a
pro rata basis or such other method it deems fair and appropriate. If the
trustee selects a portion of a note for partial redemption and a holder
exchanges a portion of the same note, the exchanged portion will be deemed
to be
from the portion selected for redemption.
In
the
event of any redemption of notes in part, we will not be required
to:
· |
issue
or register the transfer or exchange of any note during a period
beginning
at the opening of business 15 days before any selection of notes
for
redemption and ending at the close of business on the earliest date
on
which the relevant notice of redemption is deemed to have been given
to
all holders of notes to be so redeemed; or
|
· |
register
the transfer or exchange of any note so selected for redemption,
in whole
or in part, except the unredeemed portion of any note being redeemed
in
part.
|
If
we
call notes for redemption, a holder may exchange its notes only until the close
of business on the second business day immediately preceding the redemption
date, unless we fail to pay the redemption price. See “Exchange
Rights — Exchange Upon Notice of Redemption”
above.
Repurchase
at Option of Holders on Certain Dates
Holders
of notes may require us to repurchase their notes in whole or in part (in
principal amounts of $1,000 and integral multiples thereof) on November 1,
2010,
2015 and 2020 for cash equal to 100% of the principal amount of the notes to
be
repurchased plus any accrued and unpaid interest (including additional interest,
if any) to, but not including, the repurchase date; provided,
that
if
an interest payment date falls on or prior to the repurchase date, we will
pay
any accrued and unpaid interest (including additional interest, if any) due
on
that interest payment date instead to the record holder of such note at the
close of business on the related record date.
To
exercise its repurchase right, a holder must deliver a written repurchase
notice
to the paying agent during the period beginning at any time from the opening
of
business on the date that is 20 business days prior to the repurchase date
until
the close of business on the repurchase date. We will be required to repurchase
all notes for which holders have properly delivered and not withdrawn a written
purchase notice.
On
or
before the 20th business day immediately preceding each repurchase date, we
will
provide to the trustee, any paying agent and to all holders of the notes, and
to
beneficial owners as required by applicable law, a notice stating, among other
things:
· |
the
name and address of the trustee and any paying
agent;
|
· |
that
notes with respect to which the holder has delivered a repurchase
notice
may be exchanged, if otherwise exchangeable, only if the holder withdraws
the repurchase notice in accordance with the terms of the indenture;
and
|
· |
the
procedures that holders must follow to require us to repurchase their
notes.
|
We
will
also disseminate a press release through Dow Jones & Company, Inc. or
Bloomberg Business News containing the information specified in such notice
and
publish that information in a newspaper of general circulation in The City
of
New York, on Essex’s web site or through such other public medium as we may use
at such time.
A
holder’s notice electing to require us to repurchase notes must
specify:
· |
if
such notes are in certificated form, the certificate number(s), or,
if
such notes are in book entry form, that such notice complies with
appropriate procedures of The Depository Trust Company, or
DTC;
|
· |
the
principal amount of notes to be repurchased, in integral multiples
of
$1,000, provided that the remaining principal amount of notes is
in an
authorized denomination; and
|
· |
that
the notes are to be repurchased by us pursuant to the applicable
provisions of the notes.
|
Holders
may withdraw any repurchase notice in whole or in part by a written notice
of
withdrawal delivered to the paying agent prior to the close of business on
the
repurchase date. If a holder of notes delivers a repurchase notice, it may
not
thereafter surrender such notes for exchange unless such repurchase notice
is
withdrawn as permitted below. The notice of withdrawal must
specify:
· |
the
name of the holder;
|
· |
the
certificate number(s) of all withdrawn notes in certificated form
or that
the withdrawal notice complies with appropriate DTC procedures with
respect to all withdrawn notes in book entry
form;
|
· |
the
principal amount of notes being withdrawn, which must be an integral
multiple of $1,000; and
|
· |
the
principal amount of notes, if any, that remains subject to the repurchase
notice, which must be an integral multiple of
$1,000.
|
If
the
notes are in book-entry form, the above notices must also comply with
appropriate DTC procedures.
Holders
electing to require us to repurchase notes must either effect book-entry
transfer of notes in book-entry form in compliance with appropriate DTC
procedures or deliver the notes in certificated form, together with necessary
endorsements, to the paying agent prior to the repurchase date to receive
payment of the repurchase price on the repurchase date. We will pay the
repurchase price within two business days after the later of the repurchase
date
or the time of such transfer or delivery of the notes.
If
the
paying agent holds funds sufficient to pay the repurchase price of the notes
on
the repurchase date, then on and after such date:
· |
such
notes will cease to be outstanding;
|
· |
interest
on such notes will cease to accrue;
and
|
· |
all
rights of holders of such notes will terminate except the right to
receive
the repurchase price.
|
Such
will
be the case whether or not book-entry transfer of the notes in book-entry form
is made and whether or not notes in certificated form, together with the
necessary endorsements, are delivered to the paying agent.
No
notes
may be repurchased by us at the option of the holders thereof if there has
occurred and is continuing an event of default with respect to the notes (other
than a default in the payment of the repurchase price for those notes). In
addition, we may also be unable to repurchase the notes in accordance with
their
terms. See “Risk
Factors — We may not have cash necessary to pay the principal return and any net
amount upon an exchange of notes or to repurchase the notes on specified dates
or following certain fundamental change transactions”
in
this
prospectus.
To
the
extent legally required in connection with a repurchase of notes, we will comply
with the provisions of Rule 13e-4 and other tender offer rules under the
Securities Exchange Act of 1934 (the “Exchange Act”), then applicable, if any,
and will file a Schedule TO or any other schedule required under the Exchange
Act.
Repurchase
at Option of Holders Upon a Fundamental Change
If
a
fundamental change occurs at any time prior to maturity, holders of notes may
require us to repurchase their notes in whole or in part for cash equal to
100%
of the principal amount of the notes to be repurchased plus accrued and unpaid
interest (including additional interest, if any) to, but not including, the
repurchase date; provided,
that
if
an interest payment date falls on or prior to the repurchase date, we will
pay
the accrued and unpaid interest (including additional interest, if any) due
on
that interest payment date instead to the record holder of such note at the
close of business on the related record date.
A
“fundamental change” will be deemed to have occurred if any of the following
occurs:
· |
consummation
of any transaction or event (whether by means of a share exchange
or
tender offer applicable to Essex common shares, a liquidation,
consolidation, recapitalization, reclassification, combination or
merger
of Essex or a sale, lease or other transfer of all or substantially
all of
the consolidated assets of Essex) or a series of related transactions
or
events pursuant to which all or substantially all of the outstanding
Essex
common shares are exchanged for, converted into or constitute solely
the
right to receive cash, securities or other
property;
|
· |
any
“person” or “group” (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable), other
than
Essex, the Operating Partnership or any wholly owned subsidiary of
Essex
or the Operating Partnership, is or becomes the “beneficial owner,”
directly or indirectly, of more than 50% of the total voting power
in the
aggregate of all classes of capital stock of Essex then outstanding
entitled to vote generally in elections of
directors;
|
· |
during
any period of 12 consecutive months after the date of original issuance
of
the notes (for so long as Essex is our general partner immediately
prior
to such transaction or series of related transactions), persons who
at the
beginning of such 12 month period constituted the 53 board of directors
of
Essex, together with any new persons whose election was approved
by a vote
of a majority of the persons then still comprising the board of directors
who were either members of the board of directors at the beginning
of such
period or whose election, designation or nomination for election
was
previously so approved, cease for any reason to constitute a majority
of
the board of directors of Essex;
|
· |
Essex
ceases to be our general partner or ceases to control us; provided,
however, that
the pro rata distribution by Essex to its shareholders of shares
of its
capital stock or shares of any of Essex’s other subsidiaries will not, in
and of itself, constitute a fundamental change for purposes of this
definition; or
|
· |
Essex
common shares cease to be traded on a U.S. national or regional securities
exchange or quoted on the Nasdaq National Market or another established
automated over-the-counter trading market in the United
States.
|
However,
even if any of the events specified in the preceding four bullet points have
occurred, except as indicated below, a “fundamental change” will not be deemed
to have occurred if either:
(A) the
closing sale price of Essex common shares for any five trading days within
(1)
the period of 10 consecutive trading days ending immediately after the later
of
the fundamental change and the public announcement of the fundamental change,
in
the case of a fundamental change relating to an acquisition of capital stock,
or
(2) the period of 10 consecutive trading days ending immediately after the
fundamental change, in the case of a fundamental change relating to a merger,
consolidation or asset sale, in either case, equals or exceeds 105% of the
applicable exchange price on each of those trading days; provided,
however, that
the
exception to the definition of “fundamental change” specified in this clause (A)
shall not apply in the context of a “fundamental change” or “public acquirer
change of control” as described under “— Exchange
Rate Adjustments —Exchange Rate Adjustment Upon Certain Fundamental
Changes”
and
“—
Exchange Rate Adjustments— Exchange After a Public Acquirer Change of
Control;”
or
(B) at
least
90% of the consideration (excluding cash payments for fractional shares and
cash
payments made pursuant to dissenters’ appraisal rights) in a merger,
consolidation or other transaction otherwise constituting a fundamental change
consists of shares of common stock (or depositary receipts or other certificates
representing common equity interests) traded on a national or regional
securities exchange or quoted on the Nasdaq National Market or another
established automated over-the-counter trading market in the United States
(or
will be so traded or quoted immediately following such merger, consolidation
or
other transaction) and as a result of the merger, consolidation or other
transaction the notes become exchangeable into such shares of common stock
(or
depositary receipts or other certificates representing common equity
interests).
For
purposes of these provisions “person” includes any syndicate or group that would
be deemed to be a “person” under Section 13(d)(3) of the Exchange
Act.
The
definition of “fundamental change” includes a phrase relating to the sale, lease
or other transfer of “all or substantially all” of the consolidated assets of
Essex. There is no precise, established definition of the phrase “substantially
all” under applicable law. Accordingly, the ability of a holder of notes to
require us to repurchase its notes as a result of the sale, lease or other
transfer of less than all of the consolidated assets of Essex may be
uncertain.
Within
10
days after the occurrence of a fundamental change, we are obligated to give
to
the holders of the notes notice of the fundamental change and of the repurchase
right arising as a result of the fundamental change and the repurchase date
(which may be no later than 30 business days after the date of such notice).
We
must also deliver a copy of this notice to the trustee. We will also disseminate
a press release through Dow Jones & Company, Inc. or Bloomberg Business News
announcing the occurrence of the fundamental change and publish that information
in a newspaper 54 of general circulation in The City of New York, on Essex’s web
site or through such other public medium as we may use at such
time.
To
exercise its repurchase right, a holder of notes must deliver to the trustee
prior to the close of business on the repurchase date written notice of such
holder’s exercise of its repurchase right. Such notice must state:
· |
if
such notes are in certificated form, the certificate number(s), or,
if
such notes are in book entry form, that such notice complies with
appropriate procedures of The Depository Trust Company, or
DTC;
|
· |
the
portion of the principal amount of notes to be repurchased, in multiples
of $1,000, provided that the remaining principal amount of notes
is in an
authorized denomination; and
|
· |
that
the notes are to be repurchased by us pursuant to the applicable
provisions of the notes.
|
Holders
may withdraw any repurchase notice in whole or in part by a written notice
of
withdrawal delivered to the paying agent prior to the close of business on
the
repurchase date. If a holder of notes delivers a repurchase notice, it may
not
thereafter surrender such notes for exchange unless such repurchase notice
is
withdrawn as permitted below. The notice of withdrawal must specify:
· |
the
name of the holder;
|
· |
the
certificate number(s) of all withdrawn notes in certificated form
or that
the withdrawal notice complies with appropriate DTC procedures with
respect to all withdrawn notes in book entry
form;
|
· |
the
principal amount of notes being withdrawn, which must be an integral
multiple of $1,000; and
|
· |
the
principal amount of notes, if any, that remains subject to the repurchase
notice, which must be an integral multiple of
$1,000.
|
If
the
notes are in book-entry form, the above notices must comply with appropriate
DTC
procedures.
Holders
electing to require us to repurchase notes must either effect book-entry
transfer of notes in book-entry form in compliance with appropriate DTC
procedures or deliver the notes in certificated form, together with necessary
endorsements, to the paying agent prior to the repurchase date to receive
payment of the repurchase price on the repurchase date. We will pay the
repurchase price within two business days after the later of the repurchase
date
or the time of such transfer or delivery of the notes.
If
the
paying agent holds funds sufficient to pay the repurchase price of the notes
on
the repurchase date, then on and after such date:
· |
such
notes will cease to be outstanding;
|
· |
interest
on such notes will cease to accrue;
and
|
· |
all
rights of holders of such notes will terminate except the right to
receive
the repurchase price.
|
Such
will
be the case whether or not book-entry transfer of the notes in book-entry form
is made and whether or not notes in certificated form, together with the
necessary endorsements, are delivered to the paying agent.
No
notes
may be repurchased by us at the option of the holders thereof if there has
occurred and is continuing an event of default with respect to the notes (other
than a default in the payment of the repurchase price for those notes).
In
addition, we may also be unable to repurchase the notes in accordance with
their
terms. See “Risk
Factors — We may not have cash necessary to pay the principal return and any net
amount upon an exchange of notes or to repurchase the notes on specified dates
or following certain fundamental change transactions”
in
this
prospectus.
To
the
extent legally required in connection with a repurchase of notes, we will
comply
with the provisions of Rule 13e-4 and other tender offer rules under the
Exchange Act then applicable, if any, and will file a Schedule TO or any
other
required schedule under the Exchange Act.
No
Shareholder Rights for Holders of Notes
Holders
of notes, as such, do not have any rights as shareholders of Essex (including,
without limitation, voting rights and rights to receive any dividends or other
distributions on Essex common shares).
Ownership
Limit
In
order
to assist Essex in maintaining its qualification as a REIT for federal income
tax purposes, ownership by any person of more than 6.0% of outstanding Essex
common shares is restricted, subject to specified exceptions. See “Description
of Capital Stock.”
Shares
owned in excess of such limit shall be deemed “excess shares” pursuant to
Essex’s charter, in which case the applicable holder will lose certain ownership
rights with respect to such shares. The Board of Directors may also exempt
a
stockholder from the ownership limit if it receives satisfactory evidence that
such stockholder’s ownership of Essex’s shares in excess of the ownership limit
will not jeopardize its status as a REIT. As a condition to providing such
an
exemption, the Board of Directors must receive an opinion of counsel and
representations and agreements from the applicant with respect to preserving
Essex’s REIT status. There can be no assurance, however, that such an exemption
will be granted. In addition, notwithstanding any other provision of the notes,
no holder of notes is entitled to receive Essex common shares upon an exchange
of notes to the extent that receipt of such Essex common shares would cause
such
holder (together with such holder’s affiliates) to exceed the ownership limit
contained in the charter of Essex. In such case, such holder would receive
cash
upon exchange as provided herein.
Calculations
in Respect of the Notes
Except
as
explicitly specified otherwise herein, we will be responsible for making all
calculations required under the notes. These calculations include, but are
not
limited to, determinations of the exchange rate and exchange price applicable
to
the notes. We will make all these calculations in good faith and, absent
manifest error, our calculations will be final and binding on holders of the
notes. We will provide a schedule of our calculations to the trustee, and the
trustee is entitled to rely upon the accuracy of our calculations without
independent verification. The trustee will forward our calculations to any
holder of notes upon request.
Guarantee
Essex,
our general partner, has fully and unconditionally guaranteed our obligations
under the notes, including the due and punctual payment of principal of and
interest on the notes, whether at stated maturity, by declaration of
acceleration, call for redemption, notice of repurchase or otherwise. Essex
has
no operations, other than as our general partner, and no material assets, other
than its investment in us.
Merger,
Consolidation or Sale
The
Operating Partnership and Essex may consolidate with, or sell, lease or convey
all or substantially all of their respective assets to, or merge with or into,
any other entity, provided that the following conditions are met:
· |
the
Operating Partnership or Essex, as the case may be, shall be the
continuing entity, or the successor entity (if other than the Operating
Partnership or Essex, as the case may be) formed by or resulting
from any
consolidation or merger or which shall have received the transfer
of
assets shall be an entity organized and existing under the laws of
the
United States of America, any state thereof or the District of Columbia
and shall expressly assume payment of the principal of and interest
on all
of the notes and the due and punctual performance and observance
of all of
the covenants and conditions in the notes, indenture and the registration
rights agreement;
|
· |
if
as a result of such transaction the notes become exchangeable into
common
stock or other securities issued by a third party, such third party
fully
and unconditionally guarantees all obligations under the notes and
the
indenture;
|
· |
immediately
after giving effect to the transaction, no event of default under
the
indenture, and no event which, after notice or the lapse of time,
or both,
would become an event of default, shall have occurred and be continuing;
and
|
· |
an
officer’s certificate and legal opinion covering these conditions shall be
delivered to the trustee.
|
In
the
event of any transaction described in and complying with the conditions listed
in the immediately preceding paragraph in which the Operating Partnership or
Essex is not the continuing entity, the successor person formed or remaining
shall succeed, and be substituted for, and may exercise every right and power
of, the Operating Partnership or Essex, as applicable, and the Operating
Partnership or Essex, as the case may be, shall be discharged from its
obligations, under the notes, the indenture and the registration rights
agreement.
This
covenant includes a phrase “all or substantially all” relating to the sale,
lease or other transfer of “all or substantially all” of the consolidated assets
of Essex. There is no precise, established definition of the phrase
“substantially all” under applicable law.
Events
of Default; Notice and Waiver
The
following are events of default under the indenture:
· |
default
in the payment of any principal amount or any redemption price, repurchase
price or fundamental change repurchase price due with respect to
the
notes, when the same becomes due and
payable;
|
· |
default
in payment of any interest (including additional interest, if any)
under
the notes, which default continues for 30
days;
|
· |
default
in the delivery when due of the exchange value, whether due in cash
or
Essex common shares upon exercise of a holder’s exchange right in
accordance with the indenture;
|
· |
our
failure to provide notice of the occurrence of a fundamental change
when
required under the indenture;
|
· |
our
failure to comply with any other term, covenant or agreement in the
notes
or the indenture upon our receipt of notice of such default from
the
trustee or from holders of not less than 25% in aggregate principal
amount
of the notes, and the failure to cure (or obtain a waiver of) such
default
within 30 days after receipt of such
notice;
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· |
default
in the payment of principal when due on, or resulting in acceleration
of,
other indebtedness of ours, Essex or any of our significant subsidiaries
for borrowed money where the aggregate principal amount with respect
to
which the default or acceleration has occurred exceeds (a) $50 million
with respect to indebtedness secured by real property and (b) $25
million
with respect to all other indebtedness, and, in either case, such
indebtedness is not discharged, or such default in payment or acceleration
is not cured or rescinded, prior to written notice of acceleration
of the
notes.
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· |
failure
by us or any of our subsidiaries to pay final judgments entered by
a court
or courts of competent jurisdiction aggregating in excess of $5 million,
which judgments are not paid, discharged or stayed for a period of
60
days; and
|
· |
certain
events of bankruptcy, insolvency or reorganization affecting us or
any of
our significant subsidiaries.
|
We
are
required to notify the trustee promptly upon becoming aware of the occurrence
of
any default under the indenture known to us. The trustee is then required within
90 calendar days of becoming aware of the occurrence of any default to give
to
the registered holders of the notes notice of all uncured defaults known to
it.
However, the trustee may withhold notice to the holders of the notes of any
default, except defaults in payment of principal, interest (including additional
interest, if any) on the notes, if the trustee, in good faith, determines that
the withholding of such notice is in the interest of the holders. We are also
required to deliver to the trustee, on or before a date not more than 120
calendar days after the end of each fiscal year, a written statement as to
compliance with the indenture, including whether or not any default has
occurred.
If
an
event of default specified in the last bullet point listed above occurs and
continues with respect to us, the principal amount of the notes and accrued
and
unpaid interest (including additional interest, if any) on the outstanding
notes
will automatically become due and payable. If any other event of default occurs
and is continuing, the trustee or the holders of at least 25% in aggregate
principal amount of the outstanding notes may declare the principal amount
of
the notes and accrued and unpaid interest (including additional interest, if
any) on the outstanding notes to be due and payable immediately. Thereupon,
the
trustee may, in its discretion, proceed to protect and enforce the rights of
the
holders of notes by appropriate judicial proceedings.
After
a
declaration of acceleration, but before a judgment or decree for payment of
the
money due has been obtained by the trustee, the holders of a majority in
aggregate principal amount of notes outstanding, by written notice to us and
the
trustee, may rescind and annul such declaration if:
· |
rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction;
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· |
interest
on overdue installments of interest (including additional interest,
if
any) (to the extent the payment of such interest is lawful) and on
overdue
principal, which has become due otherwise than by such declaration
of
acceleration, has been paid;
|
· |
we
have paid the trustee its reasonable compensation and reimbursed
the
trustee for its expenses, disbursements and advances; and
|
· |
all
events of default, other than the non-payment of the principal amount
and
any accrued and unpaid interest and additional interest, if any,
that have
become due solely by such declaration of acceleration, have been
cured or
waived.
|
The
holders of a majority in aggregate principal amount of outstanding notes will
have the right to direct the time, method and place of any proceedings for
any
remedy available to the trustee, subject to limitations specified in the
indenture.
No
holder
of the notes may pursue any remedy under the indenture, except in the case
of a
default in the payment of principal or interest or additional interest, if
any,
on the notes, unless:
· |
the
holder has given the trustee written notice of an event of
default;
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· |
the
holders of at least 25% in aggregate principal amount of outstanding
notes
make a written request to the trustee to pursue the remedy, and offer
reasonable security or indemnity against any costs, liability or
expense
of the trustee;
|
· |
the
trustee fails to comply with the request within 60 calendar days
after
receipt of the request and offer of indemnity; and
|
· |
the
trustee does not receive an inconsistent direction from the holders
of a
majority in aggregate principal amount of outstanding
notes.
|
The
holders of a majority in aggregate principal amount of the notes outstanding
may, on behalf of the holders of all the notes, waive any past default or event
of default under the indenture and its consequences, except:
· |
our
failure to pay principal of or interest (including additional interest,
if
any) on any note when due;
|
· |
our
failure to exchange any note into Essex common shares (or cash or
a
combination of Essex common shares and cash, if we so elect) as required
by the indenture;
|
· |
our
failure to pay the redemption price on the redemption date in connection
with a redemption by us or the repurchase price on the repurchase
date in
connection with a holder exercising its repurchase rights; or
|
· |
our
failure to comply with any of the provisions of the indenture that
would
require the consent of the holder of each outstanding note
affected.
|
Modification
The
trustee and we may amend the indenture or the notes with the consent of the
holders of not less than a majority in aggregate principal amount of the notes
then outstanding. However, the consent of the holder of each outstanding note
affected is required to:
· |
impair
or adversely affect the manner of calculation or rate of accrual
of
interest (including additional interest) on the note or change the
time of
payment thereof;
|
· |
make
the note payable in money or securities other than that stated in
the
note;
|
· |
change
the stated maturity of the note;
|
· |
reduce
the principal amount, redemption price, repurchase price or fundamental
change repurchase price with respect to the
note;
|
· |
make
any change that impairs or adversely affects the rights of a holder
to
exchange the note;
|
· |
make
any change that impairs or adversely affects the right to require
us to
repurchase the note;
|
· |
impair
the right to institute suit for the enforcement of any payment with
respect to the note or with respect to exchange of the
note;
|
· |
change
our obligation to redeem any notes called for redemption on a redemption
date in a manner adverse to the
holders;
|
· |
change
our obligation to maintain an office or agency in New York
City;
|
· |
make
the notes subordinate in right of payment to any other
indebtedness;
|
· |
reduce
the percentage in aggregate principal amount of notes outstanding
required
to modify or amend the indenture; or
|
· |
modify
certain provisions of the indenture relating to modification of the
indenture or waiver under the
indenture.
|
Without
the consent of any holder of notes, the trustee and we may amend the
indenture:
· |
to
evidence a successor to us and the assumption by that successor of
our
obligations under the indenture and the
notes;
|
· |
to
provide for exchange right of holders of notes if any reclassification
or
change of Essex common shares or any consolidation, merger or sale
of all
or substantially all of the property or assets of the Operating
Partnership or Essex occurs;
|
· |
to
add to our covenants for the benefit of the holders of the notes
or to
surrender any right or power conferred upon
us;
|
· |
to
secure our obligations in respect of the
notes;
|
· |
to
evidence and provide the acceptance of the appointment of a successor
trustee under the indenture;
|
· |
to
comply with the requirements of the SEC in order to effect or maintain
qualification of the indenture under the Trust Indenture Act, as
contemplated by the indenture or
otherwise;
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· |
to
cure any ambiguity, omission, defect or inconsistency in the indenture
or
make any other provision with respect to matters or questions arising
under the indenture which we may deem necessary or desirable and
which
shall not be inconsistent with provisions of the indenture; provided
that
such modification or amendment does not, in the good faith opinion
of
Essex’s board of directors, adversely affect the interests of the holders
of notes in any material respect;
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· |
to
add or modify any provision with respect to matters or questions
arising
under the indenture which we and the trustee may deem necessary or
desirable and which will not adversely affect the interests of the
holders
of the notes in any material respect; or
|
· |
to
make any change to the indenture to conform the terms thereof to
this
prospectus.
|
The
holders of a majority in aggregate principal amount of the outstanding notes
may, on behalf of all the holders of all notes waive compliance by us with
restrictive provisions of the indenture, as detailed in the
indenture.
Rule
144A Information
If
at any
time we or Essex are not subject to the reporting requirements of the Exchange
Act, we will promptly furnish to the holders, beneficial owners and prospective
purchasers of the notes or underlying Essex common shares, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) of the
Securities Act of 1933 to facilitate the resale of those notes or shares
pursuant to Rule 144A.
Reports
to Trustee
Whether
or not required by the rules and regulations of the SEC, so long as any notes
are outstanding, we will furnish to the holders of notes or cause the trustee
to
furnish to the holders of notes, within the time periods specified in the SEC’s
rules and regulations:
(1) all
quarterly and annual reports that would be required to be filed with the SEC
on
Forms 10-Q and 10-K if we or Essex were required to file such reports; and
(2) all
current reports that would be required to be filed with the SEC on Form 8-K
if
we or Essex were required to file such reports.
Discharge
of Indenture
We
may
satisfy and discharge our obligations under the indenture by delivering to
the
trustee for cancellation all outstanding notes or by depositing with the
trustee, the paying agent or the exchange agent, if applicable, after the notes
have become due and payable, whether at stated maturity or any redemption date,
or any repurchase date, or a fundamental change repurchase date, or upon
exchange or otherwise, cash or Essex common shares (as applicable under the
terms of the indenture) sufficient to pay all of the outstanding notes and
paying all other sums payable under the indenture.
Unclaimed
Money
If
money
deposited with the trustee or paying agent for the payment of principal of,
premium, if any, or accrued and unpaid interest or additional interest on,
the
notes remains unclaimed for two years, the trustee and paying agent will pay
the
money back to us upon our written request. However, the trustee and paying
agent
have the right to withhold paying the money back to us until they publish in
a
newspaper of general circulation in New York City, or mail to each holder,
a
notice stating that the money will be paid back to us if unclaimed after a
date
no less than 30 days from the publication or mailing. After the trustee or
paying agent pays the money back to us, holders of notes entitled to the money
must look to us for payment as general creditors, subject to applicable law,
and
all liability of the trustee and the paying agent with respect to the money
will
cease.
Governing
Law
The
indenture and the notes are governed by, and construed in accordance with,
the
law of the State of New York.
Trustee
Wells
Fargo Bank, N.A. is the trustee, registrar, exchange agent, bid solicitation
agent and paying agent.
If
the
trustee becomes one of our creditors, it will be subject to limitations on
its
rights to obtain payment of claims or to realize on some property received
for
any such claim, as security or otherwise. The trustee is permitted to engage
in
other transactions with us. If, however, it acquires any conflicting interest,
it must eliminate that conflict or resign.
Book-Entry
System
The
notes
have been issued in the form of one or more fully-registered global notes in
book-entry form, which have been deposited with, or on behalf of, The Depository
Trust Company (“DTC”) and registered in the name of DTC’s nominee, Cede &
Co. Except as set forth below, the global notes may not be transferred except
as
a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor of DTC or a nominee
of such successor.
So
long
as DTC or its nominee is the registered owner of a global note, DTC or its
nominee, as the case may be, will be considered the sole holder of the notes
represented by such global note for all purposes under the indenture and the
beneficial owners of the notes will be entitled only to those rights and
benefits afforded to them in accordance with DTC’s regular operating procedures.
Upon specified written instructions of a participant in DTC, DTC will have
its
nominee assist participants in the exercise of certain holders’ rights, such as
demand for acceleration of maturity or an instruction to the trustee. Except
as
provided below, owners of beneficial interests in a global note will not be
entitled to have notes registered in their names, will not receive or be
entitled to receive physical delivery of notes in certificated form and will
not
be considered the registered owners or holders thereof under the indenture.
If
with
respect to a particular series of notes, (i) DTC is at any time unwilling or
unable to continue as depositary or if at any time DTC ceases to be a clearing
agency registered under the Exchange Act and a successor depositary is not
appointed by us within 90 days, (ii) an event of default under the indenture
relating to the notes has occurred and is continuing or (iii) we, in our sole
discretion, determine at any time that the notes shall no longer be represented
by a global note, we will issue individual notes in certificated form of the
same series and like tenor and in the applicable principal amount in exchange
for the notes represented by the global note. In any such instance, an owner
of
a beneficial interest in a global note will be entitled to physical delivery
of
individual notes in certificated form of the same series and like tenor, equal
in principal amount to such beneficial interest and to have the notes in
certificated form registered in its name. Notes so issued in certificated form
will be issued in denominations of $1,000 or any integral multiple thereof
and
will be issued in registered form only, without coupons.
The
following is based on information furnished by DTC:
DTC
is
acting as securities depositary for the notes. The notes have been issued as
fully-registered notes registered in the name of Cede & Co. (DTC’s
partnership nominee) or such other name as may be requested by an authorized
representative of DTC. Fully registered global notes have been issued for all
of
the principal amount of the notes.
DTC,
the
world’s largest depositary, is a limited-purpose trust company organized under
the New York Banking Law, a “banking organization” within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a “clearing
corporation” within the meaning of the New York Uniform Commercial Code, and a
“clearing agency” registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC holds and provides asset servicing for over 2 million issues
of U.S. and non-U.S. equity issues, corporate and municipal debt issues and
money market instruments from over 85 countries that DTC’s direct participants
deposit with DTC.
DTC
also
facilitates the post-trade settlement among direct participants of sales and
other securities transactions in deposited securities, through electronic
computerized book-entry transfers and pledges between direct participants’
accounts. This eliminates the need for physical movement of securities
certificates. Direct participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations. DTC is a wholly-owned subsidiary of The Depository Trust
& Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of
direct participants of DTC and members of the National Securities Clearing
Corporation, Government Securities Clearing Corporation, MBS Clearing
Corporation, and Emerging Markets Clearing Corporation, as well as by The New
York Stock Exchange, Inc., the American Stock Exchange LLC and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as both U.S. and non-U.S. securities brokers and
dealers, banks, trust companies and clearing corporations that clear through
or
maintain a custodial relationship with a direct participant, either directly
or
indirectly. DTC has Standard & Poor’s highest rating: AAA. The DTC rules
applicable to its participants are on file with the SEC. More information about
DTC can be found at www.dtcc.com.
Purchases
of the notes under the DTC system must be made by or through direct
participants, which will receive a credit for the notes on DTC’s records. The
beneficial interest of each actual purchaser of each note is in turn to be
recorded on the direct and indirect participants’ records. Beneficial owners
will not receive written confirmation from DTC of their purchase. Beneficial
owners are, however, expected to receive written confirmations providing details
of the transaction, as well as periodic statements of their holdings, from
the
direct or indirect participant through which the beneficial owner entered into
the transaction. Transfers of beneficial interests in the notes are to be
accomplished by entries made on the books of direct and indirect participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their beneficial interests in notes, except in the
event that use of the book-entry system for the notes is discontinued. The
laws
of some states require that certain persons take physical delivery in definitive
form of securities which they own. Such limits and such laws may impair the
ability of such persons to own, transfer or pledge beneficial interests in
a
global note.
To
facilitate subsequent transfers, all notes deposited by direct participants
with
DTC will be registered in the name of DTC’s partnership nominee, Cede & Co.
or such other name as may be requested by an authorized representative of DTC.
The deposit of the notes with DTC and their registration in the name of Cede
& Co. or such other nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual beneficial owners of the notes;
DTC’s records reflect only the identity of the direct participants to whose
accounts the notes will be credited, which may or may not be the beneficial
owners.
The
direct and indirect participants will remain responsible for keeping account
of
their holdings on behalf of their customers.
Conveyance
of notices and other communications by DTC to direct participants, by direct
participants to indirect participants, and by direct participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Beneficial owners of the notes may wish to take certain steps
to
augment the transmission to them of notices of significant events with respect
to the notes, such as redemption, tenders, defaults, and proposed amendments
to
the security documents. For example, beneficial owners of the notes may wish
to
ascertain that the nominee holding the notes for their benefit has agreed to
obtain and transmit notices to beneficial owners. In the alternative, beneficial
owners may wish to provide their names and addresses to the registrar of the
notes and request that copies of the notices be provided to them directly.
Any
such request may or may not be successful.
Neither
DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with
respect to the notes unless authorized by a direct participant in accordance
with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to
us as soon as possible after the regular record date. The Omnibus Proxy assigns
Cede & Co.’s consenting or voting rights to those direct participants to
whose accounts the notes are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
We
will
pay principal of and interest on the notes in same-day funds to the trustee
and
from the trustee to DTC, or such other nominee as may be requested by an
authorized representative of DTC. DTC’s practice is to credit direct
participants’ accounts on the applicable payment date in accordance with their
respective holdings shown on DTC’s records upon DTC’s receipt of funds and
corresponding detail information. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in “street name,” and will be the responsibility of these
participants and not of us, the trustee, DTC, or any other party, subject to
any
statutory or regulatory requirements that may be in effect from time to time.
Payment of principal and interest to Cede & Co., or such other nominee as
may be requested by an authorized representative of DTC, is the responsibility
of us or the trustee, disbursement of such payments to direct participants
is
the responsibility of DTC, and disbursement of such payments to the beneficial
owners is the responsibility of the direct or indirect
participants.
We
will
send any redemption notices to DTC. If less than all of the notes are being
redeemed, DTC’s practice is to determine by lot the amount of the interest of
each direct participant in such issue to be redeemed.
A
beneficial owner of notes shall give notice to elect to have its notes purchased
or tendered, through its participant, to the exchange agent and shall effect
delivery of such notes by causing the direct participant to transfer the
participant’s interest in notes, on DTC’s records, to the exchange agent. The
requirement for physical delivery of notes in connection with an optional tender
or a mandatory purchase will be deemed satisfied when the ownership rights
in
the notes are transferred by direct participants on DTC’s records and followed
by a book-entry credit of tendered notes to the exchange agent’s DTC
account.
DTC
may
discontinue providing its services as securities depositary for the notes at
any
time by giving us reasonable notice. Under such circumstances, if a successor
securities depositary is not obtained, we will print and deliver certificated
notes. We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, we will
print
and deliver certificated notes.
None
of
us, Essex, the underwriter or the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of the beneficial interests in a global note, or for maintaining, supervising
or
reviewing any records relating to such beneficial interests.
The
information in this section concerning DTC and DTC’s system has been obtained
from sources that we believe to be reliable, but we take no responsibility
for
its accuracy.
Registration
Rights; Additional Interest
We,
Essex
and the initial purchasers have entered into a registration rights agreement.
Pursuant
to the registration rights agreement, we and Essex agreed:
· |
to
file with the SEC, by the 90th day after the date we first issued
the
notes, a shelf registration statement to cover resales of registrable
securities (as described below) by the holders who satisfy certain
conditions and provide the information we describe below for use
with the
shelf registration statement;
|
· |
to
use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act, as promptly as
practicable but in any event by the 180th day after the date we first
issued the notes; and
|
· |
to
use our reasonable best efforts to keep the shelf registration statement
continuously effective under the Securities Act, until there are
no
registrable securities outstanding.
|
However,
the registration rights agreement permits us to prohibit offers and sales of
registrable securities pursuant to the shelf registration statement for a period
not to exceed an aggregate of 30 days in any three-month period and not to
exceed an aggregate of 90 days in any 12-month period, under certain
circumstances and subject to certain conditions. We refer to such any period
during which we may prohibit offers and sales as a “suspension period.” We need
not specify the nature of the event giving rise to a suspension in any notice
to
holders of the notes of the existence of such a suspension.
In
addition, if we and Essex deem it necessary to file a post-effective amendment
to the registration statement in order to make changes to the information in
the
prospectus regarding the selling holders or the plan of distribution, we and
Essex may suspend sales under the registration statement until the date on
which
the post-effective amendment is declared effective by the SEC; provided,
however, that
any
days in any such suspension period shall count towards the 30 and 90 day periods
referred to in the previous paragraph.
“Registrable
securities” means each note and any Essex common share delivered upon exchange
of the notes until the earlier of:
· |
the
date the note or any such Essex common share has been effectively
registered under the Securities Act and disposed of in accordance
with the
shelf registration statement; and
|
· |
the
date when the note or any such Essex common share is eligible for
sale
pursuant to Rule 144(k) under the Securities Act or any similar provision
then in effect.
|
Holders
of registrable securities must deliver a notice and complete a questionnaire
to
be used in connection with, and to be named as selling securityholders in,
the
shelf registration statement in order to have their registrable securities
included in the shelf registration statement. The form of notice and
questionnaire to be used for this purpose is available upon request from us.
Any
holder that does not duly complete and deliver a questionnaire or provide the
information it requires will not be named as a selling securityholder in the
shelf registration statement and will not be permitted to sell any registrable
securities held by that holder pursuant to the shelf registration statement.
We
cannot assure you that we will be able to maintain an effective and current
shelf registration statement as required. The absence of an effective shelf
registration statement may limit a holder’s ability to sell its registrable
securities or may adversely affect the price at which it may sell its
registrable securities.
If:
· |
the
shelf registration statement is not filed with the SEC by the 90th
day
after the first issue date of the
notes;
|
· |
the
shelf registration statement has not been declared effective under
the
Securities Act by the 180th day after the first issue date of the
notes;
|
· |
a
holder supplies the questionnaire described below after the effective
date
of the shelf registration statement, and we and Essex fail to supplement
or amend the shelf registration statement, or file a new registration
statement, in accordance with the terms of the registration rights
agreement, in order to add such holder as a selling
securityholder;
|
· |
the
shelf registration statement is filed and has been declared effective
under the Securities Act, but then ceases to be effective (without
being
succeeded immediately by an additional registration statement that
is
filed and immediately becomes effective) or usable for the offer
and sale
of registrable securities, other than as a result of a requirement
to file
a posteffective amendment or prospectus supplement to the registration
statement in order to make changes to the information in the prospectus
regarding the selling security holders or the plan of distribution,
and
(1) we and Essex do not cure the lapse of effectiveness or usability
of
the registration statement within ten business days (or if a suspension
period is then in effect, the tenth business day following the expiration
of such suspension period) by a posteffective amendment, prospectus
supplement or report filed pursuant to the Exchange Act, or (2) if
applicable, we and Essex do not terminate the suspension period,
described
in the preceding paragraphs, by the 30th or 60th day or (3) if suspension
periods exceed an aggregate of 90 days in any 360-day period;
or
|
· |
we
and Essex fail to name as a selling securityholder, in the shelf
registration statement or any amendment to the shelf registration
statement, at the time it becomes effective under the Securities
Act, or
in any prospectus relating to the shelf registration statement, at
the
time we and Essex file the prospectus or, if later, the time the
related
shelf registration statement or amendment becomes effective under
the
Securities Act, any holder that is entitled to be so named as a selling
securityholder,
|
then
we
will pay additional interest to each holder of notes who has provided to us
the
required selling security holder information. We refer to each event described
in the bullet points above as a “registration default.”
Additional
interest will accrue on the notes, from, and including, the day following the
registration default to, but excluding, the day on which the registration
default has been cured. Additional interest will be paid semi-annually in
arrears, with the first semi-annual payment due on the first interest payment
date, as applicable, following the date on which such additional interest begins
to accrue, and will accrue at a rate per year equal to:
· |
an
additional 0.25% of the principal amount to, and including, the 90th
day
following such registration default; and
|
· |
an
additional 0.50% of the principal amount from and after the 91st
day
following such registration
default.
|
In
no
event will additional interest accrue at a rate per year exceeding 0.50%.
We
will
not pay any additional interest on any note after it has been exchanged for
Essex common shares. If a note ceases to be outstanding during a registration
default, we will prorate the additional interest to be paid with respect to
that
note.
So
long
as a registration default continues, we will pay additional interest in cash
on
May 1 and November 1 of each year to each holder who is entitled to receive
additional interest in respect of registrable securities of which the holder
was
the holder of record at the close of business on the immediately preceding
April
15 and October 15, respectively.
Following
the cure of a registration default, additional interest will cease to accrue
with respect to that registration default. In addition, no additional interest
will accrue after the period we and Essex must keep the shelf registration
statement effective under the Securities Act, or on any security that ceases
to
be a registrable security.
However,
we will remain liable for any previously accrued additional interest. Other
than
our and Essex’s obligation to pay additional interest, we will not have any
liability for damages with respect to a registration default on any registrable
securities.
We
and Essex agreed in the registration rights
agreement to give notice to all holders of the filing and effectiveness of
the
initial shelf registration statement by release through a reputable national
newswire service. A holder of registrable securities that does not provide
us
with a completed questionnaire or the information called for by it on or prior
to the tenth business day before the date the initial shelf registration
statement becomes effective will not be named as a selling securityholder in
the
shelf registration statement when it becomes effective and will not able to
use
the shelf registration statement to resell registrable securities. However,
such
a holder of registrable securities may thereafter provide us with a completed
questionnaire, following which we will, as promptly as reasonably practicable
after the date we receive the completed questionnaire, but in any event within
ten business days after that date (except as described below), file a supplement
to the prospectus relating to the shelf registration statement or, if required,
file a posteffective amendment or a new shelf registration statement in order
to
permit resales of such holder’s registrable securities. However, if we and Essex
receive the questionnaire during a suspension period, or we and Essex initiate
a
suspension period within five business days after we receive the questionnaire,
then we will, except as described below, make the filing within ten business
days after the end of the suspension period. We and Essex will not be required
to file more than three such amendments or supplements for all holders during
a
fiscal quarter. If we and Essex file a posteffective amendment or a new
registration statement, then we and Essex will use our and their reasonable
best
efforts to cause the post-effective amendment or new registration statement
to
be declared effective under the Securities Act, as promptly as practicable,
but
in any event by the 30th day in the case of a post-effective amendment and
the
60th day in the case of a new registration statement, after the date the
registration rights agreement requires us to file the posteffective amendment
or
new registration statement, as applicable.
If
a
holder does not deliver a duly completed questionnaire on or before the tenth
business day before the effective date of the original shelf registration
statement, the holder could experience significant additional delay. We strongly
encourage holders to submit a completed questionnaire as promptly as possible
following completion of this offering and prior to effectiveness of the shelf
registration statement. To the extent that any holder of registrable securities
identified in the shelf registration statement is a broker-dealer, or is an
affiliate of a broker-dealer that did not acquire its registrable securities
in
the ordinary course of its business or that at the time of its purchase of
registrable securities had an agreement or understanding, directly or
indirectly, with any person to distribute the registrable securities, we
understand that the SEC may take the view that such holder is, under the SEC’s
interpretations, an “underwriter” within the meaning of the Securities Act.
The
specific provisions relating to the registration described above are contained
in the registration rights agreement that we entered into. This summary of
the
registration rights agreement is not complete and is qualified in its entirety
by reference to the registration rights agreement.
This
prospectus is part of the shelf registration statement filed pursuant to the
terms of the registration rights agreement.
DESCRIPTION
OF CAPITAL STOCK
General
As
of
September 30, 2005, the total number of shares of all classes of capital stock
that Essex had authority to issue was 1,000,000,000 shares, consisting of
655,682,178 Essex common shares of common stock, par value $0.0001 per share,
14,317,822 shares of preferred stock, par value $0.0001 per share, and
330,000,000 shares of excess stock.
As
of
September 30, 2005, there were 23,139,876 Essex common shares issued and
outstanding. Up to 1,375,400 shares of common stock have been reserved for
issuance under Essex Property Trust, Inc. 1994 Stock Incentive Plan and up
to
406,500 shares of common stock have been reserved for issuance under Essex
Property Trust, Inc. 1994 Employee Stock Purchase Plan. In addition, as of
September 30, 2005, an aggregate of 2,299,361 shares of common stock may be
issued upon the exchange of outstanding limited partnership interests in the
Operating Partnership and an additional 119,786 shares of common stock would
be
issuable in exchange for non-forfeitable Series Z and Z-1 Incentive Units in
the
Operating Partnership, subject to meeting certain requirements with respect
to
the Series Z and Z-1 Incentive Units program. In addition, certain partners
in
limited partnerships in which the Operating Partnership has invested, have
the
right to have their limited partnership interests in such partnership redeemed
for cash or, at our option, for an aggregate of 1,303,051 shares of common
stock. In addition, as of September 30, 2005, there were 1,000,000 shares of
Essex’s 7.8125% Series F Cumulative Preferred Stock issued and
outstanding.
Common
Stock of Essex Property Trust
The
following description of the Essex common shares sets forth certain general
terms and provisions of the common stock. This description is in all respects
subject to and qualified in its entirety by reference to the applicable
provisions of Essex’s charter and its bylaws. The common stock is listed on the
New York Stock Exchange under the symbol “ESS.” Computershare Investor Services,
LLC is Essex’s transfer agent.
The
holders of the outstanding common stock are entitled to one vote per share
on
all matters voted on by stockholders, including elections of directors. The
charter provides that shares of common stock do not have cumulative voting
rights.
Subject
to the preferential rights of any outstanding series of capital stock, the
holders of common stock are entitled to such distributions as may be declared
from time to time by the board of directors of Essex from funds available for
distribution to such holders. Essex currently pays regular quarterly dividends
to holders of common stock out of funds legally available for distribution
when,
and if, declared by Essex’s board of directors.
In
the
event of a liquidation, dissolution or winding up of Essex, the holders of
common stock are entitled to receive ratably the assets remaining after
satisfaction of all liabilities and payment of liquidation preferences and
accrued dividends, if any, on any series of capital stock that has a liquidation
preference. The rights of holders of common stock are subject to the rights
and
preferences established by the Board of Directors for any capital stock that
may
subsequently be issued by Essex.
Essex
is
required to seek certain information from all persons who own, directly or
by
virtue of the attribution provisions of the Internal Revenue Code, more than
a
certain percentage of our outstanding stock. Stockholders who do not provide
us
with the information requested are required to submit such information with
their U.S. federal income tax returns. See “Material
U.S. Federal Income Tax Considerations — Taxation of Essex as a REIT —
Requirements for Qualification.”
Restrictions
on Transfer
In
order
for Essex to qualify as a REIT under the Internal Revenue Code, among other
requirements (see ‘‘Material
U.S. Federal Income Tax Considerations — Taxation of Essex as a REIT —
Requirements for Qualification’’),
no
more
than 50% of the value of the outstanding shares of its stock may be owned,
directly or indirectly, by five or fewer individuals, as defined in the Internal
Revenue Code, during the last half of a taxable year (other than the first
year)
or during a proportionate part of a shorter taxable year. In addition, the
Essex
stock must be owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than its first year as a REIT) or during a
proportionate part of a shorter taxable year.
Because
it is essential for Essex to continue to qualify as a REIT, its charter, subject
to certain exceptions, provides an “ownership limit” under which no stockholder,
other than George M. Marcus or his wife and children, trusts for the benefit
of
his descendants and, in the case of his death, his heirs (collectively, the
“Successors”), may own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code, more than 6.0% of the value of the
issued and outstanding shares of Essex stock. However, the ownership limit
provisions provide that a qualified trust, as defined in the charter, generally
may own up to 9.9% of the value of the outstanding shares of Essex stock. If
George M. Marcus or the Successors convert his or their limited partnership
interests in the Operating Partnership into shares of common stock, he may
exceed the ownership limit. The ownership limit provisions therefore provides
that George M. Marcus or the Successors may acquire additional shares (up to
25%
of the value of the outstanding shares of Essex common stock) pursuant to
conversion rights or from other sources so long as the acquisition does not
result in the five largest beneficial owners of Essex common stock holding
more
than 50% of the value of the outstanding shares of Essex stock. The Board of
Directors may also exempt a stockholder from the ownership limit if it received
satisfactory evidence that such stockholder’s ownership of shares in excess of
the ownership limit will not jeopardize Essex’s status as a REIT. There can be
no assurance, however, that such an exemption will be granted. As a condition
to
providing such an exemption, the Board of Directors must receive an opinion
of
counsel and representations and agreements from the applicant with respect
to
preserving Essex’s REIT status. However, the Board of Directors cannot grant an
exemption to the ownership limit if the applicant would own more than 25% of
the
value of the outstanding shares of Essex stock, unless, in addition to the
foregoing, the Board of Directors receives a ruling from the Internal Revenue
Service to the effect that such an exemption will not jeopardize Essex’s status
as a REIT. The Board of Directors may also increase the ownership limit to
a
maximum of 9.9% and, in connection therewith, require opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable
in
order to preserve Essex’s REIT status. If the Board of Directors and Essex’s
stockholders determine that it is no longer in its best interests to attempt
to
qualify, or to continue to qualify, as a REIT, the ownership limit provisions
of
the Essex charter can be terminated.
If
a
stockholder attempts to transfer shares of Essex stock that would (i) create
a
direct ownership of Essex’s shares in excess of the ownership limit absent a
Board exemption, (ii) result in the ownership of Essex by fewer than 100 persons
or (iii) result in the ownership of more than 50% of the value of Essex’s stock,
directly or indirectly, by five or fewer individuals, as defined in the Internal
Revenue Code, the transfer shall be null and void, and the intended transferee
will acquire no rights to the shares. In addition, such shares of Essex stock
will automatically be exchanged for shares of “excess stock.” Shares of Essex’s
outstanding stock will also be so exchanged if, as a result of a change in
Essex’s capital structure, such shares violate any of the foregoing limitations.
All excess stock will be automatically transferred, without action by the
purported holder, to a person who is unaffiliated with Essex or the intended
transferee, as trustee for the exclusive benefit of one or more organizations
described in Sections 170(b), 170(c) or 501(c)(3) of the Internal Revenue Code
as charitable beneficiary and designated by resolution of the Board of
Directors. Such shares of excess stock held in trust are considered issued
and
outstanding shares of Essex stock. In general, the trustee of such shares is
deemed to own the shares of excess stock held in trust for the exclusive benefit
of the charitable beneficiary on the day prior to the date of the purported
transfer or change in capital structure which resulted in the automatic
transfer.
Even
if
the provisions of the Internal Revenue Code regarding REITs are changed to
eliminate any ownership concentration limitation or increase the limitation,
the
ownership limitations in the Essex charter will not be automatically eliminated
or modified. Except as described above, any change to such limitations would
require an amendment to the Essex charter, which in turn would require the
affirmative vote of holders owning a majority of the outstanding shares of
Essex
common stock. In addition to preserving Essex’s status as a REIT, the ownership
limit provisions in the Essex charter may have the effect of precluding an
acquisition of Essex’s control without the approval of the Board of
Directors.
All
certificates representing shares of Essex’s equity stock will bear a legend
referring to the restrictions described above.
Stockholder
Rights Plan
On
October 13, 1998, the Board of Directors adopted a Stockholder Rights Plan
and
declared a dividend distribution of one “Right” for each outstanding share of
its common stock to stockholders of record at the close of business on November
21, 1998, and authorized the issuance of one Right with each share of common
stock issued thereafter. Each Right entitles the registered holder to purchase
from Essex one one-hundredth of a share (a “Unit”) of Series A Junior
Participating Preferred Stock at a purchase price of $99.13 per Unit, subject
to
adjustment. In certain circumstances the Rights will entitle holders to purchase
shares of common stock or the common stock of an Acquiring Person (as defined
below). The description and terms of the Rights are set forth in a Rights
Agreement between Essex and BankBoston, N.A., as Rights Agent, dated as of
November 11, 1998, and as amended December 13, 2000 and February 28,
2002.
The
Rights will separate from the common stock and the “Distribution Date” will
occur upon the earlier of (i) ten (10) days following a public announcement
that
a person or group of affiliated or associated persons (an “Acquiring Person”)
has acquired, or obtained the right to acquire, beneficial ownership of fifteen
percent (15%) or more of the outstanding shares of common stock (unless such
person is or becomes the beneficial owner of 15% or more of Essex’s outstanding
common stock and had a contractual right or the approval of Essex’s Board of
Directors; provided that such percentage shall not be greater than nineteen
and
nine-tenths percent (19.9%)) (the “Stock Acquisition Date”), other than as a
result of repurchases of stock by the Essex, or (ii) ten (10) business days
(or
such later date as the Board shall determine) following the commencement of
a
tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person. Certain persons, including Essex and its subsidiaries
are
exempt from the definition of Acquiring Person.
The
Rights are not exercisable until the Distribution Date and will expire at the
close of business on November 11, 2008 unless earlier redeemed or exchanged
by
Essex or terminated pursuant to a merger or other acquisition transaction
involving Essex approved by Essex’s Board of Directors. In general, at any time
until ten (10) days following the Stock Acquisition Date, a majority of the
Board of Directors may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (subject to adjustment in certain events); provided, however,
that the Rights generally may not be redeemed for one hundred eighty (180)
days
following a change in a majority of the Board as a result of a proxy
contest.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following is a summary of certain U.S. federal income tax considerations
relating to the purchase, ownership and disposition of the notes, the
qualification and taxation of Essex as a REIT, and the ownership and disposition
of the Essex common shares for which the notes may be exchanged, but does not
purport to be a complete analysis of all the potential tax considerations
relating thereto. This summary is based on the Internal Revenue Code of 1986,
as
amended (the “Internal Revenue Code”), U.S. Treasury regulations, administrative
interpretations and judicial decisions, all as currently in effect, and all
of
which are subject to differing interpretations or to change, possibly with
retroactive effect. We have not sought any ruling from the Internal Revenue
Service (“IRS”) with respect to the statements made and the conclusions reached
in the following summary, and there can be no assurance that the IRS will not
assert, and that a court will not sustain, a position contrary to any of the
tax
consequences described below.
This
summary deals only with notes and Essex common shares held as “capital assets”
(within the meaning of Section 1221 of the Internal Revenue Code) and does
not
address tax considerations applicable to an investor’s particular circumstances
or to investors that may be subject to special tax rules, including, without
limitation, financial institutions, insurance companies, dealers in securities
or currencies, persons subject to the mark-to-market rules of the Internal
Revenue Code, persons that will hold notes as a position in a hedging
transaction, “straddle” or “conversion transaction” for tax purposes, entities
treated as partnerships for U.S. federal income tax purposes, U.S. holders
(as
defined below) that have a “functional currency” other than the U.S. dollar,
persons subject to the alternative minimum tax provisions of the Internal
Revenue Code and, except as expressly indicated below, tax-exempt
organizations.
In
addition, if a partnership (including for this purpose any entity treated as
a
partnership for U.S. federal income tax purposes) is a holder of notes or of
Essex common shares received in exchange for a note, the tax treatment of a
partner in the partnership will generally depend upon the status of the partner
and upon the activities of the partnership. Holders that are partnerships,
and
partners in such partnerships, should consult their tax advisors about the
U.S.
federal income tax consequences of purchasing, holding and disposing of notes
or
Essex common shares.
Investors
considering the purchase of notes should consult their tax advisors with respect
to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction or under any applicable tax
treaty.
As
used
herein, the term “U.S. holder” means any beneficial owner of a note, or of Essex
common shares received in exchange for a note, that is, for U.S. federal income
tax purposes, (i) a citizen or resident of the United States, (ii) a corporation
(or other entity treated as a corporation for U.S. federal income tax purposes)
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia, (iii) an estate the income of which is
subject to U.S. federal income taxation regardless of its source, (iv) a trust
if (A) a court within the United States is able to exercise primary supervision
over the administration of the trust and (B) one or more U.S. persons have
the
authority to control all substantial decisions of the trust, or (v) certain
eligible trusts that elect to be taxed as U.S. persons under applicable U.S.
Treasury Regulations. As used herein, the term “non-U.S. holder” means a
beneficial owner of a note, or Essex common shares received in exchange for
a
note, that is not a U.S. holder.
U.S.
Holders of the Notes
Stated
Interest
Payments
of stated interest on a note, including “qualified stated interest” (as defined
below), generally will be taxable to a U.S. holder as ordinary income at the
time such payments are accrued or are received, in accordance with the U.S.
holder’s regular method of tax accounting.
Original
Issue Discount
The
notes
were issued with original issue discount (“OID”) for federal income tax
purposes. The amount of OID on a note equals the excess of the “stated
redemption price at maturity” of the note over its “issue price.” Generally, the
“issue price” of a note is the first price at which a substantial amount of the
notes is sold to purchasers other than bond houses, brokers or similar persons
or organizations acting in the capacity of underwriters, placement agents or
wholesalers. The “stated redemption price at maturity” of a note is the total of
all payments to be made under the note other than “qualified stated interest”
(generally, stated interest that is unconditionally payable in cash or property
at least annually at a single fixed rate or at certain floating rates that
properly take into account the length of the interval between stated interest
payments) and, in this case, is expected to equal the principal amount of the
note.
Each
U.S.
holder must include in income for a given taxable year the daily portion of
the
OID that accrues on the note for each day during the taxable year on which
such
U.S. holder holds the note. Thus, a U.S. holder of a note would be required
to
include amounts in income in advance of the receipt of cash to which the OID
is
attributable. A daily portion of OID is determined by allocating to each day
in
any “accrual period” a pro rata portion of the OID that accrued during such
period. Applicable U.S. Treasury regulations permit a holder to use accrual
periods of any length from one day to one year to compute accruals of OID,
provided that the yield to maturity is adjusted to reflect the yield period
selected, and further provided that each scheduled payment of principal or
interest occurs either on the first or the last day of an accrual
period.
The
amount of OID that accrues with respect to any accrual period is the product
of
the note’s “adjusted issue price” at the beginning of the accrual period and the
note’s “yield to maturity” less the amount of any qualified stated interest
allocable to the accrual period. The adjusted issue price of each note at the
start of any accrual period equals the sum of the issue price of such note
and
the aggregate amount of previously accrued OID, less any prior payments on
the
note other than payments of qualified stated interest. The yield to maturity
of
the notes generally is the discount rate that, when applied to all payments
to
be made on the notes, produces a present value equal to the issue price of
the
notes. For this purpose, the maturity of a note will be treated as November
1,
2010, the first date on which holders can require us to repurchase the notes
for
cash. If in fact a holder does not require us to repurchase a note for cash
on
such date, solely for purposes of calculating OID the note would be treated
as
if it were redeemed, and a new note were issued, on such date for an amount
equal to the adjusted issue price of the notes on that date.
Additional
Payments
If
the
amount or timing of any additional payments on a note is contingent, the note
could be subject to special rules that apply to contingent payment debt
instruments. These rules generally require a holder to accrue interest income
at
a rate higher than the stated interest rate on the note and to treat as ordinary
income, rather than capital gain, any gain recognized on a sale, exchange,
conversion or retirement of a note before the resolution of the contingencies.
In certain circumstances, holders of our notes could receive payments in excess
of stated principal or interest. If we do not comply with our obligations under
the registration rights agreement, such noncompliance may result in the payment
of predetermined additional interest in the manner described in the section
“Description
of the Notes — Registration Rights; Additional Interest.”
In
addition, we may be required to adjust the exchange rate in connection with
certain fundamental changes, as described in “Description
of the Notes —Exchange Rate Adjustments — Exchange Rate Adjustment Upon Certain
Fundamental Changes.”
We
intend to take the position for U.S. federal income tax purposes that the
possibility of such payment or such adjustment should not cause the notes to
be
subject to the special rules applicable to contingent payment debt instruments.
Instead, we intend to take the position that any payments of additional interest
should be taxable to you as ordinary interest income when received or accrued,
in accordance with your usual method of tax accounting, and that any additional
consideration resulting from a fundamental change adjustment to the exchange
rate should be taken into account upon an exchange of the notes. This position
is based in part on our determination that as of the date of issuance of the
notes, the possibility that such additional payments or adjustment to the
exchange rate will be made is a “remote” or “incidental” contingency within the
meaning of applicable U.S. Treasury regulations. Our position in this regard
is
binding on a holder unless the holder discloses a contrary position to the
IRS.
However, this position is not binding on the IRS and the IRS may take a contrary
position from that described above, which could affect the timing and character
of both income from the notes and our deduction with respect to the potential
additional payments. The remainder of this discussion assumes that the notes
will not be treated as contingent payment debt instruments.
Market
Discount
If
a U.S.
holder purchases a note after original issue for an amount that is less than
its
stated redemption price at maturity, such U.S. holder will be treated as having
purchased such note at a “market discount,” unless such market discount is less
than a de
minimis amount
(1/4
of
1
percent of the stated redemption price of the note at maturity times the number
of complete years to maturity after the U.S. holder acquires the
note).
Under
the
market discount rules, a U.S. holder will be required to treat any partial
principal payment on a note, or any gain realized on the sale, exchange,
retirement or other disposition of a note, as ordinary income to the extent
of
the lesser of (i) the amount of such payment or realized gain or (ii) the market
discount which has not previously been included in income and is treated as
having accrued on such note at the time of such payment or disposition. If
a
U.S. holder disposes of a note with market discount in certain otherwise
non-taxable transactions, the U.S. holder must include accrued market discount
as ordinary income as if the U.S. holder had sold the note at its then fair
market value. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the note, unless
the
U.S. holder elects to accrue market discount on a constant yield basis. Once
made, such an election may be revoked only with the consent of the IRS and,
therefore, should only be made in consultation with a tax advisor.
A
U.S.
holder may be required to defer the deduction of all or a portion of the
interest paid or accrued on any indebtedness incurred or maintained to purchase
or carry a note with market discount until the maturity of the note or certain
earlier dispositions. A U.S. holder may elect to include market discount in
income currently as it accrues (on either a ratable or constant yield basis),
in
which case the rules described above regarding the treatment as ordinary income
of gain upon the disposition of the note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for federal income tax purposes. Such an election will apply to all
debt instruments with market discount acquired by the U.S. holder on or after
the first day of the taxable year to which such election applies and may be
revoked only with the consent of the IRS. The election, therefore, should only
be made in consultation with a tax advisor.
Amortizable
Bond Premium
If
a U.S.
holder purchases a debt instrument for an amount that is greater than the sum
of
all amounts payable on the debt instrument after the purchase date, other than
payments of qualified stated interest, such U.S. holder will be considered
to
have purchased the debt instrument with “amortizable bond premium,” generally
equal in amount to such excess. However, in the case of a debt instrument that
may be redeemed prior to maturity at the option of the issuer (such as the
notes), the amount of amortizable bond premium is determined by substituting
the
first date on which the debt instrument may be redeemed (the “redemption date”)
for the maturity date and the applicable redemption price on the redemption
date
for the amount payable at maturity, if the result would maximize the U.S.
holder’s yield to maturity (i.e.,
result
in a smaller amount of amortizable bond premium properly allocable to the period
before the redemption date). If the issuer does not in fact exercise its right
to redeem the debt instrument on the applicable redemption date, the debt
instrument will be treated (solely for purposes of the amortizable bond premium
rules) as having matured and then as having been reissued for the U.S. holder’s
“adjusted acquisition price,” which is an amount equal to the U.S. holder’s
basis in the debt instrument (as determined under the applicable U.S. Treasury
regulations), less the sum of (i) any amortizable bond premium allocable to
prior accrual periods and (ii) any payments previously made on the debt
instrument (other than payments of qualified stated interest). The debt
instrument deemed to have been reissued will again be subject to the amortizable
bond premium rules with respect to the remaining dates on which the debt
instrument is redeemable.
A
U.S.
holder may elect to amortize bond premium on a debt instrument. Once made,
the
election applies to all taxable debt instruments then owned and thereafter
acquired by the U.S. holder on or after the first day of the taxable year to
which such election applies, and may be revoked only with the consent of the
IRS. The election, therefore, should only be made in consultation with a tax
advisor. In general, a U.S. holder amortizes bond premium by offsetting the
qualified stated interest allocable to an accrual period with the bond premium
allocable to the accrual period, which is determined under a constant yield
method pursuant to the applicable U.S. Treasury regulations. If the bond premium
allocable to an accrual period exceeds the qualified stated interest allocable
to such period, the excess is treated by the U.S. holder as a bond premium
deduction.
The
bond
premium deduction for each accrual period is limited to the amount by which
the
U.S. holder’s total interest inclusions on the debt instrument in prior accrual
periods exceed the total amount treated by such U.S. holder as a bond premium
deduction on the debt instrument in prior accrual periods. Any amounts not
deductible in an accrual period may be carried forward to the next accrual
period and treated as bond premium allocable to that period.
Election
to Include All Interest in Income Using a Constant Yield
Method
All
U.S.
holders may generally, upon election, include in income all interest (including
stated interest, acquisition discount, original issue discount, de
minimis original
issue discount, market discount, de
minimis market
discount, and unstated interest, as adjusted by any amortizable bond premium
or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions. Because this election will affect how the U.S.
holder treats debt instruments other than the notes, it should be made only
in
consultation with a tax advisor.
Disposition
of the Notes
Upon
the
sale, exchange (including an exchange for cash and any Essex common shares),
redemption, repurchase, retirement or other disposition of a note, a U.S. holder
generally will recognize gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property (including
Essex common shares) received on the disposition (except to the extent such
amount is attributable to accrued but unpaid stated interest, which is taxable
as ordinary income if not previously included in such holder’s income) and (ii)
such U.S. holder’s adjusted tax basis in the note. A U.S. holder’s adjusted tax
basis in a note generally will equal the cost of the note to such U.S. holder
(i) increased by any accrued OID and market discount the U.S. holder has
included in income and (ii) decreased by (A) the amount of any payments, other
than qualified stated interest payments, received, and (B) amortizable bond
premium taken, with respect to such note. Any gain or loss recognized on such
a
disposition of a note will be capital gain or loss (except, in the case of
gain,
to the extent of accrued market discount not previously included in income,
which will be treated as ordinary income) and will generally be long term
capital gain or loss if the note has been held for more than one year at the
time of the disposition. The maximum tax rate on long-term capital gains to
non-corporate U.S. holders is generally 15% (for taxable years through December
31, 2008). The deductibility of capital losses may be subject to limitations.
Upon
the
exchange of a note for cash and Essex common shares, if any, a U.S. holder
will
have a tax basis in any Essex common shares received equal to the fair market
value of such Essex common shares at the time of the exchange. The U.S. holder’s
holding period for any Essex common shares received upon an exchange of notes
will begin on the date immediately following the date of such
exchange.
Adjustments
to Exchange Rate
The
exchange rate is subject to adjustment under specified circumstances. Although
it is not clear how or to what extent Section 305 of the Internal Revenue Code
and the applicable U.S. Treasury regulations would apply to the notes because
the notes are issued by the Operating Partnership, rather than by Essex, it
is
possible that the IRS would seek to apply Section 305 to the notes. If Section
305 were applicable, a holder of notes would, in certain circumstances, be
deemed to have received a distribution of Essex common shares if and to the
extent that the exchange rate is adjusted, which could result in ordinary income
to the extent of Essex’s current and accumulated earnings and profits.
Adjustments to the exchange rate made pursuant to a bona fide reasonable
adjustment formula which has the effect of preventing the dilution of the
interest of the holders of the notes will generally not be deemed to result
in a
constructive distribution of Essex common shares. Certain of the possible
adjustments provided in the notes (including, without limitation, adjustments
in
respect of taxable dividends to Essex’s shareholders) do not qualify as being
made pursuant to a bona fide reasonable adjustment formula. If such adjustments
are made, we intend to take the position that you will be deemed to have
received constructive distributions from Essex, even though you have not
received any cash or property as a result of such adjustments. The tax
consequences of the receipt of a distribution from Essex are described below
under “Investment
in Essex Common Shares — Taxation of Taxable U.S. Holders”
and
“Investment
in Essex Common Shares — Taxation of Tax-Exempt U.S. Holders.”
Even
if
an adjustment to the exchange rate were not to result in a taxable constructive
distribution to a holder of notes under Section 305 because the notes are issued
by the Operating Partnership rather than Essex, is
possible that the IRS could assert that, under principles similar to those
of
Section 305, a holder should recognize taxable income, which might be considered
interest, and that you should include such amount in income upon the adjustment
to the exchange rate or, alternatively, accrue such amount into income prior
to
such adjustment.
Non-U.S.
Holders of the Notes
The
rules
governing the U.S. federal income taxation of a non-U.S. holder are complex
and
no attempt will be made herein to provide more than a summary of such rules.
The
following discussion addresses only certain and not all aspects of U.S. federal
income taxation. Special rules may apply to certain non-U.S. holders such
as
“controlled foreign corporations,” and “passive foreign investment companies.”
Non-U.S.
holders should consult their tax advisors to determine the effect of U.S.
federal, state, local and foreign tax laws, as well as tax treaties, with
regard
to an investment in the notes.
For
purposes of the following discussion, income and gain on the sale, exchange
or
other disposition of a note will be considered to be “U.S. trade or business
income” if such income or gain is (i) effectively connected with the conduct of
a U.S. trade or business and (ii) in the case of a non-U.S. holder eligible
for
the benefits of an applicable U.S. bilateral income tax treaty, attributable
to
a permanent establishment (or, in the case of an individual, a fixed base)
in
the United States.
Current
Income
A
non-U.S. holder generally will not be subject to U.S. tax on payments on the
note (other than proceeds from a disposition of a note, as discussed below)
provided that (i) the non-U.S. holder does not actually or constructively own
a
10% or greater interest in capital or profits of the Operating Partnership,
within the meaning of Section 871(h)(3) of the Internal Revenue Code, and is
not
a “controlled foreign corporation” with respect to which the Operating
Partnership is a “related person” within the meaning of Section 864(d)(4) of the
Internal Revenue Code, and (ii) the non-U.S. holder provides a qualifying
statement that the owner is not a U.S. person and the withholding agent does
not
have actual knowledge or reason to know otherwise. To satisfy the qualifying
statement requirement referred to in (ii) above, the beneficial owner of a
note
must provide a properly executed Form W-8BEN (or appropriate substitute form)
prior to the receipt of payments on the note.
If
a
non-U.S. holder does not satisfy the above requirements, the gross amount of
payments on the note that are not U.S. trade or business income will be subject
to U.S. federal withholding tax at the rate of 30%, unless a U.S. income tax
treaty applies to reduce or eliminate withholding. U.S. trade or business income
will instead be taxed at regular graduated U.S. income tax rates. In the case
of
a non-U.S. holder that is a corporation, such U.S. trade or business income
may
also, under certain circumstances, be subject to the branch profits tax at
a 30%
(or, if applicable, treaty reduced) rate. To claim the benefit of a tax treaty
or to claim exemption from withholding because the income is U.S. trade or
business income, the non-U.S. holder must provide a properly executed IRS Form
W-8BEN or W-8ECI, as applicable, prior to the receipt of payments on the note.
In addition, a non-U.S. holder may, under certain circumstances, be required
to
obtain a U.S. taxpayer identification number and make certain certifications
to
us. Special procedures are provided for payments through qualified
intermediaries. A non-U.S. holder of a note that is eligible for a reduced
rate
of U.S. withholding tax pursuant to an income tax treaty may obtain a refund
of
amounts withheld at a higher rate by filing an appropriate claim for a refund
with the IRS.
Disposition
of the Notes
Any
gain
realized on the sale, redemption, exchange, repurchase (including an exchange
for cash and any Essex common shares), retirement or other taxable disposition
of a note by a non-U.S. holder (except to the extent such amount is attributable
to accrued but unpaid stated interest, which would be taxable as described
in
the preceding section captioned “Current Income”) will be exempt from U.S.
federal income and withholding taxes so long as: (i) the gain is not effectively
connected with the conduct of a trade or business in the United States by the
non-U.S. holder, (ii) in the case of a foreign individual, the non-U.S. holder
is not present in the United States for 183 days or more in the taxable year,
and (iii) the notes do not constitute “U.S. real property interests” within the
meaning of the Foreign Investment in Real Property Tax Act, or
FIRPTA.
Although
the applicable rules are not entirely clear, we intend to take the position
that
the notes constitute “U.S. real property interests” and, accordingly, that U.S.
federal withholding tax applies under FIRPTA to any redemption, repurchase
or
exchange of the notes (including an exchange of a note for cash and Essex common
shares). Therefore, we intend to withhold 10% of any amounts payable on the
redemption, repurchase or exchange by us of a note (including an exchange of
a
note for cash and any Essex common shares). Further, any other sale or
disposition of a note may be subject to federal income tax
withholding.
You
are
urged to consult your tax advisor as to whether the sale, redemption, repurchase
or exchange of a note for Essex common shares is exempt from U.S. federal income
tax under FIRPTA if (i) the Essex common shares are part of a class of stock
that is regularly traded on an established securities market and you held notes
that, on the date of their acquisition, had a fair market value of five percent
or less of the fair market value of the Essex common shares, or (ii) Essex
is a
domestically-controlled REIT. Essex will be a domestically-controlled REIT
if at
all times during a specified testing period it is a REIT and less than 50%
in
value of Essex’s shares is held directly or indirectly by non-U.S. persons.
Essex believes that it currently is a domestically-controlled REIT, but because
its common stock is publicly traded, there can be no assurance that it in fact
is qualified or will continue to qualify as a domestically-controlled REIT.
If a
sale, redemption, repurchase or exchange of a note for Essex common shares
is
exempt from U.S. federal income tax under FIRPTA, any amounts withheld from
such
payments to you may be refunded or credited against your federal income tax
liability, if any, if you file with the IRS, on a timely basis, the required
IRS
forms.
Except
to
the extent that an applicable income tax treaty otherwise provides, a non-U.S.
holder whose gain or with respect to a note is effectively connected with the
conduct of a trade or business in the United States by such non-U.S. holder
will
generally be subject to U.S. federal income tax on the gain at regular U.S.
federal income tax rates, as if the holder were a U.S. person. In the case
of a
non-U.S. holder that is a corporation, such U.S. trade or business income may
also, under certain circumstances, be subject to the branch profits tax at
a 30%
(or, if applicable, treaty-reduced) rate.
Adjustments
to Exchange Rate
The
exchange rate is subject to adjustment in certain circumstances. Any such
adjustment could, in certain circumstances, give rise to a deemed distribution
or additional interest payment to non-U.S. holders of the notes. See “—
U.S.
Holders of Notes — Adjustments to Exchange Rate”
above.
In such case, the deemed distribution or additional interest payment would
be
subject to the rules described below under “Investment
in Essex Common Shares — Taxation of Non-U.S. Holders”
or
under “Non-U.S.
Holders of the Notes — Current Income”
above.
In
the
case of a deemed distribution or additional interest payment, because such
deemed distributions will not give rise to any cash from which any applicable
U.S. federal withholding tax can be satisfied, the indenture provides that
we
may set off any withholding tax that we are required to collect with respect
to
any such deemed distribution or payment against cash payments of interest or
from cash or shares of Essex common shares otherwise deliverable to a holder
upon an exchange of notes or a redemption or repurchase of a note.
Information
Reporting and Backup Withholding
Payments
of interest and other current income made by us on, and the proceeds of the
sale
or other disposition (including a redemption) of, the notes may be subject
to
information reporting and U.S. federal backup withholding tax at the current
rate of 28% if the recipient of such payment fails to supply an accurate
taxpayer identification number or otherwise fails to comply with applicable
U.S.
information reporting or certification requirements. Any amount withheld under
the backup withholding rules is allowable as a credit against the holder’s U.S.
federal income tax, provided that the required information is furnished to
the
IRS.
Taxation
of Essex as a REIT
The
following discussion describes the material U.S. federal income tax
considerations relating to the qualification and taxation of Essex as a REIT,
Essex’s investment in entities treated as partnerships for U.S. federal income
tax purposes and the ownership and disposition of Essex common
shares.
For
purposes of the discussion in this section “Taxation
of Essex as a REIT”
and
below in “Investment
in Essex Common Shares,”
references to “we, “us” or “our” refer to Essex Property Trust, Inc., and not to
Essex Portfolio, L.P., except as otherwise indicated. Because this is a summary
that is intended to address only material U.S. federal income tax consequences
generally relevant to all stockholders relating to the ownership and disposition
of our common shares, it may not contain all the information that may be
important to you. This discussion does not cover state or local tax laws or
any
U.S. federal tax laws other than income tax laws.
We
urge you to consult your own tax advisor regarding the specific tax consequences
to you of the acquisition, ownership, and disposition of our common shares
and
of our election to be taxed as a REIT. Specifically, you should consult your
own
tax advisor regarding the U.S. federal, state, local, foreign, and other tax
consequences of such acquisition, ownership, disposition, and election, and
regarding potential changes in applicable tax laws.
General
We
elected to be taxed as a REIT commencing with our taxable year ended December
31, 1994. We believe that we have been organized and operated in a manner that
permits us to satisfy the requirements for taxation as a REIT under the
applicable provisions of the Internal Revenue Code. Qualification and taxation
as a REIT depends upon our ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Internal Revenue Code discussed below.
Although we intend to continue to operate to satisfy such requirements, no
assurance can be given that the actual results of our operations for any
particular taxable year will satisfy such requirements. See “—
Failure to Qualify.”
The
provisions of the Internal Revenue Code, U.S. Treasury regulations promulgated
thereunder and other U.S. federal income tax laws relating to qualification
and
operation as a REIT are highly technical and complex. The following sets forth
the material aspects of the laws that govern the U.S. federal income tax
treatment of a REIT. This summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, rules and U.S. Treasury regulations
thereunder, and administrative and judicial interpretations thereof. Further,
the anticipated income tax treatment described in this prospectus may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time.
Morrison
& Foerster LLP has acted as our tax counsel in connection with the filing of
this prospectus. In connection with this filing, Morrison & Foerster LLP
will opine that we have been organized and have operated in conformity with
the
requirements for qualification and taxation as a REIT under the Internal Revenue
Code for each of our taxable years beginning with the taxable year ended
December 31, 1994 through our taxable year ended December 31, 2005, and if
we
continue to be organized and operated after December 31, 2005 in the same manner
as we have prior to that date, we will continue to qualify as a REIT. The
opinion of Morrison & Foerster LLP will be based on various assumptions and
representations made by us as to factual matters, including representations
made
by us in this prospectus and a factual certificate provided by one of our
officers. Moreover, our qualification and taxation as a REIT depends upon our
ability to meet the various qualification tests imposed under the Internal
Revenue Code and discussed below, relating to our actual annual operating
results, asset diversification, distribution levels, and diversity of stock
ownership, the results of which have not been and will not be reviewed by
Morrison & Foerster LLP. Accordingly, neither Morrison & Foerster LLP
nor we can assure you that the actual results of our operations for any
particular taxable year will satisfy these requirements. See “— Failure
to Qualify.”
In
brief,
if certain detailed conditions imposed by the REIT provisions of the Internal
Revenue Code are satisfied, entities, such as us, that invest primarily in
real
estate and that otherwise would be treated for U.S. federal income tax purposes
as corporations, generally are not taxed at the corporate level on their “REIT
taxable income” that is distributed currently to stockholders. This treatment
substantially eliminates the “double taxation” (i.e.,
taxation at both the corporate and stockholder levels) that generally results
from investing in corporations under current law.
If
we
fail to qualify as a REIT in any year, however, we will be subject to U.S.
federal income tax as if we were an ordinary corporation, and our stockholders
will be taxed in the same manner as stockholders of ordinary corporations.
In
that event, we could be subject to potentially significant tax liabilities,
the
amount of cash available for distribution to our stockholders could be reduced
and we would not be obligated to make any distributions.
Moreover,
we could be disqualified from taxation as a REIT for four taxable years. See
“---
Failure to Qualify”
below.
REIT
Taxation
In
any
year in which we qualify as a REIT, in general, we will not be subject to U.S.
federal income tax on that portion of our net income that we distribute to
stockholders, except as follows:
· |
First,
we will be taxed at regular corporate rates on any undistributed
REIT
taxable income, including undistributed net capital gain. (However,
we can
elect to “pass through” any of our taxes paid on our undistributed net
capital gain income to our stockholders on a pro rata
basis.)
|
· |
Second,
under certain circumstances, we may be subject to the “alternative minimum
tax” on our items of tax
preference.
|
· |
Third,
if we have (a) net income from the sale or other disposition of
“foreclosure property” which is held primarily for sale to customers in
the ordinary course of business or (b) other nonqualifying income
from
foreclosure property, we will be subject to tax at the highest corporate
rate on such income.
|
· |
Fourth,
if we have net income from prohibited transactions (which are, in
general,
certain sales or other dispositions of property held primarily for
sale to
customers in the ordinary course of business, generally other than
property held for at least four years, foreclosure property, and
property
involuntarily converted), such income will be subject to a 100% penalty
tax.
|
· |
Fifth,
as discussed in detail below, if we should fail to satisfy the gross
income tests or the asset tests, and nonetheless maintain our
qualification as a REIT because certain other requirements have been
satisfied, we ordinarily will be subject to a penalty tax relating
to such
failure, computed as described below. Similarly, if we maintain our
REIT
status despite our failure to satisfy one or more requirements for
REIT
qualification, other than the gross income tests and asset tests,
we must
pay a penalty of $50,000 for each such failure.
|
· |
Sixth,
if we should fail to distribute during each calendar year at least
the sum
of (1) 85% of our ordinary income for such year, (2) 95% of our net
capital gain income for such year, and (3) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax
on the
excess of such required distribution over the amounts distributed.
|
· |
Seventh,
if we acquire any asset from a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the asset in our hands is determined
by
reference to the basis of the asset (or any other property) in the
hands
of the C corporation, and we recognize gain on the disposition of
such
asset during the 10-year period beginning on the date on which we
acquired
such asset, then, to the extent of any built-in, unrealized gain
at the
time of acquisition, such gain generally will be subject to tax at
the
highest regular corporate rate.
|
· |
Eighth,
we may be subject to an excise tax if our dealings with our taxable
REIT
subsidiaries, defined below, are not at arm’s
length.
|
· |
Finally,
any earnings we derive through a taxable REIT subsidiary will effectively
be subject to a corporate-level
tax.
|
Requirements
for Qualification
The
Internal Revenue Code defines a REIT as a corporation, trust or association
(1)
which is managed by one or more trustees or directors; (2) the beneficial
ownership of which is evidenced by transferable shares, or by transferable
certificates of beneficial interest; (3) which would be taxable as a domestic
corporation, but for Sections
856
through 860 of the Internal Revenue Code; (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the
Internal Revenue Code; (5) the beneficial ownership of which is held by 100
or
more persons; (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals, as defined
in
the Internal Revenue Code, at any time during the last half of each taxable
year; and (7) which meets certain other tests, described below, regarding the
nature of its income and assets.
The
Internal Revenue Code provides that conditions (1) to (4), inclusive, must
be
met during the entire taxable year and that condition (5) must be met during
at
least 335 days of a taxable year of 12 months, or during a proportionate part
of
a taxable year of less than 12 months. If we were to fail to satisfy condition
(6) during a taxable year, that failure would not result in our disqualification
as a REIT under the Internal Revenue Code for such taxable year as long as
(i)
we satisfied the stockholder demand statement requirements described in the
succeeding paragraph and (ii) we did not know, or exercising reasonable
diligence would not have known, whether we had failed condition
(6).
We
believe we have issued sufficient stock with sufficient diversity of ownership
to satisfy conditions (5) and (6) above. In order to ensure compliance with
the
ownership tests described above, we also have certain restrictions on the
transfer of our stock to prevent further concentration of stock ownership.
Moreover, to evidence compliance with these requirements, we must maintain
records which disclose the actual ownership of our outstanding stock. In
fulfilling our obligations to maintain records, we must and will demand written
statements each year from the record holders of designated percentages of our
stock disclosing the actual owners of our stock. A list of those persons failing
or refusing to comply with such demand must be maintained as part of our
records. A stockholder failing or refusing to comply with our written demand
must submit with his federal income tax returns a similar statement disclosing
the actual ownership of our stock and certain other information. In addition,
our charter restricts the transfer of our shares in order to assist in
satisfying the share ownership requirements. See “Description
of Common Stock — Restrictions on Transfer.”
Although
we intend to satisfy the shareholder demand letter rules described in the
preceding paragraph, our failure to satisfy these requirements will not result
in our disqualification as a REIT but may result in the imposition of Internal
Revenue Service penalties against us.
We
currently have several direct corporate subsidiaries and may have additional
corporate subsidiaries in the future. Certain of our corporate subsidiaries
will
be treated as “qualified REIT subsidiaries” under the Internal Revenue Code. A
corporation will qualify as a qualified REIT subsidiary if we own 100% of its
outstanding stock and we and the subsidiary do not jointly elect to treat it
as
a “taxable REIT subsidiary” as described below. A corporation that is a
qualified REIT subsidiary is not treated as a separate corporation, and all
assets, liabilities and items of income, deduction and credit of a qualified
REIT subsidiary are treated as assets, liabilities and items of income,
deduction and credit (as the case may be) of the parent REIT for all purposes
under the Internal Revenue Code (including all REIT qualification tests). Thus,
in applying the requirements described in this prospectus the subsidiaries
in
which we own a 100% interest (other than taxable REIT subsidiaries) will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiaries will be treated as our assets, liabilities and items of
income, deduction and credit. A qualified REIT subsidiary is not subject to
U.S.
federal income tax and our ownership of the stock of such a subsidiary will
not
violate the REIT asset tests, described below under “— Asset
Tests.”
In
the
case of a REIT that is a partner in a partnership, U.S. Treasury regulations
provide that the REIT will be deemed to own its proportionate share, generally
based on its pro rata share of capital interest in the partnership, of the
assets of the partnership and will be deemed to be entitled to the gross income
of the partnership attributable to such share. In addition, the character of
the
assets and gross income of the partnership shall retain the same character
in
the hands of the REIT for purposes of the gross income tests and the asset
tests, described below. Thus, our proportionate share of the assets, liabilities
and items of income of the Operating Partnership will be treated as our assets,
liabilities and items of income for purposes of applying the requirements
described below. See “— Investments
in Partnerships.”
Asset
Tests
At
the
close of each quarter of our taxable year, we generally must satisfy three
tests
relating to the nature of our assets. First, at least 75% of the value of our
total assets must be represented by interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items and
government securities (as well as certain temporary investments in stock or
debt
instruments purchased with the proceeds of new capital raised by us). Second,
although the remaining 25% of our assets generally may be invested without
restriction, securities in this class generally may not exceed either (1) 5%
of
the value of our total assets as to any one nongovernment issuer, (2) 10% of
the
outstanding voting securities of any one issuer, or (3) 10% of the value of
the
outstanding securities of any one issuer. Third, not more than 20% of the total
value of our assets can be represented by securities of one or more “taxable
REIT subsidiaries” (described below). Securities for purposes of the above 5%
and 10% asset tests may include debt securities, including debt issued by a
partnership. However, debt of an issuer will not count as a security for
purposes of the 10% value test if the security qualifies for any of a number
of
exceptions applicable, for example, to “straight debt,” as specially defined for
this purpose, to certain debt issued by partnerships, and to certain other
debt
that is not considered to be abusive and that presents minimal opportunity
to
share in the business profits of the issuer. Beginning in 2005, solely for
purposes of the 10% value test, a REIT’s interest in the assets of a partnership
will be based upon the REIT’s proportionate interest in any securities issued by
the partnership (including, for this purpose, the REIT’s interest as a partner
in the partnership and any debt securities issued by the partnership, but
excluding any securities qualifying for the “straight debt” or other exceptions
described above), valuing any debt instrument at its adjusted issue
price.
We
and a
corporation in which we own stock may make a joint election for such subsidiary
to be treated as a “taxable REIT subsidiary.” A taxable REIT subsidiary also
includes any corporation other than a REIT with respect to which a taxable
REIT
subsidiary owns securities possessing more than 35% of the total voting power
or
value of the outstanding securities of such corporation. Other than some
activities relating to lodging and health care facilities, a taxable REIT
subsidiary may generally engage in any business, including the provision of
customary or non-customary services to tenants of its parent REIT. The
securities of a taxable REIT subsidiary are not subject to the 5% asset test
and
the 10% vote and value tests described above. Instead, as discussed above,
a
separate asset test applies to taxable REIT subsidiaries. The rules regarding
taxable REIT subsidiaries contain provisions generally intended to insure that
transactions between a REIT and its taxable REIT subsidiary occur “at arm’s
length” and on commercially reasonable terms. These requirements include a
provision that prevents a taxable REIT subsidiary from deducting interest on
direct or indirect indebtedness to its parent REIT if, under a specified series
of tests, the taxable REIT subsidiary is considered to have an excessive
interest expense level or debt-to-equity ratio. In addition, a 100% penalty
tax
can be imposed on the REIT if its loans to or rental, service or other
agreements with its taxable REIT subsidiary are determined not to be on arm’s
length terms. No assurances can be given that Essex’s loans to or rental,
service or other agreements with its taxable REIT subsidiary will be on arm’s
length terms. A taxable REIT subsidiary is subject to a corporate level tax
on
its net taxable income, as a result of which our earnings derived through a
taxable REIT subsidiary are effectively subject to a corporate level tax
notwithstanding our status as a REIT. To the extent that a taxable REIT
subsidiary pays dividends to us in a particular calendar year, we may designate
a corresponding portion of dividends we pay to our stockholders during that
year
as “qualified dividend income” eligible to be taxed at reduced rates to
noncorporate recipients. See “--Taxation
of Taxable U.S. Holders.”
We
have
made elections to treat several of our corporate subsidiaries as taxable REIT
subsidiaries. We believe that the value of the securities we hold of our taxable
REIT subsidiaries does not and will not represent more than 20% of our total
assets, and that all transactions between us and our taxable REIT subsidiaries
are conducted on arm’s length terms. In addition, we believe that the amount of
our assets that are not qualifying assets for purposes of the 75% asset test
will continue to represent less than 25% of our total assets and will satisfy
the 5% and both 10% asset tests.
Beginning
in 2005, if we fail to satisfy the 5% and/or 10% asset tests for a particular
quarter, we will not lose our REIT status if the failure is due to the ownership
of assets the total value of which does not exceed a specified de
minimis threshold,
provided that we come into compliance with the asset tests generally within
six
months after the last day of the quarter in which we identify the failure.
In
addition, beginning in 2005, other failures to satisfy the asset tests generally
will not result in a loss of REIT status if (i) following our identification
of
the failure, we file a schedule with the Internal Revenue Service describing
each asset that caused the failure;
(ii)
the
failure was due to reasonable cause and not to willful neglect; (iii) we come
into compliance with the asset tests generally within six months after the
last
day of the quarter in which the failure was identified; and (iv) we pay a tax
equal to the greater of $50,000 or the amount determined by multiplying the
highest corporate tax rate by the net income generated by the prohibited assets
for the period beginning on the first date of the failure and ending on the
earlier of the date we dispose of such assets and the end of the quarter in
which we come into compliance with the asset tests.
Gross
Income Tests
We
must
satisfy two separate percentage tests relating to the sources of our gross
income for each taxable year. For purposes of these tests, where we invest
in a
partnership, we will be treated as receiving our pro rata share based on our
capital interest in the partnership of the gross income and loss of the
partnership, and the gross income of the partnership will retain the same
character in our hands as it has in the hands of the partnership. See “—
Investments
in Partnerships”
below.
The
75% Test
At
least
75% of our gross income for a taxable year must be “qualifying income.”
Qualifying income generally includes (1) rents from real property (except as
modified below); (2) interest on obligations collateralized by mortgages on,
or
interests in, real property; (3) gains from the sale or other disposition of
interests in real property and real estate mortgages, other than gain from
property held primarily for sale to customers in the ordinary course of our
trade or business (“dealer property”); (4) dividends or other distributions on
shares in other REITs, as well as gain from the sale of such shares; (5)
abatements and refunds of real property taxes; (6) income from the operation,
and gain from the sale, of property acquired at or in lieu of a foreclosure
of
the mortgage collateralized by such property (“foreclosure property”); (7)
commitment fees received for agreeing to make loans collateralized by mortgages
on real property or to purchase or lease real property; and (8) income from
temporary investments in stock or debt instruments purchased with the proceeds
of new capital raised by us.
Rents
received from a tenant will not, however, qualify as rents from real property
in
satisfying the 75% test (or the 95% test described below) if we, or an owner
of
10% or more of our equity securities, directly or constructively owns (i) in
the
case of any tenant that is a corporation, stock possessing 10% or more of the
total combined voting power of all classes of stock entitled to vote, or 10%
or
more of the total value of shares of all classes of stock of such tenant; or
(ii) in the case of any tenant that is not a corporation, an interest of 10%
or
more in the assets or net profits of such tenant (a “related party tenant”),
unless the related party tenant is a taxable REIT subsidiary and certain other
requirements are satisfied. In addition, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as rents from real
property. Moreover, an amount received or accrued generally will not qualify
as
rents from real property (or as interest income) for purposes of the 75% test
and 95% test (described below) if it is based in whole or in part on the income
or profits of any person. Rent or interest will not be disqualified, however,
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Finally, for rents received to qualify as rents from real property,
we
generally must not operate or manage the property or furnish or render certain
services to tenants, other than through an “independent contractor” who is
adequately compensated and from whom we derive no revenue or through a taxable
REIT subsidiary. The “independent contractor” or taxable REIT subsidiary
requirement, however, does not apply to the extent that the services provided
by
us are “usually or customarily rendered” in connection with the rental of space
for occupancy only, and are not otherwise considered “rendered to the occupant.”
For both the related party tenant rules and determining whether an entity
qualifies as an independent contractor of a REIT, certain attribution rules
of
the Internal Revenue Code apply, pursuant to which ownership interests in
certain entities held by one entity are deemed held by certain other related
entities.
In
general, if a REIT provides impermissible services to its tenants, all of the
rent from that property will be disqualified from satisfying the 75% test and
95% test (described below). However, rents will not be disqualified if a REIT
provides de minimis impermissible services. For
this
purpose, services provided to tenants of a property are considered de minimis
where income derived from the services rendered equals 1% or less of all income
derived from the property (as determined on a property-by-property basis).
For
purposes of the 1% threshold, the amount treated as received for any service
shall not be less than 150% of the direct cost incurred by the REIT in
furnishing or rendering the service.
We
do not
receive any rent that is based on the income or profits of any person. In
addition, we do not own, directly or indirectly, 10% or more of any tenant
(other than, perhaps, a tenant that is a taxable REIT subsidiary where other
requirements are satisfied). Furthermore, we believe that any personal property
rented in connection with our apartment facilities is well within the 15%
restriction. Finally, we do not believe that we provide services, other than
within the 1% de minimis exception described above, to our tenants that are
not
customarily furnished or rendered in connection with the rental of property,
other than through an independent contractor or a taxable REIT subsidiary.
Essex
does not intend to rent to any related party, to base any rent on the income
or
profits of any person (other than rents that are based on a fixed percentage
or
percentages of receipts or sales), or to charge rents that would otherwise
not
qualify as rents from real property.
The
95% Test
In
addition to deriving 75% of our gross income from the sources listed above,
at
least 95% of our gross income for a taxable year must be derived from the
above-described qualifying income, or from dividends, interest or gains
from the
sale or disposition of stock or other securities that are not dealer property.
Dividends from a corporation (including a taxable REIT subsidiary) and
interest
on any obligation not collateralized by an interest on real property are
included for purposes of the 95% test, but not (except with respect to
dividends
from a REIT) for purposes of the 75% test. For purposes of determining
whether
we comply with the 75% and 95% tests, gross income does not include income
from
“prohibited transactions” (discussed below).
From
time
to time, we may enter into hedging transactions with respect to one or more
of
our assets or liabilities. Our hedging activities may include entering into
interest rate or other swaps, caps and floors, or options to purchase such
items, and futures and forward contracts. Through the end of our 2004 tax year,
to the extent the we entered into an interest rate swap or cap contract, option,
futures contract, forward rate agreement or any similar financial instrument
to
hedge our indebtedness incurred to acquire or carry “real estate assets,” any
periodic income or gain from the disposition of such contract was qualifying
income for purposes of the 95% gross income test, but not the 75% gross income
test. Beginning in 2005, to the extent a transaction meets certain
identification requirements and hedges any indebtedness incurred or to be
incurred to acquire or carry “real estate assets,” including interest rate
hedges as well as other types of hedges, any income or gain from the disposition
of such a hedging transaction will be disregarded in applying the 95% gross
income test, but will continue to be taken into account as nonqualifying income
for purposes of the 75% gross income test. To the extent that we hedge with
other types of financial instruments, or in other situations, it is not entirely
clear how the income from those transactions will be treated for purposes of
the
gross income tests. We intend to structure any hedging transactions in a manner
that does not jeopardize our status as a REIT.
Our
investment in apartment communities generally gives rise to rental income that
is qualifying income for purposes of the 75% and 95% gross income tests. Gains
on sales of apartment communities, other than from prohibited transactions,
as
described below, or of our interest in a partnership generally will be
qualifying income for purposes of the 75% and 95% gross income tests. We
anticipate that income on our other investments will not result in our failing
the 75% or 95% gross income test for any year.
Even
if
we fail to satisfy one or both of the 75% or 95% tests for any taxable year,
we
may still qualify as a REIT for such year if we are entitled to relief under
certain provisions of the Internal Revenue Code. These relief provisions will
generally be available if our failure to comply was due to reasonable cause
and
not to willful neglect, and we timely comply with requirements for reporting
each item of our income to the Internal Revenue Service. It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of these relief provisions. Even if these relief provisions apply,
we
will still be subject to a special tax upon the greater of either (1) the amount
by which 75% of our gross income exceeds the amount of our income qualifying
under the 75% test for the taxable year or (2) the amount by which 90% (95%
for
2005 and later taxable years) of our gross income exceeds the amount of our
income qualifying for the 95% income test for the taxable year, multiplied
by a
fraction intended to reflect our profitability.
Annual
Distribution Requirements
To
qualify as a REIT, we are required to distribute dividends (other than capital
gain dividends) to our stockholders each year in an amount equal to at least
(A)
the sum of (i) 90% of our REIT taxable income (computed without regard to the
dividends paid deduction and our net capital gain) and (ii) 90% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income over 5% of our REIT taxable income. Such
distributions must be paid in the taxable year to which they relate, or in
the
following taxable year if declared before we timely file our tax return for
such
year and if paid on or before the first regular dividend payment after such
declaration, provided such payment is made during the 12-month period following
the close of such taxable year. These distributions are taxable to stockholders
in the year in which paid, even though the distributions relate to our prior
taxable year for purposes of the 90% distribution requirement. 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 will be
subject to tax on the undistributed amount at regular corporate tax rates,
as
the case may be. (However, we can elect to “pass through” any of our taxes paid
on our undistributed net capital gain income to our stockholders on a pro rata
basis.) Furthermore, if we should fail to distribute during each calendar year
at least the sum of (1) 85% of our ordinary income for such year, (2) 95% of
our
net capital gain income for such year, and (3) any undistributed taxable income
from prior periods, we would be subject to a 4% excise tax on the excess of
such
required distribution over the sum of the amounts actually distributed and
the
amount of any net capital gains we elected to retain and pay tax on. For these
and other purposes, dividends declared by us in October, November or December
of
one taxable year and payable to a stockholder of record on a specific date
in
any such month shall be treated as both paid by us and received by the
stockholder during such taxable year, provided that the dividend is actually
paid by us by January 31 of the following taxable year.
We
believe that we have made timely distributions sufficient to satisfy the annual
distribution requirements. It is possible that in the future we may not have
sufficient cash or other liquid assets to meet the distribution requirements,
due to timing differences between the actual receipt of income and actual
payment of expenses on the one hand, and the inclusion of such income and
deduction of such expenses in computing our REIT taxable income on the other
hand. Further, as described below, it is possible that, from time to time,
we
may be allocated a share of net capital gain attributable to the sale of
depreciated property that exceeds our allocable share of cash attributable
to
that sale. To avoid any problem with the distribution requirements, we will
closely monitor the relationship between our REIT taxable income and cash flow
and, if necessary, will borrow funds or issue preferred or common stock to
satisfy the distribution requirement. We may be required to borrow funds at
times when market conditions are not favorable.
If
we
fail to meet the distribution requirements as a result of an adjustment to
our
tax return by the Internal Revenue Service or we determine that we understated
our income on a filed return, we may retroactively cure the failure by paying
a
“deficiency dividend” (plus applicable penalties and interest) within a
specified period.
Beginning
in 2005, if we should fail to satisfy one or more requirements for REIT
qualification, other than the gross income tests and asset tests, we may retain
our REIT qualification if the failures are due to reasonable cause and not
willful neglect, and if we pay a penalty of $50,000 for each such
failure.
Certain
Loss Limitations
The
American Jobs Creation Act of 2004, or the 2004 Act, added Section 470 to the
Internal Revenue Code, which provides certain limitations on the utilization
of
losses allocable to leased property owned by a partnership having both taxable
and tax-exempt partners such as the Operating Partnership. Currently, it is
unclear how the transition rules and effective dates set forth in the 2004
Act
will apply to entities such as the Operating Partnership. However, the IRS
issued a notice stating that it will not apply Section 470 to partnerships
for
taxable years beginning before January 1, 2006 based solely on the fact that
a
partnership had both taxable and tax-exempt partners. It is important to note
that this notice provides relief for the Operating Partnership’s taxable year
ending December 31, 2005 only. Accordingly, commencing with our taxable year
beginning January 1, 2006, unless Congress passes corrective legislation which
addresses this issue or some other form of relief, certain losses generated
with
respect to properties owned by the Operating Partnership may be disallowed
until
future years. This could increase the amount of distributions we are required
to
make in a particular year in order to meet the REIT distribution requirements
and also could increase the portion of distributions to our stockholders that
are taxable as dividends.
Prohibited
Transaction Rules
A
REIT
will incur a 100% penalty tax on the net income derived from a sale or other
disposition of property, other than foreclosure property, that the REIT holds
primarily for sale to customers in the ordinary course of a trade or business
(a
“prohibited transaction”). Under a safe harbor provision in the Internal Revenue
Code, however, income from certain sales of real property held by the REIT
for
at least four years at the time of the disposition will not be treated as income
from a prohibited transaction. Whether a REIT holds an asset “primarily for sale
to customers in the ordinary course of a trade or business” depends, however, on
the facts and circumstances in effect from time to time, including those related
to a particular asset. Although we will attempt to ensure that none of our
sales
of property will constitute a prohibited transaction, we cannot assure you
that
none of such sales will be so treated.
Like-Kind
Exchanges
We
may
dispose of properties in transactions intended to qualify as like-kind exchanges
under the Internal Revenue Code. Such like-kind exchanges are intended to result
in the deferral of gain for federal income tax purposes. The failure of any
such
transaction to qualify as a like-kind exchange could subject us to federal
income tax, possibly including the 100% prohibited transaction tax, depending
on
the facts and circumstances surrounding the particular transaction.
Failure
to Qualify
If
we
fail to qualify for taxation as a REIT in any taxable year and the relief
provisions do not apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will
not
be deductible by us, nor will they be required to be made. In such event, to
the
extent of our current and accumulated earnings and profits, all distributions
to
stockholders will be taxable as ordinary income, and, subject to certain
limitations in the Internal Revenue Code, corporate distributees may be eligible
for the dividends received deduction and noncorporate distributees may be
eligible to treat the dividends as “qualified dividend income” taxable at
capital gain rates. See “— Taxation
of Taxable U.S. Holders.”
Unless
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation 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 such statutory relief.
Investments
in Partnerships
General
We
hold a
direct ownership interest in the Operating Partnership. In general, partnerships
are "pass- through" entities which are not subject to U.S. federal income tax.
Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. The allocation of partnership income or
loss
must comply with rules for allocating partnership income or loss under Section
704(b) of the Internal Revenue Code and U.S. Treasury regulations thereunder.
The Operating Partnership’s allocations of taxable income and loss are intended
to comply with the requirements of Section 704(b) of the Internal Revenue Code
and U.S. Treasury regulations thereunder. We include our allocable share of
items of partnership income, gain, loss deduction and credit in the computation
of our REIT taxable income. Moreover, we include our proportionate share, based
on our capital interest in a partnership, of the foregoing partnership items
for
purposes of the various REIT income tests. See "--Taxation
of Essex"
and
"--Gross
Income Tests."
Any
resultant increase in our REIT taxable income increases our distribution
requirements, but is not subject to U.S. federal income tax in our hands
provided that such income is distributed to our stockholders. See
"--Annual
Distribution Requirements."
In
addition, for purposes of the REIT asset tests, we include our proportionate
share, generally based on our capital interest in assets held by the
partnerships. See "--Asset
Tests."
Tax
Allocations with Respect to the Properties
Pursuant
to Section 704(c) of the Internal Revenue Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to
a
partnership in exchange for an interest in the partnership (such as some of
our
properties), must be allocated in a manner such that the contributing partner
is
charged with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount
of
such unrealized gain or unrealized loss generally is equal to the difference
between the fair market value of contributed property at the time of
contribution, and the adjusted tax basis of such property at the time of
contribution (a “book-tax difference”). Such allocations are solely for U.S.
federal income tax purposes and do not affect the book capital accounts or
other
economic or legal arrangements among the partners. The Operating Partnership
has
property subject to book-tax differences.
Consequently,
the partnership agreement of the Operating Partnership requires such allocations
to be made in a manner consistent with Section 704(c) of the Internal Revenue
Code. In general, the partners who contributed appreciated assets to the
Operating Partnership will be allocated lower amounts of depreciation deductions
for tax purposes and increased taxable income and gain on sale by the Operating
Partnership of the contributed assets (including some of our properties). This
will tend to eliminate the book-tax difference over time. However, the special
allocation rules under Section 704(c) of the Internal Revenue Code do not always
entirely rectify the book-tax difference on an annual basis or with respect
to a
specific taxable transaction, such as a sale. Thus, the carryover basis of
the
contributed assets in the hands of the Operating Partnership can be expected
to
cause us to be allocated lower depreciation and other deductions, and possibly
greater amounts of taxable income in the event of a sale of such contributed
assets, in excess of the economic or book income allocated to us as a result
of
such sale. This may cause us to recognize taxable income in excess of cash
proceeds, which might adversely affect our ability to comply with the REIT
distribution requirements. See “— Annual
Distribution Requirements.”
In
addition, the application of Section 704(c) of the Internal Revenue Code is
not
entirely clear and may be affected by authority that may be promulgated in
the
future.
Investment
in Essex Common Shares
The
following summary describes certain U.S. federal income tax consequences
relating to the purchase, ownership, and disposition of Essex common shares
as
of the date hereof.
Taxation
of Taxable U.S. Holders
As
long
as we qualify as a REIT, distributions made to our taxable U.S. holders out
of
current or accumulated earnings and profits (and not designated as capital
gain
dividends or “qualified dividend income”) will be taken into account by them as
ordinary income and U.S. holders that are corporations will not be entitled
to a
dividends received deduction. “Qualified dividend income” of noncorporate
taxpayers is currently taxed as net capital gain, thus reducing the maximum
tax
rate on such dividends to 15% for taxable years ending after December 31,
2002 and beginning before January 1, 2009.
In
general, dividends paid by REITs are not eligible for the 15% tax rate on
“qualified dividend income” and, as a result, our ordinary REIT dividends will
continue to be taxed at the higher ordinary income tax rate. Dividends received
by a noncorporate stockholder could be treated as “qualified dividend income,”
however, to the extent we have dividend income from taxable corporations (such
as a taxable REIT subsidiary) and to the extent such dividends are attributable
to income that is subject to tax at the REIT level (for example, if we
distributed less than 100% of our taxable income). In general, to qualify for
the reduced tax rate on qualified dividend income, a stockholder must hold
our
stock for more than 60 days during the 121-day period beginning on the date
that
is 60 days before the date on which our common stock becomes ex-dividend.
To
the
extent we make distributions in excess of current and accumulated earnings
and
profits, these distributions are treated first as a tax-free return of capital
to the U.S. holder, reducing the tax basis of a U.S. holder’s common shares by
the amount of such distribution (but not below zero), with distributions in
excess of the U.S. holder’s tax basis treated as proceeds from a sale of common
shares, the tax treatment of which is described below. Distributions will
generally be taxable, if at all, in the year of the distribution.
However,
any dividend declared by us in October, November or December of any year and
payable to a U.S. holder who held our common shares on a specified record date
in any such month shall be treated as both paid by us and received by the U.S.
holder on December 31 of such year, provided that the dividend is actually
paid
by us during January of the following calendar year.
In
general, distributions which are designated by us as capital gain dividends
will
be taxable to U.S. holders as gain from the sale of assets held for greater
than
one year, or “long-term term capital gain.” That treatment will apply regardless
of the period for which a U.S. holder has held the common shares upon which
the
capital gain dividend is paid. However, corporate U.S. holders may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
Noncorporate taxpayers are generally taxable at a current maximum tax rate
of
15% for long-term capital gain attributable to sales or exchanges occurring
on
or after May 6, 2003. A portion of any capital gain dividends received by
noncorporate taxpayers might be subject to tax at a 25% rate to the extent
attributable to gains realized on the sale of real property that correspond
to
our “unrecaptured Section 1250 gain.”
We
may
elect to retain, rather than distribute as a capital gain dividend, our net
long-term capital gains. In such event, we would pay tax on such retained net
long-term capital gains. In addition, to the extent designated by us, a U.S.
holder generally would (1) include his proportionate share of such undistributed
long-term capital gains in computing his long-term capital gains for his taxable
year in which the last day of our taxable year falls (subject to certain
limitations as to the amount so includable), (2) be deemed to have paid the
capital gains tax imposed on us on the designated amounts included in such
U.S.
holder’s long-term capital gains, (3) receive a credit or refund for such amount
of tax deemed paid by the U.S. holder, (4) increase the adjusted basis of his
common shares by the difference between the amount of such includable gains
and
the tax deemed to have been paid by him, and (5) in the case of a U.S. holder
that is a corporation, appropriately adjust its earnings and profits for the
retained capital gains in accordance with U.S. Treasury regulations (which
have
not yet been issued).
Distributions
made by us and gain arising from the sale or exchange by a U.S. holder of common
shares will not be treated as passive activity income, and as a result, U.S.
holders generally will not be able to apply any “passive losses” against this
income or gain. U.S. holders may not include in their individual income tax
returns any of our net operating losses or capital losses.
Disposition
of Stock
Upon
any
taxable sale or other disposition of our common shares, a U.S. holder will
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between (1) the amount of cash and the fair market value
of
any property received on the sale or other disposition and (2) the U.S. holder’s
adjusted basis in the common shares for tax purposes.
This
gain
or loss will be a capital gain or loss, and will be long-term capital gain
or
loss, respectively, if our common shares have been held for more than one year
at the time of the disposition. Noncorporate U.S. holders are generally taxable
at a current maximum rate of 15% on long-term capital gain. The Internal Revenue
Service has the authority to prescribe, but has not yet prescribed, regulations
that would 86 apply a capital gain tax rate of 25% (which is generally higher
than the long-term capital gain tax rates for noncorporate U.S. holders) to
a
portion of capital gain realized by a noncorporate U.S. holder on the sale
of
REIT stock that would correspond to the REIT’s “unrecaptured Section 1250 gain.”
U.S. holders are urged to consult with their own tax advisors with respect
to
their capital gain tax liability. A corporate U.S. holder will be subject to
tax
at a maximum rate of 35% on capital gain from the sale of our common shares
regardless of its holding period for the shares.
In
general, any loss upon a sale or exchange of our common shares by a U.S. holder
who has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions (actually made or deemed made in accordance with the discussion
above) from us required to be treated by such U.S. holder as long-term capital
gain.
Information
Reporting and Backup Withholding
Payments
of dividends on our common shares and proceeds received upon the sale,
redemption or other disposition of our shares may be subject to Internal Revenue
Service information reporting and backup withholding tax. Payments
to certain U.S. holders (including, among others, corporations and certain
tax-exempt organizations) are generally not subject to information reporting
or
backup withholding. Payments to a non-corporate U.S. holder generally will
be
subject to information reporting. Such payments also generally will be subject
to backup withholding tax if such holder:
· |
fails
to furnish its taxpayer identification number, which for an individual
is
ordinarily his or her social security
number,
|
· |
furnishes
an incorrect taxpayer identification number,
|
· |
is
notified by the Internal Revenue Service that it has failed to properly
report payments of interest or dividends, or
|
· |
fails
to certify, under penalties of perjury, that it has furnished a correct
taxpayer identification number and that the Internal Revenue Service
has
not notified the U.S. holder that it is subject to backup
withholding.
|
A
U.S.
holder that does not provide us with its correct taxpayer identification number
may also be subject to penalties imposed by the Internal Revenue Service. Any
amount paid as backup withholding will be creditable against the U.S. holder’s
U.S. federal income tax liability, if any, and otherwise will be refundable,
provided that the requisite procedures are followed. You should consult your
tax
advisor regarding your qualification for an exemption from backup withholding
and information reporting and the procedures for obtaining such an exemption,
if
applicable.
Taxation
of Tax-Exempt U.S. Holders
Based
upon a published ruling by the Internal Revenue Service, a distribution by
us
to, and gain upon a disposition of our common shares by, a U.S. holder that
is a
tax-exempt entity will not constitute “unrelated business taxable income”
(“UBTI”) provided that the tax-exempt entity has not financed the acquisition of
its common shares with “acquisition indebtedness” within the meaning of the
Internal Revenue Code and the stock is not otherwise used in an unrelated trade
or business of the tax-exempt entity. However, for tax-exempt U.S. holders
that
are social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt
from
U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and
(c)(20) of the Internal Revenue Code, respectively, income from an investment
in
us will constitute UBTI unless the organization properly sets aside or reserves
such amounts for purposes specified in the Internal Revenue Code. These
tax-exempt U.S. holders should consult their own tax advisers concerning these
“set aside” and reserve requirements.
Notwithstanding
the preceding paragraph, however, a portion of the dividends paid by us may
be
treated as UBTI to certain domestic private pension trusts if we are treated
as
a “pension-held REIT.” We believe that we are not, and we do not expect to
become, a “pension-held REIT.” If we were to become a pension- held REIT, these
rules generally would only apply to certain pension trusts that held more than
10% of our shares.
Taxation
of Non-U.S. Holders
The
following is a discussion of certain anticipated U.S. federal income tax
consequences of the ownership and disposition of our common shares applicable
to
non-U.S. holders of such shares. A “non-U.S. holder” is any person who or that
is not a U.S. holder. The discussion is based on current law and is for general
information only. The discussion addresses only certain and not all aspects
of
U.S. federal income taxation. Special rules may apply to certain non-U.S.
holders such as “controlled foreign corporations” and “passive foreign
investment companies.” Such entities should consult their own tax advisors to
determine the U.S. federal, state, local and other tax consequences that may
be
relevant to them.
Distributions
from the Company
Ordinary
Dividends
The
portion of dividends received by non-U.S. holders payable out of our current
and
accumulated earnings and profits which are not attributable to capital gains
and
which are not effectively connected with a U.S. trade or business of the
non-U.S. holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by an applicable income tax treaty). In general, non-U.S.
holders will not be considered engaged in a U.S. trade or business solely as
a
result of their ownership of our common shares. In cases where the dividend
income from a non-U.S. holder’s investment in our common shares is effectively
connected with the non-U.S. holder’s conduct of a U.S. trade or business (or, if
an income tax treaty applies, is attributable to a U.S. permanent establishment
of the non-U.S. holder), the non-U.S. holder generally will be subject to U.S.
tax at graduated rates, in the same manner as U.S. holders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits
tax
in the case of a corporate non-U.S. holder).
Non-Dividend
Distributions
Unless
our stock constitutes a USRPI (as defined below), distributions by us which
are
not paid out of our current and accumulated earnings and profits will not be
subject to U.S. income or withholding tax. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
non-U.S. holder may seek a refund of such amounts from the Internal Revenue
Service if it is subsequently determined that such distribution was, in fact,
in
excess of our current and accumulated earnings and profits. If our common stock
constitutes a USRPI, a distribution in excess of current and accumulated
earnings and profits will be subject to 10% withholding tax and may be subject
to additional taxation under FIRPTA (as defined below). However, the 10%
withholding tax will not apply to distributions already subject to the 30%
dividend withholding.
We
expect
to withhold U.S. income tax at the rate of 30% on the gross amount of any
distributions of ordinary income made to a non-U.S. holder unless (1) a lower
treaty rate applies and proper certification is provided or (2) the non-U.S.
holder files an Internal Revenue Service Form W-8ECI with us claiming that
the
distribution is effectively connected with the non-U.S. holder’s conduct of a
U.S. trade or business (or, if an income tax treaty applies, is attributable
to
a U.S. permanent establishment of the non-U.S. holder). However, the non- U.S.
holder may seek a refund of such amounts from the Internal Revenue Service
if it
is subsequently determined that such distribution was, in fact, in excess of
our
current and accumulated earnings and profits.
Capital
Gain Dividends
Under
the
Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), a distribution
made by us to a non-U.S. holder, to the extent attributable to gains (“USRPI
Capital Gains”) from dispositions of United States Real Property Interests
(“USRPIs”), will be considered effectively connected with a U.S. trade or
business of the non-U.S. holder and therefore will be subject to U.S. income
tax
at the rates applicable to U.S. holders, without regard to whether such
distribution is designated as a capital gain dividend. (The properties owned
by
the Operating Partnership generally are USRPIs.) Distributions subject to FIRPTA
may also be subject to a 30% branch profits tax in the hands of a corporate
non-U.S. holder that is not entitled to treaty exemption. Notwithstanding the
preceding, distributions received on our common shares, to the extent
attributable to USRPI Capital Gains, will not be treated as gain recognized
by
the non-U.S. holder from the sale or exchange of a USRPI if (1) our common
shares are regularly traded on an established securities market located in
the
United States and (2) the non-U.S. holder did not own more than 5% of such
class
of shares at any time during the one-year period ending on the date of the
distribution. The distribution will instead be treated as an ordinary dividend
to the non-U.S. holder, and the tax consequences to the non-U.S. holder will
be
as described above under “Ordinary
Dividends.”
Distributions
attributable to our capital gains which are not USRPI Capital Gains generally
will not be subject to income taxation, unless (1) investment in the shares
is
effectively connected with the non-U.S. holder’s U.S. trade or business (or, if
an income tax treaty applies, is attributable to a U.S. permanent establishment
of the non-U.S. holder), in which case the non-U.S. holder will be subject
to
the same treatment as U.S. holders with respect to such gain (except that a
corporate non-U.S. holder may also be subject to the 30% branch profits tax),
or
(2) the non-U.S. holder is a non-resident alien individual who is present in
the
United States for 183 days or more during the taxable year and certain other
conditions are present, in which case the nonresident alien individual will
be
subject to a 30% tax on the individual’s capital gains.
We
generally will be required to withhold and remit to the Internal Revenue Service
35% of any distributions to non-U.S. holders that are designated as capital
gain
dividends, or, if greater, 35% of a distribution that could have been designated
as a capital gain dividend. Distributions can be designated as capital gains
to
the extent of our net capital gain for the taxable year of the distribution.
The
amount withheld is creditable against the non-U.S. holder’s U.S. federal income
tax liability. This withholding will not apply to any amounts paid to a holder
of not more than 5% of our common shares while such shares are regularly traded
on an established securities market. Instead, those amounts will be treated
as
described above under “Ordinary
Dividends.”
Disposition
of Stock
Unless
our common shares constitutes a USRPI, a sale of such shares by a non-U.S.
holder generally will not be subject to U.S. taxation unless (1) the investment
in the common shares is effectively connected with the non-U.S. holder’s U.S.
trade or business (or, if an income tax treaty applies, is attributable to
a
U.S. permanent establishment of the non-U.S. holder), or (2) the non-U.S. holder
is a non-resident alien individual who is present in the United States for
183
days or more during the taxable year and certain other conditions are
present.
The
common shares will not constitute a USRPI if 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 shares is held directly
or indirectly by non-U.S. holders. We believe that we are, and we expect to
continue to be, a domestically controlled REIT, and therefore that the sale
of
our common shares will not be subject to taxation under FIRPTA. Because our
common shares will be publicly traded, however, no assurance can be given that
we will continue to be a domestically controlled REIT.
Even
if
we do not constitute a domestically controlled REIT, a non-U.S. holder’s sale of
our common shares generally will not be subject to tax under FIRPTA as a sale
of
a USRPI provided that (1) the shares are “regularly traded” (as defined by
applicable U.S. Treasury regulations) on an established securities market and
(2) the selling non-U.S. holder held (taking into account constructive ownership
rules) 5% or less of our outstanding common shares at all times during a
specified testing period.
If
gain
on the sale of our common shares were subject to taxation under FIRPTA, the
non-U.S. holder would be subject to the same treatment as a U.S. holder with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
In addition, the purchaser of the common shares could be required to withhold
10% of the purchase price and remit such amount to the Internal Revenue
Service.
Information
Reporting and Backup Withholding
Backup
withholding will apply to dividend payments made to a non-U.S. holder of our
common shares unless the holder has certified that it is not a U.S. holder
and
the payor has no actual knowledge that the owner is not a non-U.S. holder.
Information reporting generally will apply with respect to dividend payments
even if certification is provided.
Payment
of the proceeds from a disposition of our shares by a non-U.S. holder made
to or
through the U.S. office of a broker is generally subject to information
reporting and backup withholding unless the holder or beneficial owner certifies
that it is not a U.S. holder or otherwise establishes an exemption. Generally,
Internal Revenue Service information reporting and backup withholding will
not
apply to a payment of disposition proceeds if the payment is made outside the
United States through a foreign office of a foreign broker- dealer. If the
proceeds from a disposition of our shares are paid to or through a foreign
office of a U.S. broker-dealer or a non-U.S. office of a foreign broker- dealer
that is (i) a “controlled foreign corporation” for U.S. federal income tax
purposes, (ii) a person 50% or more of whose gross income from all sources
for a
specified three-year period was effectively connected with a U.S. trade or
business, (iii) a foreign partnership with one or more partners who are U.S.
persons and who in the aggregate hold more than 50% of the income or capital
interest in the partnership, or (iv) a foreign partnership engaged in the
conduct of a trade or business in the United States, then backup withholding
and
information reporting generally will apply unless the non-U.S. holder satisfies
certification requirements regarding its status as a non-U.S. holder and the
broker-dealer has no actual knowledge that the owner is not a non-U.S.
holder.
A
non-U.S. holder should consult its tax advisor regarding application of
withholding and backup withholding in its particular circumstance and the
availability of and procedure for obtaining an exemption from withholding and
backup withholding under current U.S. Treasury regulations.
Dividend
Reinvestment Program
Stockholders
participating in our dividend reinvestment program are treated as having
received the gross amount of any cash distributions which would have been paid
by us to such stockholders had they not elected to participate in the program.
These distributions will retain the character and tax effect applicable to
distributions from us generally. See “--Investment
in Essex Common Shares.”
Participants in the dividend reinvestment program are subject to U.S. federal
income and withholding tax on the amount of the deemed distributions to the
extent that such distributions represent dividends or gains, even though they
receive no cash. Shares of our shares received under the program will have
a
holding period beginning with the day after purchase, and a tax basis equal
to
their cost (which is the gross amount of the distribution).
Possible
Legislative or Other Actions Affecting Tax Considerations
Prospective
investors should recognize that the present U.S. federal income tax treatment
of
an investment in us may be modified by legislative, judicial or administrative
action at any time, and that any such action may affect investments and
commitments previously made. The rules dealing with U.S. federal income taxation
are constantly under review by persons involved in the legislative process
and
by the Internal Revenue Service and the U.S. Treasury Department, resulting
in
revisions of regulations and revised interpretations of established concepts
as
well as statutory changes. Revisions in U.S. federal tax laws and
interpretations thereof could adversely affect the tax consequences of an
investment in us.
State
and Local Taxes
We
and
our stockholders may be subject to state or local taxation in various
jurisdictions, including those in which we or they transact business or reside.
The state and local tax treatment of us and our stockholders may not conform
to
the U.S. federal income tax consequences discussed above. Consequently,
prospective stockholders should consult their own tax advisers regarding the
effect of state and local tax laws on an investment in our common
shares.
SELLING
SECURITYHOLDERS
We
originally issued the notes to UBS Securities LLC and Bear Stearns & Co.
Inc. in a private placement in October 2005 and, in connection with the closing
of the related option to purchase additional notes in November 2005. The notes
were immediately resold by the initial purchasers to persons reasonably believed
by the initial purchasers to be qualified institutional buyers within the
meaning of Rule 144A under the Securities Act in transactions exempt from
registration under the Securities Act. Selling securityholders, including their
transferees, pledgees or donees or their successors, may from time to time
offer
and sell the notes and the Essex common shares into which the notes are
exchangeable pursuant to this prospectus. Our registration of the notes and
the
Essex common shares issuable upon exchange of the notes does not necessarily
mean that the selling securityholders will sell all or any of the notes or
the
Essex common shares. Unless set forth below, none of the selling securityholders
has had within the past three years any material relationship with us or any
of
our predecessors or affiliates.
The
following table sets forth certain information concerning the principal amount
of notes beneficially owned by each selling securityholder and the number of
shares of Essex common shares that may be offered from time to time by each
selling securityholder under this prospectus. The information is based on
information provided to us by or on behalf of the selling securityholders on
or
prior to March 1, 2006. The number of Essex common shares issuable upon exchange
of the notes shown in the table below represents the maximum number of Essex
common shares issuable upon exchange of the notes assuming exchange of the
full
amount of notes held by each holder at the initial exchange rate of
9.6852 Essex common shares per $1,000 principal amounts of the notes. This
exchange rate is subject to adjustments in certain circumstances. Because the
selling securityholders may offer all or some portion of the notes or Essex
common shares issuable upon exchange of the notes, we have assumed for purposes
of the table below that the named selling securityholders will sell all of
the
notes or exchange all of the notes and sell all of the Essex common shares
issuable upon exchange of the notes offered pursuant to this prospectus. In
addition, the selling securityholders identified below may have sold,
transferred or otherwise disposed of all or a portion of their notes since
the
date on which they provided the information regarding their notes in
transactions exempt from the registration requirements of the Securities Act.
Information about the selling securityholders may change over time. Any changed
information given to us by the selling securityholders will be set forth in
prospectus supplements if and when necessary. Because the selling
securityholders may offer all or some of their notes or the underlying Essex
common shares from time to time, we cannot estimate the amount of notes or
underlying Essex common shares that will be held by the selling securityholders
upon the termination of any particular offering. See “Plan
of Distribution”
for
further information.
To
our
knowledge, except as described below, the selling securityholders have sole
voting and investment power with respect to all of the securities shown as
beneficially owned by them.
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Aggregate
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Principal
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Other
Essex
|
|
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Amount
of
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Number
of
|
Common
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Notes
|
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Essex
|
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Shares
Beneficially
|
|
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Beneficially
|
|
|
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Common
Shares
|
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Owned
Before the
|
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Percentage
of
|
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Owned
That
|
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Percentage
of
|
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Offering
and Assumed
|
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Essex
|
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May
be
|
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Notes
|
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That
May
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to
be Owned Following
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Common
Stock
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Name*
|
|
Sold
|
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Outstanding**
|
|
|
be
Sold***
|
|
the
Offering
|
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|
Outstanding****
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Accuity
Master Fund, Ltd.
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$3,000,000
|
|
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1.33%
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29,055
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--
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--
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AM
Master Fund I, L.P.
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$3,137,000
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1.39%
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30,382
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--
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--
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AM
International E MAC 63 Ltd.
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$888,000
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--
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8,600
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--
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--
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ALTMA
Fund Sicav Plc in respect of Trinity Sub Fund
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$600,000
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--
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5,811
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|
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--
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|
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--
|
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Basso
Fund Ltd.
|
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$150,000
|
|
|
|
--
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1,452
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--
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|
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--
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Basso
Holdings Ltd.
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$1,900,000
|
|
|
|
--
|
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18,401
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|
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--
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|
|
--
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Basso
Multi-Strategy Holding Fund Ltd.
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$450,000
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|
|
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--
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4,358
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--
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--
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Bear
Stearns & Co. Inc.
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$5,000,000
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2.22%
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|
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48,426
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|
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--
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|
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--
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BNP
Paribas Arbitrage, S.A.
|
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$2,000,000
|
|
|
|
--
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19,370
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--
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|
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--
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CQS
Convertible and Quantitative Strategies Master Fund
Limited
|
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$30,000,000
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13.33%
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290,556
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--
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1.24%
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DBAG
London
|
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$13,500,000
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6.00%
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130,750
|
|
--
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--
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D.E.
Shaw Valence Portfolios, L.L.C.
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$20,000,000
|
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8.89%
|
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193,704
|
|
--
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--
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Eton
Park Fund, L.P.
|
|
$5,250,000
|
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2.33%
|
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50,847
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--
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--
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Eton
Park Master Fund, Ltd.
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$9,750,000
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4.33%
|
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94,430
|
|
--
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|
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--
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Fidelity
Commonwealth Trust: Fidelity Strategic Real Return Fund*
(1)
|
|
$600,000
|
|
--
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5,811
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--
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--
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|
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Fidelity
Securities Fund: Fidelity Real Estate Income Fund* (2)
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$400,000
|
|
--
|
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3,874
|
|
--
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|
|
--
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FrontPoint
Convertible Arbitrage Fund, L.P. (3)
|
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$2,500,000
|
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1.11%
|
|
24,213
|
|
--
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--
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Highbridge
International LLC (4)
|
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$10,000,000
|
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4.44%
|
|
96,852
|
|
--
|
|
|
--
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JMG
Capital Partners, L.P.
|
|
$7,250,000
|
|
3.22%
|
|
70,217
|
|
--
|
|
|
--
|
|
|
JMG
Triton Offshore Fund, Ltd.
|
|
$7,250,000
|
|
3.22%
|
|
70,217
|
|
--
|
|
|
--
|
|
|
JPMorgan
Securities Inc.
|
|
$4,000,000
|
|
1.78%
|
|
38,740
|
|
--
|
|
|
--
|
|
|
Lyxor/Am
Investment Fund Ltd.
|
|
$375,000
|
|
--
|
|
3,631
|
|
--
|
|
|
--
|
|
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Radcliffe
SPC, Ltd., for and on behalf of, the Class A Convertible Crossover
Segregated Portfolio
|
|
$13,000,000
|
|
5.78%
|
|
125,907
|
|
--
|
|
|
--
|
|
|
Ritchie
Capital Structure Arbitrage Trading, Ltd.
|
|
$7,500,000
|
|
3.33%
|
|
72,639
|
|
--
|
|
|
--
|
|
|
UBS
Securities LLC
|
|
$28,000,000
|
|
12.44%
|
|
271,185
|
|
--
|
|
|
1.16%
|
|
|
Vicis
Capital Master Fund
|
|
$4,000,000
|
|
1.78%
|
|
38,740
|
|
--
|
|
|
--
|
|
|
All
other holders of notes or future transferees of such
holders*****
|
|
$44,500,000
|
|
19.78%
|
|
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