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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the Fiscal Year Ended DECEMBERDecember 31, 20172021

OR

For the transition period from to

Commission File Number: 1-12252 (Equity Residential)

Commission File Number: 0-24920 (ERP Operating Limited Partnership)

EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None (Equity Residential)

Units of Limited Partnership Interest (ERP Operating Limited Partnership)

(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Equity Residential  ☐ERP Operating Limited Partnership  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

The aggregate market value of Common Shares held by non-affiliates of the Registrant was approximately $23.8 billion based upon the closing price on June 30, 2017 of $65.83 using beneficial ownership of shares rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting shares owned by Trustees and Executive Officers, some of whom may not be held to be affiliates upon judicial determination.

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on February 16, 2018 was 368,169,571.

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DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information that will be contained in Equity Residential’s Proxy Statement relating to its 2018 Annual Meeting of Shareholders, which Equity Residential intends to file no later than 120 days after the end of its fiscal year ended December 31, 2017, and thus these items have been omitted in accordance with General Instruction G(3) to Form 10-K.  Equity Residential is the general partner and 96.4% owner of ERP Operating Limited Partnership.

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EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2017 of Equity Residential and ERP Operating Limited Partnership.  Unless stated otherwise or the context otherwise requires, references to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP.  References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.  The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:

EQR is the general partner of, and as of December 31, 2017 owned an approximate 96.4% ownership interest in, ERPOP.  The remaining 3.6% interest is owned by limited partners.  As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business.  The management of EQR consists of the same members as the management of ERPOP.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP.  In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering.  The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties.  Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales.  This is one of the reasons why the Company is structured in the manner shown above.  Based on the terms of ERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.

The Company believes that combining the reports on Form 10-K of EQR and ERPOP into this single report provides the following benefits:

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The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company.  All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP.  EQR’s primary function is acting as the general partner of ERPOP.  EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, and guarantees certain debt of ERPOP, as disclosed in this report.  EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.  The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures.  The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.  Except for the net proceeds from equity offerings by EQR, which are contributed to the capital of ERPOP in exchange for additional partnership interests in ERPOP (“OP Units”) (on a one-for-one Common Share per OP Unit basis) or additional preference units in ERPOP (on a one-for-one preferred share per preference unit basis), the Operating Partnership generates all remaining capital required by the Company’s business.  These sources include the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility and/or commercial paper program, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint venture interests.

Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership.  The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements.  The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships.  The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and limited partner OP Unit holders of the Operating Partnership.  The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.

To help investors understand the differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s debt, noncontrolling interests and shareholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.

This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership.  In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.  Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership.

As general partner with control of ERPOP, EQR consolidates ERPOP for financial reporting purposes, and EQR essentially has no assets or liabilities other than its investment in ERPOP.  Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements.  The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

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EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None (Equity Residential)

Units of Limited Partnership Interest (ERP Operating Limited Partnership)

(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

The aggregate market value of Common Shares held by non-affiliates of the Registrant was approximately $28.5 billion based upon the closing price on June 30, 2021 of $77.00 using beneficial ownership of shares rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting shares owned by Trustees and Executive Officers, some of whom may not be held to be affiliates upon judicial determination.

The number of Common Shares of Beneficial Interest, $0.01 par value, outstanding on February 11, 2022 was 375,917,242.

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DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information that will be contained in Equity Residential’s Proxy Statement relating to its 2022 Annual Meeting of Shareholders, which Equity Residential intends to file no later than 120 days after the end of its fiscal year ended December 31, 2021, and thus these items have been omitted in accordance with General Instruction G(3) to Form 10-K.  Equity Residential is the general partner and 96.7% owner of ERP Operating Limited Partnership.

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EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2021 of Equity Residential and ERP Operating Limited Partnership.  Unless stated otherwise or the context otherwise requires, references to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership.  References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP.  References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.  The following chart illustrates the Company’s and the Operating Partnership’s corporate structure:

EQR is the general partner of, and as of December 31, 2021 owned an approximate 96.7% ownership interest in, ERPOP.  The remaining 3.3% interest is owned by limited partners.  As the sole general partner of ERPOP, EQR has exclusive control of ERPOP’s day-to-day management.  Management operates the Company and the Operating Partnership as one business.  The management of EQR consists of the same members as the management of ERPOP.

The Company is structured as an umbrella partnership REIT (“UPREIT”) and EQR contributes all net proceeds from its various equity offerings to ERPOP.  In return for those contributions, EQR receives a number of OP Units (see definition below) in ERPOP equal to the number of Common Shares it has issued in the equity offering.  The Company may acquire properties in transactions that include the issuance of OP Units as consideration for the acquired properties.  Such transactions may, in certain circumstances, enable the sellers to defer in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales.  This is one of the reasons why the Company is structured in the manner shown above.  Based on the terms of ERPOP’s partnership agreement, OP Units can be exchanged with Common Shares on a one-for-one basis because the Company maintains a one-for-one relationship between the OP Units of ERPOP issued to EQR and the outstanding Common Shares.

The Company believes that combining the reports on Form 10-K of EQR and ERPOP into this single report provides the following benefits:

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The Company believes it is important to understand the few differences between EQR and ERPOP in the context of how EQR and ERPOP operate as a consolidated company.  All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP.  EQR’s primary function is acting as the general partner of ERPOP.  EQR also issues equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP.  EQR does not have any indebtedness as all debt is incurred by the Operating Partnership.  The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures.  The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.  Except for the net proceeds from equity offerings by EQR (which are contributed to the capital of ERPOP in exchange for additional partnership interests in ERPOP (“OP Units”) (on a one-for-one Common Share per OP Unit basis) or additional preference units in ERPOP (on a one-for-one preferred share per preference unit basis)), the Operating Partnership generates all remaining capital required by the Company’s business.  These sources include the Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility and/or commercial paper program, the issuance of secured and unsecured debt and partnership interests, and proceeds received from disposition of certain properties and joint venture interests.

Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership.  The limited partners of the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements.  The noncontrolling interests in the Operating Partnership’s financial statements include the interests of unaffiliated partners in various consolidated partnerships.  The noncontrolling interests in the Company’s financial statements include the same noncontrolling interests at the Operating Partnership level and limited partner OP Unit holders of the Operating Partnership.  The differences between shareholders’ equity and partners’ capital result from differences in the equity issued at the Company and Operating Partnership levels.

To help investors understand the differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s debt, noncontrolling interests and shareholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.

This report also includes separate Part II, Item 9A, Controls and Procedures, sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership.  In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.  Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership.

As general partner with control of ERPOP, EQR consolidates ERPOP for financial reporting purposes, and EQR essentially has no assets or liabilities other than its investment in ERPOP.  Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements.  The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

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EQUITY RESIDENTIAL

ERP OPERATING LIMITED PARTNERSHIP

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PART I

PART I

Item 1. Business

General

Equity Residential (“EQR”), is committed to creating communities where people thrive.  The Company, a member of the S&P 500, is focused on the acquisition, development and management of residential properties located in and around dynamic cities that attract affluent long-term renters.  ERP Operating Limited Partnership (“ERPOP”) is focused on conducting the multifamily property business of EQR.  EQR is a Maryland real estate investment trust (“REIT”) formed in March 1993 is an S&P 500 company focused on the acquisition, development and management of rental apartment properties in urban and high-density suburban coastal gateway markets.  ERP Operating Limited Partnership (“ERPOP”),ERPOP is an Illinois limited partnership was formed in May 1993 to conduct the multifamily residential property business of Equity Residential.  EQR has elected to be taxed as a REIT.1993.  References to the “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP.  References to the “Operating Partnership” mean collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.  Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.

EQR is the general partner of, and as of December 31, 20172021 owned an approximate 96.4%96.7% ownership interest in, ERPOP.  All of the Company’s property ownership, development and related business operations are conducted through the Operating Partnership and EQR has no material assets or liabilities other than its investment in ERPOP.  EQR issues public equity from time to time, the net proceeds of which it is obligated to contribute to ERPOP, but does not have any indebtedness as all debt is incurred by the Operating Partnership.  The Operating Partnership holds substantially all of the assets of the Company, including the Company’s ownership interests in its joint ventures.  The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity.

The Company’s corporate headquarters is located in Chicago, Illinois and the Company also operates regional property management offices in eachmost of its coastal gateway markets.  As of December 31, 2017, the Company had approximately 2,700 employees who provided real estate operations, leasing, legal, financial, accounting, acquisition, disposition, development and other support functions.     

Certain capitalized terms used herein are defined in the Notes to Consolidated Financial Statements.  See also Note 17 in the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s segment disclosures.

Available Information

You may access our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and any amendments to any of those reportsreports/statements we file with or furnish to the SECSecurities and Exchange Commission (“SEC”) free of charge on our website, www.equityapartments.com.  These reportsreports/statements are made available on our website as soon as reasonably practicable after we file them with or furnish them to the SEC.  The information contained on our website, including any information referred to in this report as being available on our website, is not a part of or incorporated into this report.

Business Objectives and Operating and Investing Strategies

Overview

The Company investsis one of the largest U.S. publicly-traded owners and operators of high quality rental apartment properties, with an established presence in apartment communities located in strategically targeted markets with the goal of maximizing our risk adjusted total return (operating income plus capital appreciation) on invested capital.

We seek to maximize the income and capital appreciation of our properties by investing in markets that are characterized by conditions favorable to multifamily property operations and appreciation.  We are focused on the coastal gateway markets of Boston, New York, Washington, D.C., Southern California (including Los Angeles, Orange County and San Diego), San Francisco and Seattle.  TheseSeattle, and an expanding presence in Denver, Atlanta, Dallas/Ft. Worth and Austin.  We believe our markets are knowledge centers of the U.S. economy that draw talented workers and employers that drive economic growth in the United States.  We believe the locations of our properties in these markets are attractive to these knowledge workers whom we hope to convert into satisfied long-term residents.

Equity Residential is committed to creating communities where people thrive.  We carry this, our corporate purpose, through our relationships with our customers, our employees, our shareholders and the communities in which we operate.  It drives our commitments to sustainability, diversity and inclusion, the total wellbeing of our employees and being a responsible corporate citizen in the communities in which we operate, which has been especially relevant as we faced unprecedented challenges like the novel coronavirus (“COVID-19”) pandemic.  

We believe we have created an industry‐leading operating platform and balance sheet to run our properties.  Our employees are focused on delivering remarkable customer service to our residents so they will stay with us longer, be willing to pay higher rent for a great experience and will tell others about how much they love living in an Equity Residential property.  We utilize technology and other innovative methods of engagement with our residents to foster relationships and community, improve the resident experience and operate our business more efficiently. We pair that with disciplined balance sheet management that enhances returns and value creation while maintaining flexibility to take advantage of future opportunities.  We believe that our stakeholders value stability, liquidity, predictability and accountability and that is the mission to which we remain unwaveringly committed.

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Despite the challenges we have faced with the COVID-19 pandemic, we believe that the long-term prospects for our business remain strong.  Our well-located communities are in and around dynamic cities that we believe will continue to attract affluent long-term renters.  With the pandemic subsiding and cities reopening, we are seeing strong demand from our affluent resident base, demonstrating the long-term attractiveness of our communities.

Investment Strategy

The Company’s long-term strategy is to invest in apartment communities located in strategically targeted markets with the goal of maximizing our risk-adjusted total returns and balancing current cash flow generation with long-term capital appreciation.  We seek to meet this goal by investing in markets that are characterized by conditions favorable to multifamily property operations over the long-term.  The markets we focus on generally feature one or more of the following characteristics that allow us to increase rents:

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drive performance:

We believe our strategy also capitalizes on the increasing preference of renters of all ages to live in the urban core of cities or dense suburban locations where we operate which typically are near transportation (both public transit and convenient highway access), entertainment, employment centers/universities and cultural and outdoor amenities.  Furthermore, we believe that demand for rental housing will continue to be driven primarily through household formations from the younger segments of our population, including both Millennials the approximately 78 million people born between 1981 and 2000, areGeneration Z, and to a prime apartment rental demographic.  Reports also show a growing trend amonglesser extent the aging Baby Boomer generation.  

The Company continues to allocate capital in order to optimize performance by balancing current cash flow growth with long-term capital appreciation.   Most recently, we have done so by adding expansion markets to our portfolio allocation that meet the same characteristics listed above.  Expansion into these markets of more than 76 million people born between 1946Denver, Atlanta, Dallas/Ft. Worth and 1964, toward apartment rentals.  Austin includes investments in both urban and suburban properties and is generally being funded by reducing exposure in selective established markets.  Development also plays an important role in our capital allocation.  Development activity is focused on our in-house pipeline, our strategic partnership with Toll Brothers, Inc. and joint ventures with other third-party developers in both established and expansion markets.    

Operations and Innovation

We believe that both groups appreciate the locational values described above as well as the flexibility that rental apartments offer.

Our operating focus is on balancingattempt to balance occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders.  Revenue is maximized by attracting qualified prospectsthrough our customized pricing system that uses market data on current and projected demand and availability to create both current and forward pricing daily for each apartment unit we manage.  We focus on the resident experience and leveraging operating efficiency which we believe drives our properties, cost-effectively convertingsuccess in renewing our residents.  This focus has driven strong occupancy and a high percentage of residents renewing that is in line with pre-pandemic levels while achieving strong renewal rate growth.

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Rapidly evolving technology continues to drive innovation in the rental industry.  We have been and continue to be a leader in deploying and investing in property technology to serve our customers better and operate more efficiently.  Having been a first mover in such important areas as revenue management and online leasing, we are focused on technology that improves our operating margins and customer experience.  We use a standardized purchasing system to control our operating expenses and a business intelligence platform that allows all our team members to quickly identify and address issues and opportunities.  Our operations benefitted from having many of these prospects into new residentsinitiatives in place during the pandemic, allowing us to interact with our customers in a safe and keeping our residents satisfied so they will renew their leases upon expiration.responsible manner, including self-guided tours, automated responses to customer inquiries and enhanced service and maintenance management.  While we believe areas such as “smart home” technology and others will provide the foundation for current and future improvements to how we do business, we will continue to consider the cost and longevity of technology capital investments and their benefits.

Our Commitment to Environmental, Social and Governance (“ESG”)

At Equity Residential, we believe a focus on ESG is a key way to programmatically address stakeholder concerns as part of our corporate purpose.  This needs to be a sustainable endeavor, in which we provide resilient properties that it is our high-quality, well-located assets that bringwill stand the test of time and remain attractive to our customers to us, it isand the customer service and superior value provided by our on-site personnel that keeps them renting with us and recommending us to their friends.

We use technology to engage our customers incommunity without negatively impacting the way that they want to be engaged.  Many of our residents utilize our web-based resident portal which allows them to sign and renew their leases, review their accounts and make payments, provide feedback and make service requests on-line.

Acquisitions and developments may be financed from various sources of capital, which may include retained cash flow, issuance of additional equity and debt, sales of properties and joint venture arrangements.  In addition, the Company may acquire properties in transactions that include OP Units as consideration for the acquired properties.  Such transactions may, in certain circumstances, enable the sellers to defer, in whole or in part, the recognition of taxable income or gain that might otherwise result from the sales.  

As part of its strategy, the Company purchases completed and fully occupied apartment properties, partially completed or partially occupied properties and may acquire land parcels to hold and/or sell based on market opportunities as well as options to buy more land in the future.  The Company may also seek to acquire properties by purchasing defaulted or distressed debt that encumbers desirable properties in the hope of obtaining title to property through foreclosure or deed-in-lieu of foreclosure proceedings.

Over the past several years, the Company has done an extensive repositioning of its portfolio into urban and highly walkable, close-in suburban assets.  Since 2005, the Company has sold approximately 199,000 apartment units primarily located in the less dense portion of suburban markets for an aggregate sales price of approximately $23.8 billion, acquired nearly 70,000 apartment units primarily located in urban and high-density suburban markets for approximately $20.5 billion and began approximately $5.9 billion of development projects primarily located in urban and high-density suburban markets.  We are currently seeking to acquire and develop assets in the following coastal gateway metropolitan areas: Boston, New York, Washington D.C., Southern California, San Francisco and Seattle.  

We endeavor to provide a richly diverse work environment that employs the highest performers, cultivates the best ideas and creates the widest possible platform for success.  We are committed to elevating and supporting the core values of diversity and inclusion, total well-being (which brings together physical, financial, career, social and community well-being into a cohesive whole), and environmental, social and governance ("ESG"), which includes sustainability and social responsibility, by actively engaging in these areas.  Each member of the executive team maintains an annual goal related to these core values.  Our goal is to create and sustain an inclusive environment where diversity will thrive, employees will want to work and residents will want to live.  We are committed to providing our employees with encouragement, guidance, time and resources to learn and apply the skills required to succeed in their jobs.  We provide many classroom and on-line training courses to assist our employees in interacting with prospects and residents as well as extensive training for our customer service specialists in maintaining our properties and improvements, equipment and appliances.  We actively promote from within and many senior corporate and property leaders have risen from entry level or junior positions.  We monitor our employees' engagement by surveying them annually and find most employees say they are proud to work at the Company, value one another as colleagues, believe in our mission and values and feel their skills meet their job requirements.

We have a commitment to sustainability and consider the environmental impacts of our business activities.  Sustainability and social responsibility are key drivers of our focus on creating the best apartment communities for residents to live, work and play.environment.  We have a dedicated in-house team that initiates and applies sustainable practices in all aspects of our business, including investment activities, development, property operations and property management activities. With its high density, multifamily

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Multifamily housing is by its nature, an environmentally friendlyone of the most environmentally-friendly uses of real estate, as each property type.  Our recent acquisitionprovides homes for hundreds of families in a denser shared environment.  We consider building locations based on walkability, accessibility, neighborhoods and development activities have been primarily concentrated in pedestrian-friendly urbanparks.  We also design our communities to support amenities such as fitness centers and close-in suburbanwe select locations near public transportation.  When developingshops, restaurants, outdoor amenities such as bike/running paths and renovatinghealth clubs, enabling a low carbon footprint lifestyle for our properties,residents to live, work and play.

Equity Residential’s sustainability program actively manages environmental impacts and climate-related risks and opportunities through optimized, financially responsible capital investments and technologies.  We methodically focus on energy, water and emissions to advance the program’s policies, targets and resilience outcomes.  Together, we strive to reduce energybelieve our program drives long-term asset value, responsibly manages risks and water consumption by investing in energy saving technology while positively impacting the experienceengages our communities, residents, employees and shareholders as part of our residentsbroader ESG strategy and commitment to good corporate citizenship and maximizing investment performance.

To further strengthen our commitments to ESG initiatives, we issued two sustainable fixed-income instruments (each a “green bond”) designed to support projects that contribute to environmental sustainability. In 2018, the Company became the first multifamily REIT ever to issue a green bond, with the net proceeds of approximately $396.7 million from the offering allocated to the development of a property in San Francisco certified as LEED Platinum and the valueacquisition of two properties certified as LEED Silver.  In 2021, the Company issued a second green bond, and the net proceeds of approximately $497.5 million from this offering are intended to be allocated to the development or acquisition of green buildings and/or investments in renewable energy, energy efficiency and sustainable water management.  Additionally, during 2021, the Company began funding its $10.0 million investment in a new fund focused on early stage sustainability and climate change mitigation technology relevant to the built environment.

We are also intensely focused on the “Social” and “Governance” aspects of ESG.  As detailed below, we have a commitment to our employees’ engagement, diversity and inclusion and wellness that is the foundation of our assets.corporate purpose.  We continuealso recognize that a successful company must incorporate the best corporate governance practices in order to implement a combination of irrigation, lighting, HVAC and renewable energy improvements at our properties that will reduce energy and water consumption.  The Company was named the 2017 Global Residential Listed Sector Leader in ESG by GRESB, a globally recognized analysis of the ESG indicators of more than 800 real estate portfolios worldwide.  The Company was also recently awarded the 2017 Residential Leader in the Light award for sustainability by the National Association of Real Estate Investment Trusts (“NAREIT”).  better serve its stakeholders.  

For additional information regarding our sustainabilityESG efforts, see our December 2017 Corporate2021 Environmental, Social Responsibility and SustainabilityGovernance Report at our website, www.equityapartments.com.www.equityapartments.com.  This report, which includes Sustainability Accounting Standards Board disclosures and incorporates recommendations from the Task Force on Climate-related Financial Disclosures, was reviewed and approved by the Corporate Governance Committee of our Board of Trustees, which monitors the Company’s ongoing ESG efforts.  For 2018, weWe continue to have an express company-wideenhance our ESG disclosure efforts, including auditing the results outlined in the above report.  Furthermore, our annual proxy statements contain additional information on our ESG efforts, including detailed information regarding our corporate governance practices.  Such annual proxy statements and the information contained therein are not part of or incorporated into this report, except as otherwise provided herein.

Human Capital

At Equity Residential, our team of approximately 2,400 employees is the driving force behind our success. We believe that our richly diverse work environment captures top talent, cultivates the best ideas and creates the widest possible platform for this success in line with our corporate purpose of “Creating communities where people thrive”. Our core principles, affectionately named “Ten Ways to Be a Winner”, guide our behavior as individuals and collectively as a team, helping us in our goal regarding enhanced ESG efforts.  Employees, including our executives, will have their performance against our various ESG goals evaluated asto deliver market-leading performance.  As part of our annual performance review process.

Please referTen Ways to Item 7, Management’s DiscussionBe a Winner, we encourage our team members to raise questions, take educated risks, offer new ideas and Analysis of Financial Condition and Results of Operations, for the Company’s Results of Operations and Liquidity.

Starwood Transaction

The Company executed an agreement with controlled affiliates of Starwood Capital Group (“Starwood”) on October 23, 2015 to sell a portfolio of 72 operating properties consisting of 23,262 apartment units located in five markets across the United States for $5.365 billion (the “Starwood Transaction” or “Starwood Portfolio”).  On January 26 and 27, 2016, the Company closed on the sale of the entire portfolio described above.  The sale of the Starwood Portfolio, combined with the other 2016 dispositions, resulted in the Company’s exit from the South Florida, Denver and New England (excluding Boston) markets and  substantially completed the Company’s portfolio transformation which started approximately ten years ago.  These sales narrowed the Company’s focus, which is now entirely directed towards our coastal gateway markets.  

The Company used the majority of the proceeds from the Starwood Transaction and other 2016 dispositions to pay two special dividends to its shareholders and holders of OP Units of $11.00 per share/unit in the aggregate, consisting of special dividends of $8.00 per share/unit (approximately $3.0 billion) on March 10, 2016 and $3.00 per share/unit (approximately $1.1 billion) on October 14, 2016.  The Company used the majority of the remaining proceeds to reduce aggregate indebtedness in order tohelp us make the transaction leverage neutral.  The Company retired approximately $2.0 billionright decisions.  One way we live the “Ten Ways” is by enriching our culture through our core “Equity Values: Diversity & Inclusion, Social Responsibility, Sustainability and Total Wellbeing”.  We have assembled a cross-functional employee-led Equity Values Council to lead our efforts on these values by acting as change agents to drive initiatives,

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create goals and awareness, and encourage colleagues to participate in securedcommunity service activities and unsecured debt, the majoritywellness initiatives.  In addition, executive compensation is based, in part, on meeting important Equity Values goals, and our Board of which was scheduled to matureTrustees, primarily through its Compensation Committee, takes an active role in 2016overseeing our efforts in this regard.

Diversity and 2017, which improved the Company’s already strong credit metrics.  Inclusion

Pay Equity

Employee Engagement

Training and Development

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Health, Safety and Wellness

Competition

All of the Company’s properties are located in developed areas that includewith multiple housing choices, including other multifamily properties.  The number of competitive housing choices or multifamily properties in a particular area could have a material effect on the Company’s ability to lease apartment units at its properties and on the rents charged.  The Company may be competing with other entitieshousing providers that have greater resources than the Company and whose managers have more experience than the Company’s managers.  In addition, other forms of rental properties and single familysingle-family housing provide housing alternatives to potential residents of multifamily properties.  See Item 1A.  1A, Risk Factors,for additional information with respect to competition.

EnvironmentalRegulatory Considerations

See Item 1A. 1A, Risk Factors,for information concerning the potential effects of governmental regulations, including environmental regulations, on our operations.

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Item 1A. Risk Factors

General

References to “EQR” mean Equity Residential, a Maryland real estate investment trust (“REIT”), and references to “ERPOP” mean ERP Operating Limited Partnership, an Illinois limited partnership.  Unless otherwise indicated, when used in this section, the terms “Company,” “we,” “us” or “our” mean collectively EQR, ERPOP and those entities/subsidiaries owned or controlled by EQR and/or ERPOP and the term “Operating Partnership” means collectively ERPOP and those entities/subsidiaries owned or controlled by ERPOP.  This Item 1A.1A includes forward-looking statements.  You should refer to

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our discussion of the qualifications and limitations on forward-looking statements included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The occurrence of the events discussed in the following risk factors could adversely affect, possibly in a material manner, our business, financial condition or results of operations, which could adversely affect the value of our common shares of beneficial interest or preferred shares of beneficial interest (which we refer to collectively as “Shares”), Preference Units, OP Units, restricted units and our public unsecured debt.  In this section, we refer to the Shares, Preference Units, OP Units, restricted units and public unsecured debt together as our “securities” and the investors who own such securities as our “security holders”.holders.”

Risks Related to the ongoing COVID-19 Pandemic

The ongoing COVID-19 pandemic and the pace and degree of recovery, as well asthe emergence of new variants, could have a material adverse effect on our business, results of operations, cash flows and financial condition.

During the early stages of the COVID-19 pandemic, governments and other authorities around the world, including federal, state and local authorities in the United States, imposed measures intended to control its spread, including restrictions on movement and business operations such as travel bans, border closings, business closures, quarantines, social distancing and shelter-in-place orders.  While many of the most stringent restrictions have been removed throughout our markets, the ongoing COVID-19 pandemic has caused, and could continue to cause, severe economic, market and other disruptions worldwide.  There can be no assurance that conditions will not deteriorate as a result of the pandemic.

The impact of the COVID-19 pandemic could materially negatively impact our business, results of operations, financial condition and liquidity in a number of ways, including:

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The extent of the ongoing COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and securities valueintensity of COVID-19 and its variants; the distribution, effectiveness and acceptance of vaccines and testing; and the pace and degree of recovery from the pandemic, all of which are uncertain and difficult to predict.  To the extent the COVID-19 pandemic adversely affects our business, results of operations, cash flows and financial condition, it may also continue to heighten many of the other risks described below.  

Risks Related to our Business Strategy

Investing in real estate is inherently subject to risks associated with thethat could negatively impact our business.

Investing in real estate industry.

General

Real estate investments areis subject to varying degrees and types of riskrisk. While we seek to mitigate these risks through various strategies, including geographic diversification, market research and proactive asset management, among other techniques, these risks cannot be eliminated. Factors that may impact cash flows and real estate values include, but are relatively illiquid.  Numerous factors may adversely affect the economic performance and valuenot limited to:

The geographic concentration of our properties and the ability to realize that value.  These factors include changes in the global, national, regional and local political and economic climates, local conditions such as an oversupply of multifamily properties or a reduction in demand for our multifamily properties, the attractiveness of our properties to residents, competition from other multifamily properties and single family homes (both as rentals and owned housing) and changes in market rental rates.  Our performance also depends on our ability to collect rent from residents and to pay for adequate maintenance, insurance and other operating costs, including real estate taxes, all of which could increase over time.  Besides utilities, we are generally not able to pass through to our residents under existing leases any other operating expenses, including real estate taxes.  These operating expenses could rise faster than our revenues causing our income to decline.  In circumstances where we buy or sell properties, including large portfolios of properties, overhead (property management expense and general and administrative expense) may not increase/decrease proportionally with the associated changes in revenue.  Costs of labor and materials required for maintenance, repair, capital expenditure or development may be more expensive than anticipated.  Also, the expenses of owning and operating a property are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property.

We may be unable to renew leases or relet units as leases expire.

When our residents decide to leave our apartments, we may not be able to relet their apartment units.  Even if the residents do renew or we can relet the apartment units, the terms of renewal or reletting may be less favorable than current lease terms.  If we are unable to promptly renew the leases or relet the apartment units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition will be adversely affected.  If residents do not experience increases in their income, we may be unable to increase rent and/or delinquencies may increase.  Occupancy levels and market rents may be adversely affected by national and local political, economic and market conditions including, without limitation, new construction and excess inventory of multifamily and owned housing/condominiums, increasing portions of owned housing/condominium stock being converted to rental use, rental housing subsidized by the government, other government programs that favor single family rental housing or owner occupied housing over multifamily rental housing, governmental regulations, slow or negative employment growth and household formation, the availability of low-interest mortgages or the availability of mortgages requiring little or no down payment for single family home buyers, changes in social preferences and the potential for geopolitical instability, all of which are beyond our control.  Finally, the federal government’s policies, many of which may encourage home ownership, can increase competition, possibly limit our ability to raise rents in our markets and lower the value of our properties.  Consequently, our cash flow and ability to service debt and make distributions to security holders could be reduced.

The retail/commercial space (including parking garages) at our properties primarily serves as an additional amenity for our residents and neighbors.  The long-term nature of our retail/commercial leases (generally five to ten years with market based renewal options) and the characteristics of many of our retail/commercial tenants (generally small, local businesses) may subject us to certain risks.  We may not be able to lease new space for rents that are consistent with our projections or for market rates.  Also, when leases for our existing retail/commercial space expire, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the current lease terms.  Our properties compete with other properties with retail/commercial space.  The presence of competitive alternatives may affect our ability to lease space and the level of rents we can obtain.  If our retail/commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations which could adversely impact our results of operations and financial condition.  The revenues from our retail/commercial space represent approximately 4.6% of our total rental income.

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Changes in rent control or rent stabilization laws and regulations and eviction laws and regulations in our markets could have an adverse effect on our operations and property values.operations.

Various state and local governments have enacted and may continue to enact rent control or rent stabilization laws and regulations or take other actions which could limit our ability to raise rents or charge certain fees such as pet fees or application fees.  We have seen a recent increase in governments considering or being urged by advocacy groups to consider rent control or rent stabilization laws and regulations.  For example, California may have a ballot measure in November 2018 that would seek to repeal an existing state law that limits the ability of local governments to enact some forms of rent control.  Depending on the extent and terms of future enactments of rent control or rent stabilization laws and regulations, as well as any lawsuits againstWhile the Company arising from such issues, such future enactments could have a significant adverse impact on our resultscontinues to diversify its portfolio with the addition of operations and the value of our properties.

State and local governments may also make changes to eviction and other tenants’ rights laws and regulations that could have an adverse impact on our operations and property values.  Under current laws and regulations, eviction proceedings for delinquent residentsexpansion markets, the Company’s properties are already costly and time-consuming, especially in markets like New York where housing courts are backlogged.  If we are restricted from releasing apartment units due to the inability to evict delinquent residents, our results of operations and property values may be adversely impacted.

We have increased our concentration of propertiesstill predominantly concentrated in our established coastal gateway markets, which could have an adverse effect on our operations if a particular market is adversely affected by economic or other conditions.

Over approximately the past ten years, the Company has exited its non-core markets as part of its strategy to reposition its portfolio, leaving the Company highly concentrated in its urban and high-density suburban coastal gateway markets.  If any one or more of these markets (Boston, New York, Washington D.C., Southern California, San Francisco and Seattle) is adversely affectedunfavorably impacted by local or regionalspecific economic conditions, (such as business layoffs, industry slowdowns, changing demographics and other factors), local real estate conditions, (such as oversupplyincreases in social unrest, increases in real estate and other taxes, reduced quality of life, deterioration of local or reduced demand for multifamily properties)state government health, rent control or stabilization laws, localized environmental issues or naturalnatural/man-made disasters, the impact of such conditions may have an increased adversea more negative impact on our results of operations than if our portfolioproperties were more geographically diverse.

Because real estate investments are illiquid,Within its markets, the Company is also predominantly concentrated in certain dense urban and suburban submarkets.  To the extent that these markets or submarkets within these markets become less desirable to operate in, including changes in multifamily housing supply and demand, our results of operations could be more negatively impacted than if we were more diversified within our marketsor invested in a greater number of markets.  

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Competition in multifamily housing may negatively affect operations and demand for the Company’s properties or residents.

Our properties face competition for residents from other existing or new multifamily properties, condominiums, single family homes and other living arrangements, whether owned or rental, that may attract residents from our properties or prospective residents that would otherwise choose to live with us.  As a result, we may not be able to sellrenew existing resident leases or enter into new resident leases, or if we are able to renew or enter into new leases, they may be at rates or terms that are less favorable than our current rates or terms, resulting in a material impact on our results of operations.

Additionally, our properties when appropriate.

Real estate investments generally cannot be sold quickly.  Weface competition for residents as a result of technology innovation.  Therefore, we may not be able to reconfigure our portfolio promptly in response to economicretain residents or other conditions.  We may beattract new residents if we are unable to consummateidentify and cost effectively implement new, relevant technologies and keep up with constantly changing resident demand for the latest innovations.  

The short-term nature of apartment leases exposes us more quickly to the effects of declining market rents, potentially making our results of operations and cash flows more volatile. 

Generally, our residential apartment leases are for twelve months or less.  If the terms of the renewal or releasing are less favorable than current terms, then the Company’s results of operations and financial condition could be negatively affected. Given our generally shorter-term lease structure, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.  In addition, operating expenses associated with each property, such dispositions in a timely manner, on attractive terms,as real estate taxes, insurance, utilities, maintenance costs and employee wages and benefits, may not decline as quickly or at all.  This inability to reallocatethe same rate as revenues when circumstances might cause a reduction of those revenues at our capital promptly could adversely affect our financial condition and ability to make distributions to our security holders.properties.  

New acquisitions, development projects and/or renovations may fail to perform as expected and competitionCompetition for acquisitions may result in increased prices for properties that we would like to acquire.

We intend to actively acquire, develop and renovate multifamily properties for rental operations as market conditions dictate.  We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up.  We may be unable to lease these apartmentprevent us from acquiring properties on schedule, resulting in decreases in expected rental revenues and/or lower yields due to lower occupancy and rental rates as well as higher than expected concessions or higher than expected operating expenses.  favorable terms.

We may not be able to achieve rents that are consistent with expectations for acquired, developed or renovated properties.successful in pursuing acquisition and development opportunities.  We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position, to complete a development property or to complete a renovation.  Additionally, we expect that other real estate investors with capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development and acquisition efforts.  This competition (or lack thereof) may increase (or depress) prices for multifamily properties.  We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.  

Operations from new acquisitions, development projects and renovations may fail to perform as expected.

We have acquired in the past and intend to continueactively acquire, develop and renovate multifamily operating properties as part of our business strategy.  Newly acquired, developed or renovated properties may not perform as we expect.  We may overestimate the revenue (or underestimate the expenses) that these new or repositioned properties may generate.  The occupancy rates and rents at these properties may also fail to pursuemeet our expectations for these investments. We may also underestimate the acquisitioncosts necessary to operate an acquired or developed property to the standards established for its intended market position. Land parcels acquired for development may lose significant value prior to the start of properties, including large portfolios of properties, that could increase our sizeconstruction.  Development and result in alterations to our capital structure.  The total number of apartment units under development, costs of development and estimated completion datesrenovations are subject to even greater uncertainties arising from changing economic conditions (such asand risks due to the cost of laborcomplexities and construction materials), competition and local government regulation.lead time to build or complete these projects.  We may also underestimate the costs to complete a development property or to complete a renovation.  

In connection with such government regulation, we may incur liability ifConstruction risks on our properties are not constructed and operated in compliance with the accessibility provisions of the Americans with Disabilities Act, the Fair Housing Act or other federal, state or local requirements.  Noncompliance could result in fines, subject us to lawsuits and require us to remediate or repair the noncompliance.

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Development and construction risksdevelopment projects could affect our profitability.

We intend to continue to develop multifamily properties.  These activities can includeproperties through both wholly owned and joint venture arrangements as part of our business strategy.  Development often includes long planning and entitlement timelines, andsubjecting the project to changes in market conditions.  It can involve complex and costly activities, including significant environmental remediation or construction work in high-density urban and close-in suburban areas.our markets.  We may also experience an increase in costs due to general disruptions that affect the cost of labor and/or materials, such as supply chain disruptions, trade disputes, tariffs, labor unrest, geopolitical conflicts or other factors that create inflationary pressures.  We may abandon opportunities (including land that we have optioned for purchase) that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and as a result, we may fail to recover expenses or option payments already incurred in exploring those opportunities.  The occupancy rates and rents at a propertyWe may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing properties.  We mayalso be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third partythird-party permits and authorizations, whichauthorizations.  These and other risks inherent in development projects, including the joint venture risks noted below. could result in increased costs or the delay or abandonment of opportunities.

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Because real estate investments are illiquid, we may not be able to sell properties when appropriate.

Real estate investments often cannot be sold quickly due to regulatory constraints, market conditions or otherwise.  As a result, we may not be able to reconfigure our portfolio, including the diversification of our portfolio into the expansion markets, as promptly as planned or in response to changing economic or other conditions.  We own certainmay also be unable to consummate dispositions in a timely manner, on attractive terms, or at all.  The capitalization rates/disposition yields at which properties subject to ground leasesmay be sold could also be higher than historic rates, thereby reducing our potential proceeds from sale. In some cases, we may also determine that may limit our usewe will not recover the carrying amount of the properties, restrictproperty upon disposition.  This inability to reallocate our ability to finance, sell or otherwise transfer our interests in these properties and expose us to loss of the properties if such agreements are breached by us, terminated or lapse.

The Company owns the building and improvements and leases the land underlying the improvements under several long-term ground leases.  These ground leases may impose limitations on our use of the properties, restrict our ability to finance, sell or otherwise transfer our interests in the properties or restrict the leasing of the properties.  These restrictions may limit our ability to timely sell or exchange the properties, impair the properties’ value orcapital promptly could negatively impact our ability to find suitable residents for the properties.  In addition, we could lose our interests in the properties if the ground leases are breached by us, terminated or lapse.  As we get closer to the lease termination dates, the values of the properties could decrease without an extension in place.  Certain of these ground leases have payments subject to annual escalations and/or periodic fair market value adjustments which could adversely affect our financial condition, or results of operations.including our ability to make distributions to our security holders.

Our investmentsWe are subject to risks involved in real estate activity through joint ventures could be adversely affected by our lack of sole decision-making authority regarding major decisions, our reliance on our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners.ventures.

We currently, do and may continue to in the future, to develop and acquire properties in joint ventures with other persons or entities when we believe circumstances warrant the use of such structures.  We have several jointunrelated third parties.  Joint ventures with other real estate investors.  Joint venture investments involvecreate risks not present with respect to our wholly owned properties, including the following:

At times we have entered into agreements providing for joint and several liability with our partners.  We also have in the past and could choose in the future to guarantee part of or all of certain joint venture debt.  Frequently, weWe and our respective joint venture partners may

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each have the right to trigger a buy-sell arrangement whichthat could cause us to sell our interest, or acquire our partners’partner's interest, at a time whenor price that is unfavorable to us.  To the extent we otherwise would not have initiatedcommitments to, on behalf of or are dependent on any such a transaction.  Any of these risksoff-balance sheet commitments, or if those commitments or their properties or leases are subject to material contingencies, our liquidity and financial condition could materially andbe adversely affect our ability to generate and recognize attractive returns onaffected.

In some instances, our joint venture investments, whichpartners may also have competing interests or objectives that could create conflicts of interest similar to those noted above. These objectives may be contrary to our compliance with the REIT requirements, and our REIT status could be jeopardized if any of our joint ventures do not operate in compliance with those requirements. To the extent our partners do not meet their obligations to us or our joint ventures, or they take actions inconsistent with the interests of the joint venture, it could have a material adverse effect on our results of operations, financial condition and distributions to our shareholders.

Several of the assets we acquired in the Archstone transaction along with certain preferred interests acquired in joint ventures as part of the Archstone transaction, as well as certain other tax protected properties we have acquired over the years, are subject to tax protection agreements, which could limit our flexibility with respect to our ownership of such assets or cause us to incur material costs.

Several of the assets we acquired from Archstone Enterprise LP (“Archstone”) in February 2013 are subject to various agreements limiting the ability of the owner of the property to take actions that would trigger income tax liability for the contributing owner of the property, including a taxable disposition of the property.  We assumed these obligations upon the completion of the Archstone transaction.  In addition, we will also be required to maintain a certain amount of qualified nonrecourse financing on the tax protected properties during their respective restricted periods.  Our obligations relating to these tax protected properties (as well as certain other tax protected properties we have acquired over the years) may affect the way in which we conduct our business, including whether, when and under what circumstances we sell properties or interests therein and the timing and nature of our financings and refinancing transactions.  As a result, we may not be able to dispose of or refinance the tax protected properties when to do so may have otherwise been favorable to us and our shareholders, which could have a material adversenegative effect on our results of operations and financial condition.  Certain preferred interests acquiredcondition, including distributions to our security holders.

The Company’s real estate assets may be subject to impairment charges.

A decline in joint ventures as partthe fair value of our assets may require us to recognize an impairment against our assets under accounting principles generally accepted in the United States (“GAAP”) if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery of the Archstone transactiondepreciated cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write-down the depreciated cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize material asset impairment charges in the future, these charges could adversely affect our financial condition and results of operations.

Corporate social responsibility, specifically related to ESG, may impose additional costs and expose us to new risks.

Environmental sustainability, social and governance evaluations remain highly important to some investors and other stakeholders.  Certain organizations that provide corporate governance and other corporate risk advisory services to investors have complex tax requirementsdeveloped scores and ratings to evaluate companies and investment funds based upon ESG metrics.  Many investors focus on positive ESG-related business practices and scores when choosing to allocate their capital and may consider a company's score as a reputational or other factor in making an investment decision.  Investors' increased focus and activism related to ESG and similar matters may constrain our business operations or increase expenses or capital expenditures. In addition, investors may decide to

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refrain from investing in us as a result of their assessment of our approach to and consideration of ESG factors.  We may face reputational damage in the event our corporate responsibility procedures or standards do not meet the standards set by various constituencies.  Although we have generally scored highly in these metrics to date, there can be no assurance that if violated,we will continue to score highly in the future.  In addition, the criteria by which companies are rated for ESG efforts may change, which could cause us to be requiredreceive lower scores than in previous years.  A low ESG score could result in a negative perception of the Company, exclusion of our securities from consideration by certain investors who may elect to indemnifyinvest with our competition instead and/or cause investors to reallocate their capital away from the preferred shareholdersCompany, all of which could have an adverse impact on the price of our securities.

Risks Related to our Financing Strategy and Capital Structure

Disruptions in the financial markets could hinder our ability to obtain debt and equity financing and impact our acquisitions and dispositions.

Dislocations and disruptions in capital markets could result in increased costs or lack of availability of debt financing (including under our joint venture partnercommercial paper program) and equity financing.  Such events may affect our ability to refinance existing debt, require us to utilize higher cost alternatives and/or impair our ability to adjust to changing economic and business conditions.  Capital market disruptions could negatively impact our ability to make acquisitions or make it more difficult or not possible for certain tax protection costs.us to sell properties or may unfavorably affect the price we receive for properties that we do sell.  Such disruptions could cause the price of our securities to decline.

Changes in market conditions and volatility of share prices could adversely affectdecrease the market price of our Common Shares.

The stock markets, including the New York Stock Exchange on which we list our Common Shares, have experienced significant price and volume fluctuations over time.  As a result, the market price of our Common Shares could be similarly volatile, and investorsvolatile.  Investors in our Common Shares consequently may experience a decrease in the value of their shares, including decreases unrelateddue to this volatility and not necessarily related to our operating performance or prospects.  TheAdditionally, the market price of our Common Shares may decline or fluctuate significantly in response to many factors, including but not limited to the following:

12A significant downgrade in our credit ratings could adversely affect our performance.

A significant downgrade in our credit ratings, while not affecting our ability to draw proceeds under the Company’s revolving credit facility, would cause the corresponding borrowing costs to increase, impact our ability to borrow secured and unsecured debt, and potentially impair our ability to access the commercial paper market or otherwise limit our access to capital.  In addition, a

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downgrade below investment grade would likely cause us to lose access to the commercial paper markets and would require us to post cash collateral and/or letters of credit in favor of some of our secured lenders to cover our self-insured property and liability insurance deductibles or to obtain lower deductible insurance compliant with the lenders’ requirements at the lower ratings level.

Financial covenants could limit operational flexibility and affect our overall financial position.

The terms of our credit agreements, including our revolving credit facility and the indentures under which a substantial portion of our unsecured debt was issued, require us to comply with a number of financial covenants. These covenants may limit our flexibility to run our business and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness and trigger a cross default of other debt.

Some of our properties are financed with tax-exempt bonds or otherwise contain restrictive covenants or deed restrictions, including affordability requirements, which limit income from certain properties.  The Company monitors compliance with the restrictive covenants and deed restrictions that affect these properties.  While we generally believe that the interest rate benefit from financing properties with tax-exempt bonds more than outweighs any loss of income due to restrictive covenants or deed restrictions, this may not always be the case.  Some of these requirements are complex, and our failure to comply with them may subject us to material fines or liabilities.

We may change the dividend policy for our securities in the future.

The decision to declare and pay dividends on our securities, as well as the timing, amount and composition of any such future dividends, is at the discretion of the Board of Trustees and will depend on actual and projected financial conditions, the Company’s actual and projected liquidity and operating results, the Company’s projected cash needs for capital expenditures and other investment activities and such other factors as the Company’s Board of Trustees deems relevant.  The Board of Trustees may modify our dividend policy from time to time and any change in our dividend policy could negatively impact the market price of our securities.

Issuances or sales of our Common Shares or Units may be dilutive.

TheAny additional issuance of Common Shares or sale of substantial amountsUnits would reduce the percentage of our Common Shares and Units owned by existing investors. In most circumstances, shareholders and unitholders will not be entitled to vote on whether directly by us or in the secondary market, the perception that such issuances or sales of ournot we issue additional Common Shares could occur or Units. In addition, depending on the availability for future issuance or saleterms and pricing of additional offerings of our Common Shares or securities convertible into or exchangeable or exercisable forUnits along with the value of our properties, our shareholders and unitholders could experience dilution in both the book value and fair value of their Common Shares could have a dilutive effect onor Units, as well as dilution in our actual and expected earnings per share, FFOfunds from operations (“FFO”) per share and Normalized FFO per share.

Regulatory and Tax Risks

The actual amountadoption of, dilution cannot be determined at this time and would be dependent upon numerous factors which are not currently known to us.

We may not have sufficient cash flows from operations after capital expenditures to cover our distributions and our dividend policy may lead to quicker dividend reductions.

We generally consider our cash flows provided by operating activities after capital expenditures to be adequate to meet operating requirements and payment of regular distributions to our security holders.  However, whether due toor changes in, the dividend policyrent control or otherwise, there may be times when we experience shortfallsrent stabilization regulations and eviction regulations in our coverage of distributions, which may cause us to consider reducing our distributions and/or using the proceeds from property dispositions or additional financing transactions to make up the difference.  Should these shortfalls occur for lengthy periods of time or be material in nature, our financial condition may be adversely affected and we may not be able to maintain our current distribution levels.  See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional discussion regarding our dividend policy.

The value of investment securities could result in losses to the Company.

From time to time, the Company holds investment securities and/or cash investments that have various levels of repayment and liquidity risk, including government obligations and bond funds, money market funds or bank deposits.  On occasion we also may purchase securities of companies in our own industry as a means to invest funds.  There may be times when we experience declines in the value of these investment securities, which may result in losses to the Company and our financial condition or results of operations could be adversely affected.  Sometimes the cash we deposit at a bank substantially exceeds the FDIC insurance limit or we invest cash in money market or similar type funds with investment management institutions that may be subject to, now or in the future, liquidity and/or withdrawal restrictions, resulting in risk to the Company of loss or lack of immediate availability of funds if these banks or institutions fail to meet their obligations.

Any weaknesses identified in our internal control over financial reportingmarkets could have an adverse effect on our share price.operations and property values.

Section 404A growing number of the Sarbanes-Oxley Actstate and local governments have enacted and may continue to consider enacting and/or expanding rent control, rent stabilization or other regulations, which limit or could continue to limit our ability to raise rents or charge certain fees, either of 2002 requires uswhich could have a retroactive effect. We continue to evaluate and report on our internalsee increases in governmental entities considering or being urged by advocacy groups to consider rent forgiveness, rent control over financial reporting.  If we identify one or more material weaknessesrent stabilization regulations or expand coverage of existing regulations in our internal control over financial reporting, we could lose investor confidence in the accuracymarkets.  These regulations may also make changes to and/or expand eviction and completeness ofother tenants’ rights regulations that may limit our financial reports,ability to enforce residents’ or tenants’ contractual rental obligations (such as eviction moratoriums), pursue collections or charge certain fees, which in turn could have an adverse effectimpact on our share price.operations and property values.    

The occurrence of cyber incidents,Compliance or a deficiencyfailure to comply with regulatory requirements could result in our cybersecurity, could negatively impact our businesssubstantial costs.

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements, building and zoning codes, environmental and other ESG regulations, and federal, state and local accessibility requirements, including and in addition to those imposed by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our reputation and business relationships, all of which could negatively impact our financial results.

A cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information, including information regarding our residents, prospective residents, employees and employees’ dependents.  

Despite system redundancy, the implementation of security measures, required employee awareness trainingAmericans with Disabilities Act and the existence of a disaster recovery plan for our internal information technology systems, our systems and systems maintained by third party vendors with which we do business are vulnerable to damage from any number of sources.  We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, phishing attempts or other scams, persons inside our organization or persons/vendors with access to our systems and other significant disruptions of our information technology networks and related systems.  Our information technology networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations.  Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques usedFair Housing Act. Noncompliance could result in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.  Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible forfines, subject us to entirely mitigate this risk.  

We collect and hold personally identifiable information of our residents and prospective residents in connection with our leasing activities, and we collect and hold personally identifiable information of our employees and their dependents.  In

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addition, we engage third party service providers that may have access to such personally identifiable information in connection with providing necessary information technology and security and other business services to us.  Although we make efforts to maintain the security and integrity of these types of information technology networks and related systems and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

We address potential breaches or disclosure of this confidential personally identifiable information by implementing a variety of security measures intended to protect the confidentiality and security of this information including (among others):  (a) engaging reputable, recognized firms to help us design and maintain our information technology and data security systems; (b) conducting periodic testing and verification of information and data security systems, including performing ethical hacks of our systems to discover where any vulnerabilities may exist; and (c) providing periodic employee awareness training around phishing and other scams, malware and other cyber risks.  We also maintain cyber risk insurance to provide some coverage for certain risks arising out of data and network breaches (see further discussion on cyber risk insurance below).  However, there can be no assurance that these measures will prevent a cyber incident or that our cyber risk insurance coverage will be sufficient in the event of a cyber incident.  

A breach or significant and extended disruption in the function of our systems, including our primary website, could damage our reputation and cause us to lose residents and revenues, generate third party claims, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personally identifiable and confidential informationlawsuits and require us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.  Werepair the noncompliance. Existing requirements could change and compliance with future requirements may not be able to recover these expenses in whole or in any part from our service providers, our insurers or any other responsible parties.  As a result, there can be no assurancerequire significant unanticipated expenditures that our financial results would not becould adversely impacted.

Litigation risk could affect our business.

We may become involved in legal proceedings, including but not limited to, proceedings related to consumer, shareholder, securities, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues (any of which could result in a class action lawsuit) that, if decided adversely to or settled by us, could result in liability material to our financial condition or results of operations.

Environmental problems are possible and can be costly.

Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous ownerowners or operatoroperators of real estate to investigate and clean up hazardous or toxic substances or petroleum product releases at such property.properties.  The owner or operator

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may have to pay a governmental entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination.  These laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants.  Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred.  In addition, thirdThird parties may also sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site.

Substantially all of our properties have been the subject of environmental assessments completed by qualified independent environmental consulting companies.  While these environmental assessments have not revealed, nor are we aware of, any environmental liability that our management believes would have a material adverse effect on our business, results of operations, financial condition or liquidity, there can be no assurance that we will not incur such liabilities in the future.

We are aware that some of our properties have lead paint and have implemented an operations and maintenance program at each of those properties.  While we do not currently anticipate that we will incur any material liabilities as a result of the presence of lead paint at our properties, there can be no assurance that we will not incur such liabilities in the future.

There have been a 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.  While we have adopted programs designed to minimize the existence of mold in any of our properties as well as guidelines for promptly addressing and resolving reports of mold to minimize any impact mold might have on our residents or the property, should mold become an issue in the future, our financial condition or results of operations may be adversely affected.

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We cannot be assured that existing environmental assessments of our properties reveal all environmental liabilities, that any prior owner of any of our properties did not create a material environmental condition not known to us, or that a material environmental condition does not otherwise exist as to any of our properties.

Insurance policies can be costlyChanges in U.S. accounting standards may materially and may not cover all losses, which may adversely affect our financial condition or resultsthe reporting of operations.

As of December 31, 2017, the Company’s property insurance policies provide for a per occurrence deductible of $250,000.  Earthquake losses are subject to a 2% deductible in the state of Washington and a 5% deductible in California, applied to the values of the buildings involved in the loss.  The Company also typically self-insures a substantial portion of the first $50 million of a property loss in excess of these base deductibles.  Should a claim exceed these amounts, it would be 100% covered by insurance.  Furthermore, the Company purchased additional coverage in the event that the Company suffers multiple non-catastrophic occurrences with losses from $25 million to $50 million within the same policy year.  The Company’s general liability and worker’s compensation policies at December 31, 2017 provide for a $2.0 million and $1.0 million per occurrence deductible, respectively.  These higher deductible and self-insured retention amounts do expose the Company to greater potential for uninsured losses.  The Company also has become more susceptible to large losses as it has transformed its portfolio, becoming more concentrated in fewer, more valuable assets over a smaller geographical footprint.  Furthermore, the potential impact of climate change, increased severe weather or earthquakes could cause a significant increase in insurance premiums and deductibles, or a decrease in the availability of coverage, either of which could expose the Company to even greater uninsured losses which may adversely affect our financial condition or results of operations.

The Company also has $750.0 million in terrorism insurance coverage, with a $100,000 deductible.  This coverage excludes losses from nuclear, biologicalfollows GAAP, which is established by the Financial Accounting Standards Board (“FASB”), an independent body whose standards are recognized by the Securities and chemical attacks.  InExchange Commission (“SEC”) as authoritative for publicly held companies.  The FASB and the eventSEC create and interpret accounting standards and may issue new accounting pronouncements or change the interpretation and application of a terrorist attack impacting one or morethese standards that govern the preparation of our properties, wefinancial statements.  These changes could lose the revenues from the property, our capital investment in the property and possibly face liability claims from residents or others suffering injuries or losses.

As of December 31, 2017, the Company’s cyber liability insurance policy provides forhave a $5.0 million policy aggregate limit and a per occurrence deductible of $250,000.  Cyber liability insurance generally covers costs associated with the wrongful release, through inadvertent breach or network attack, of personally identifiable information such as social security or credit card numbers.   This cyber policy would cover the cost of victim notification, credit monitoring and other crisis response expenses.

The Company relies on third party insurance providers for its property, general liability and worker’s compensation insurance.  While there has yet to be any non-performance by these major insurance providers, should any of them experience liquidity issues or other financial distress, it could negativelymaterial impact the Company.  In addition, the Company annually assesses its insurance needs based on the cost of coverage and other factors.  We may choose to self insure a greater portion of this risk in the future or may choose to have higher deductibles or lesser policy terms.

Damage from catastrophic weather and other natural events and climate change could result in losses to the Company.

Certain of our properties are located in areas that may experience catastrophic weather and other natural events from time to time, including fires, snow or ice storms, windstorms or hurricanes, earthquakes, flooding or other severe weather.  These adverse weather and natural events could cause substantial damages or losses to our properties which could exceed our insurance coverage.  In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that property.  We could also continue to be obligated to repay any mortgage indebtedness or other obligations related to the property.  Any such loss could materially and adversely affect our business and our financial condition and results of operations.

To the extent that significant changes in the climate occur in areas where our properties are located, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.  Should the impact of climate change be material in nature, including destruction of our properties, or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.

In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.

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The inability of Lehman to fulfill its indemnification obligations to us under the purchase agreement for the Archstone transaction could increase our liabilities and adversely affect ourreported consolidated results of operations and financial condition.position.

In addition to certain indemnification obligations of each party to the purchase agreement for the Archstone transaction relating to breaches of fundamental representations and warranties and breaches of covenants and certain other specified matters, we negotiated as a termAny weaknesses identified in the purchase agreement that Lehman Brothers Holdings Inc. (“Lehman”) retain responsibility for and indemnify us against damages resulting from certain third-party claims or other liabilities.  These third-party claims and other liabilities include, without limitation, costs associated with various litigation matters.  Lehman filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in September 2008 and is currently in the process of post-petition liquidation.  If Lehman completes its liquidation prior to the termination of their indemnity obligations to us under the purchase agreement, or otherwise distributes substantially all of its assets to its creditors prior to such time, Lehman may not be able to satisfy its obligations with respect to claims and retained liabilities covered by the purchase agreement.  The failure of Lehman to satisfy such obligations could have a material adverse effect on our results of operations andinternal control over financial condition because claimants may successfully assert that we are liable for those claims and/or retained liabilities.  In addition, certain obligations of Lehman to indemnify us terminated upon expiration of the applicable indemnification period (generally no more than four years following the closing or February 27, 2017).  The assertion of third-party claims after the expiration of the applicable indemnification period, or the failure of Lehman to satisfy its indemnification obligations, could have a material adverse effect on our results of operations and financial condition.

Non-performance by our operating counterparties could adversely affect our performance.

We have relationships with and, from time to time, we execute transactions with or receive services from many counterparties.  As a result, defaults by counterpartiesreporting could result in services not being provided, or volatility ina decrease of our share price.

Section 404 of the financial markets could affect counterparties’ ability to complete transactions with us as intended, bothSarbanes-Oxley Act of which could result in disruptions to our operations that may adversely affect our business and results of operations.

Debt financing and preferred shares/preference units could adversely affect our performance.

General

Please refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the Company’s debt summaries as of December 31, 2017.

In addition to debt, we have a liquidation value of $37.3 million of outstanding preferred shares of beneficial interest/preference units with a dividend preference of 8.29% per annum as of December 31, 2017.  Our use of debt and preferred equity financing creates certain risks, including the following:

Disruptions in the financial markets could adversely affect our ability to obtain debt financing and impact our acquisitions and dispositions.

Dislocations and liquidity disruptions in capital and credit markets could impact liquidity in the debt markets, resulting in financing terms that are less attractive to us and/or the unavailability of certain types of debt financing.  Should the capital and credit markets experience volatility and the availability of funds again become limited, or be available only on unattractive terms, we will incur increased costs associated with issuing debt instruments.  In addition, it is possible that our ability to access the capital and credit markets may be limited or precluded by these or other factors at a time when we would like, or need, to do so, which would adversely impact our ability to refinance maturing debt and/or react to changing economic and business conditions.  Uncertainty in the credit markets could negatively impact our ability to make acquisitions and make it more difficult or not possible for2002 requires us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing.  Potential continued disruptions in the financial markets could also have other unknown adverse effects on us or the economy generallyevaluate and may cause the price of our securities to fluctuate significantly and/or to decline.

Potential reforms to Fannie Mae and Freddie Mac could adversely affect our performance.

Through their lender originator networks, Fannie Mae and Freddie Mac (the “Government Sponsored Enterprises” or “GSEs”) are significant lenders and enhancers of tax-exempt bonds both to the Company and to buyers of the Company’s properties.  The GSEs have a mandate to support multifamily housing through their financing activities.  Any changes to their mandates, reductions in their size or the scale of their activities or loss of key personnel could have an impact on the Company and may, among other things, lead to lower values for our assets and higher interest ratesreport on our secured borrowings.  Disruptions in the floating rate tax-exempt bond market (where interest rates reset weekly) and in the credit market’s perception of the GSEs, which guarantee and provide liquidity for many of these bonds, have been experienced in the past and may be experienced in the future and could result in an increase in interest rates on our tax-exempt debt obligations.  These bonds could

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also be put to our consolidated subsidiaries if the GSEs fail to satisfy their guaranty obligations.  While this obligation is in almost all cases non-recourse to us, this could cause the Company to have to repay these obligations on short notice or risk foreclosure actions on the collateralized assets.

Non-performance by ourinternal control over financial counterparties could adversely affect our performance.

Althoughreporting.  If we have not experienced any material counterparty non-performance, disruptions in financial and credit markets could, among other things, impede the ability of our counterparties to perform on their contractual obligations.  There are multiple financial institutions that are individually committed to lend us varying amounts as part of our revolving credit facility.  Should any of these institutions fail to fund their committed amounts when contractually required, our financial condition could be adversely affected.  Should several of these institutions fail to fund, we could experience significant financial distress.

A significant downgrade in our credit ratings could adversely affect our performance.

A significant downgrade in our credit ratings, while not affecting our ability to draw proceeds under the revolving credit facility, would cause our borrowing costs to increase under the revolving credit facility, impact our ability to borrow secured and unsecured debt, impair our ability to access the commercial paper market or otherwise limit our access to capital.  In addition, a downgrade below investment grade would require us to post cash collateral and/or letters of credit in favor of some of our secured lenders to cover our self-insured property and liability insurance deductibles or to obtain lower deductible insurance compliant with the lenders’ requirements at the lower ratings level.

Scheduled debt payments could adversely affect our financial condition.

In the future, our cash flow could be insufficient to meet required payments of principal and interest or to pay distributions on our securities at expected levels.

We may not be able to refinance existing debt, including joint venture indebtedness (which in virtually all cases requires substantial principal payments at maturity) and, if we can, the terms of such refinancing might not be as favorable as the terms of existing indebtedness.  If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our operating cash flow will not be sufficient in all years to repay all maturing debt.  As a result, certain of our other debt may cross default, we may be forced to postpone capital expenditures necessary for the maintenance of our properties, we may have to dispose ofidentify one or more properties on terms that would otherwise be unacceptable to us ormaterial weaknesses in our internal control over financial reporting, we may be forced to allowcould lose investor confidence in the mortgage holder to foreclose on a property.  Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would likelyaccuracy and completeness of our financial reports, which in turn could have a negative impact on our financial conditionshare price.

Our failure to qualify as a REIT would have serious adverse consequences to our security holders.

We plan to continue to meet the requirements for taxation as a REIT.  Many of these requirements, for which there is limited judicial and resultsadministrative interpretation, however, are highly technical and complex.  Therefore, we cannot guarantee that we have qualified or will qualify as a REIT in the future.  The determination that we are a REIT requires an analysis of operations.various factual matters that may not be totally within our control.  To qualify as a REIT, our assets must be substantially comprised of real estate assets as defined in the Internal Revenue Code of 1986, as amended (the “Code”), and related guidance and our gross income must generally come from rental and other real estate or passive related sources that are itemized in the REIT tax laws.  We are also required to distribute to security holders at least 90% of our REIT taxable income excluding net capital gains.

Please referIf we fail to Item 7, Management’s Discussionqualify as a REIT, we would be subject to U.S. federal income tax at regular corporate rates and Analysis of Financial Condition and Results of Operations, forwould have to pay significant income taxes unless the Company’s debt maturity schedule as of December 31, 2017.

Financial covenants could adversely affect the Company’s financial condition.

The mortgages on our properties may contain customary negative covenants that, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property and to reduce or change insurance coverage.Internal Revenue Service (“IRS”) granted us relief under certain statutory provisions.  In addition, our revolving credit facility contains certain restrictions, requirementswe would remain disqualified from taxation as a REIT for four years following the year in which we failed to qualify as a REIT.  We would therefore have less money available for investments or for distributions to security holders and other limitations on our abilitywould no longer be required to incur debt.  The indentures under which a substantial portion of our unsecured debt was issued also contain certain financial and operating covenants including, among other things, maintenance of certain financial ratios, as well as limitations on our abilitymake distributions to incur secured and unsecured debt (including acquisition financing), and to sell all or substantially all of our assets.  Our revolving credit facility and indentures are cross-defaulted and also contain cross default provisions with other material debt.  While the Company believes it was in compliance with its unsecured public debt covenants for both the years ended December 31, 2017 and 2016, should it fall out of compliance, itsecurity holders.  This would likely have a significant negative impact on the value of our securities.  

In addition, certain of our subsidiary entities have elected to be taxed as REITs.  As such, each must separately satisfy all of the requirements to qualify for REIT status.  If a subsidiary REIT did not satisfy such requirements, and certain relief provisions did not apply, it would be taxed as a regular corporation and its income would be subject to U.S. federal income taxation.   Failure to comply with these complex REIT rules at the subsidiary REIT level can have a material and detrimental impact to EQR’s REIT status.

Gain on disposition of assets held for sale in the ordinary course of business is subject to 100% tax.

Any gain resulting from transfers of properties we hold as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax unless certain safe harbor exceptions set forth in the Code apply.  We do not believe that our transfers or disposals of property are prohibited transactions.  However, whether property is held for investment purposes is a question that depends on all the facts and circumstances surrounding the particular transaction.  The IRS may contend that certain transfers or dispositions of properties by us or contributions of properties are prohibited transactions.  While we believe the IRS would not prevail in any such dispute, if the IRS were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction.  In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a REIT.

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We may be subject to legislative or regulatory tax changes that could negatively impact our financial conditioncondition.

At any time, U.S. federal income tax laws governing REITs or impacting real estate or the administrative interpretations of those laws may be enacted or amended. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, IRS and resultsU.S. Department of operations.

Some of the properties were financed with tax-exempt bondsTreasury regulations or otherwise contain certain restrictive covenantsother administrative guidance, will be adopted or deed restrictions, including affordability requirements.become effective and any such law, regulation or interpretation may take effect retroactively.  The Company and our shareholders could be negatively impacted by any such change in, or any new, U.S. federal income tax law, regulations or administrative guidance.

Distribution requirements may limit our flexibility to manage our portfolio.

In order to maintain qualification as a REIT under the Code, a REIT must annually distribute to its shareholders at least 90% of its REIT taxable income, excluding the dividends paid deduction and net capital gains.  To the extent the REIT does not distribute all its net capital gain, or distributes at least 90%, but less than 100% of its REIT taxable income, it will be required to pay regular U.S. federal income tax on the undistributed amount at corporate rates.  In addition, we will be subject to a 4% nondeductible excise tax on amounts, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net capital gains and 100% of our undistributed income from prior years.  We may not have sufficient cash or other liquid assets to meet the 90% distribution requirement. We may be required from time to time, its consultants, monitor compliance withunder certain circumstances, to accrue as income for tax purposes interest and rent earned but not yet received.  We may incur a reduction in tax depreciation without a reduction in capital expenditures.  Difficulties in meeting the restrictive covenants90% distribution requirement might arise due to competing demands for our funds or due to timing differences between tax reporting and deed restrictions that affect these properties.  If these compliance requirements restrict our ability to increase our rental rates to low or moderate-income residents, or eligible/qualified residents, then our income from these propertiescash distributions, because deductions may be limited.  While we generally believedisallowed, income may be reported before cash is received, expenses may have to be paid before a deduction is allowed or because the IRS may make a determination that the interest rate benefit attendant to properties with tax-exempt bonds more than outweighs any loss of income due to restrictive covenants or deed restrictions, this may not always be the case.  Some of these requirements are complex and our failure to comply with them may subject us to material fines or liabilities.

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Our degree of leverage could limit our ability to obtain additional financing.

Our degree of leverage could have important consequences to security holders.  For example, the degree of leverage could affect our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes, making us more vulnerable to a downturn in business or the economy in general.  Our consolidated debt-to-total market capitalization ratio was 26.9% as of December 31, 2017.adjusts reported income.  In addition, gain from the sale of property may exceed the amount of cash received on a leverage-neutral basis.  A substantial increase to our most restrictive unsecured public debt covenants are as follows:

Rising interest rates could adversely affect our operations and cash flows.

​The Company’s exposure to market risk for changes in interest rates primarily relates totaxable income may reduce the refinancingflexibility of its long-term debt and floating interest rate instruments that include its unsecured revolving credit facility, commercial paper program, floating rate tax-exempt debt and fair value hedges that convert fixed rate debt to floating rate debt.  These exposures to interest rates are primarily driven by changes in long-term U.S. Treasury rates for refinancing activity, changes in short-term London interbank offered rate (“LIBOR”) borrowing rates and the Securities Industry and Financial Markets Association (“SIFMA”) index for floating rate debt and changes in commercial paper market conditions.  Increases in interest rates would increase our interest expense under these debt instruments and would increase the costs of refinancing existing debt and of issuing new debt.  Accordingly, higher interest rates could adversely affect our operations and cash flows and our ability to service our debt and make distributions to security holders.

Derivatives and hedging activity could adversely affect cash flow.

In the normal course of business, we use derivativesCompany to manage its portfolio through dispositions of properties other than through tax deferred transactions, such as Section 1031 exchanges, or cause the Company to borrow funds or liquidate investments on unfavorable terms in order to meet these distribution requirements.  If we do not dispose of our exposure to interest rate volatility on debt instruments, including hedging for future debt issuances.  At other timesproperties through tax deferred transactions, we may utilize derivativesbe required to increase our exposuredistribute the gain proceeds to floating interest rates.  We may also use derivativesshareholders or pay income tax.  If we fail to manage commodity prices insatisfy the daily operations of our business.  There can be no assurance that these hedging arrangements will have90% distribution requirement and are unable to cure the desired beneficial impact.  These arrangements, which can include a number of counterparties, may expose us to additional risks, including failure of any of our counterparties to perform under these contracts, and may involve extensive costs, such as transaction fees or breakage costs, ifdeficiency, we terminate them.  No strategy can completely insulate us from the risks associated with interest rate or commodity pricing fluctuations.

We depend on our key personnel.

We depend on the efforts of the Chairman of our Board of Trustees, Samuel Zell, and our executive officers, particularly David J. Neithercut, our President and Chief Executive Officer (“CEO”).  If they resign or otherwisewould cease to be employed by us, our operations could be temporarily adversely affected.  Mr. Zell has entered into retirement benefit and noncompetition agreements with the Company.taxed as a REIT, resulting in substantial tax-related liabilities.

Shareholders’ ability to effect changes in control of the Company is limited.

Provisions of our declaration of trust and bylaws could inhibit changes in control.

Certain provisions of our Declaration of Trust and Bylaws may delay or prevent a change in control of the Company or other transactions that could provide the security holders with a premium over the then-prevailing market price of their securities or which might otherwise be in the best interest of our security holders.  This includes the 5% Ownership Limit described below.  While our existing preferred shares/preference units do not have these provisions, any future series of preferred shares/preference units may have certain voting provisions that could delay or prevent a change in control or other transactions that might otherwise be in the interest of our security holders.  Our Bylaws require certain information to be provided by any security holder, or persons acting in concert with such security holder, who proposes business or a nominee at an annual meeting of shareholders, including disclosure of information related to hedging activities and investment strategies with respect to our securities.  These requirements could delay or prevent a change in control or other transactions that might otherwise be in the interest of our security holders.

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We have a share ownership limit for REIT tax purposes.

To remain qualified as a REIT for U.S.  federal income tax purposes, not more than 50% in value of our outstanding Shares may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of any year.  To facilitate maintenance of our REIT qualification, our Declaration of Trust, subject to certain exceptions, prohibits ownership by any single shareholder of more than 5%five percent of the lesser of the number or value of any outstanding class of common or preferred shares.  We refer to this restriction as theshares (the “Ownership Limit.”Limit”).  Absent anyan exemption or waiver granted by our Board of Trustees, securities acquired or held in violation of the Ownership Limit will be transferred to a trust for the exclusive benefit of a designated charitable beneficiary, and the security holder’s rights to distributions and to vote would terminate.  A transfer of Shares may automatically be deemed void if it causes a person to violate the Ownership Limit.  The Ownership Limit could delay or prevent a change in control and, therefore, could adversely affect our security holders’ ability to realize a premium over the then-prevailing market price for their Shares.  To reduce the ability of the Board to use the Ownership Limit as an anti-takeover device, the Company’s Ownership Limit requires, rather than permits, the Board to grant a waiver of the Ownership Limit if the individual seeking a waiver demonstrates that such ownership would not jeopardize the Company’s status as a REIT.  We have issued several of these waivers in the past.

Our preferred sharesTax elections regarding distributions may affect changes in control.

Our Declaration of Trust authorizes the Board of Trustees to issue up to 100 million preferred shares, and to establish the preferences and rights (including the right to vote and the right to convert into common shares) of any preferred shares issued.  The Board of Trustees may use its powers to issue preferred shares and to set the terms of such securities to delay or prevent a change in controlimpact future liquidity of the Company even if a change in control wereor our shareholders.

Under certain circumstances we have made and/or may consider making in the future, a tax election to treat certain distributions to shareholders made after the close of a taxable year as having been distributed during such closed taxable year.  This election, which is provided for in the Code, may allow us to avoid increasing our dividends or paying additional income taxes in the current year.  However, this could result in a constraint on our ability to decrease our dividends in future years without creating risk of either violating the REIT distribution requirements or generating additional income tax liability. In addition, the Company may be required to pay interest to the IRS based on such a distribution.

In order to retain liquidity and continue to satisfy the REIT distribution requirements, the Company could issue shares rather than pay a dividend entirely in cash to shareholders. The IRS has published several rulings which have allowed REITs to offer shareholders the choice between shares or cash as a form of security holders.payment of a dividend (an “elective stock dividend”).  However, REITs are generally required to structure the cash component to be no less than 20% of the total dividend paid.  Therefore, it is possible that the total tax burden to shareholders resulting from an elective stock dividend may exceed the amount of cash received by the shareholder.

Inapplicability of Maryland law limiting certain changes in control.

Certain provisions of Maryland law applicable to real estate investment trustsREITs prohibit “business combinations” (including certain issuances of equity securities) with any person who beneficially owns ten percent or more of the voting power of outstanding securities, or with an

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affiliate who, at any time within the two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the Company’s outstanding voting securities (an “Interested Shareholder”), or with an affiliate of an Interested Shareholder.  These prohibitions last for five years after the most recent date on which the Interested Shareholder became an Interested Shareholder.  After the five-year period, a business combination with an Interested Shareholder must be approved by two super-majority shareholder votes unless, among other conditions, holders of common shares receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Shareholder for its common shares.  As permitted by Maryland law, however, the Board of Trustees of the Company has opted out of these restrictions with respect to any business combination involving Mr.Sam Zell and certain of his affiliates and persons acting in concert with them.  Consequently, the five-year prohibition and the super-majority vote requirements will not apply to a business combination involving us and/or any of them.  Such business combinations may not be in the best interest of our security holders.

Our status asGeneral Risk Factors

Risk of Pandemics or Other Health Crisis.

A pandemic, epidemic or other health crisis, similar to the ongoing outbreak of COVID-19, affecting areas where our properties, corporate/regional offices or major service providers are located could have an adverse effect on our business, results of operations, cash flows and financial condition.

The occurrence of cyber incidents, or a REIT is dependent on compliance with federal income tax requirements.

Our failure to qualify asdeficiency in our cybersecurity, could negatively impact our business by causing a REIT would have serious adverse consequencesdisruption to our operations, a compromise or corruption of our confidential information, and/or damage to our reputation and business relationships, all of which could negatively impact our financial results.

A cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt payment collections and operations, corrupt data or steal confidential information, including information regarding our residents, prospective residents, employees and employees’ dependents.  

Despite system redundancy, the implementation of security holders.

measures, required employee awareness training and the existence of a disaster recovery plan for our internal information technology systems, our systems and systems maintained by third-party vendors with which we do business are vulnerable to damage from any number of sources.  We believe that we have qualified for taxation asface risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, phishing attempts, ransomware or other scams, persons inside our organization or persons/vendors with access to our systems and other significant disruptions of our information technology networks and related systems, including property infrastructure.  Our information technology networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations.  Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a REIT for federal income tax purposes since our taxable year ended December 31, 1992 based,target, and in part, upon opinions of tax counsel received whenever we have issued equity securities or engagedsome cases are designed not to be detected and, in significant merger transactions.  We plan to continue to meet the requirements for taxation as a REIT.  Many of these requirements, however, are highly technical and complex.  We cannot, therefore, guarantee that we have qualified or will qualify as a REIT in the future.  The determination that we are a REIT requires an analysis of various factual matters thatfact, may not be totally within our control.  For example,detected.  Accordingly, we may be unable to qualify as a REIT, our gross income must generally come from rentalanticipate these techniques or to implement adequate security barriers or other preventative measures, and other real estate or passive related sources that are itemized in the REIT tax laws.  We are also required to distribute to security holders at least 90% of our REIT taxable income excluding net capital gains.  The fact that we hold our assets through the Operating Partnership further complicates the application of the REIT requirements.  In addition, certain of our subsidiary entities have elected to be taxed as REITs.  As such, each must separately satisfy all of the requirements to qualify for REIT status.  Our failure to comply with the complex REIT rules at the subsidiary REIT level can materially and adversely impact EQR’s REIT status.

Even a technical or inadvertent mistake could jeopardize our REIT status; however, the REIT qualification rules permit REITs in certain circumstances to pay a monetary penalty for inadvertent mistakes rather than lose REIT status.  Therethus it is also risk that Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible for us to remain qualified as a REIT.  entirely mitigate this risk.  

We do not believe, however, that any pending or proposed tax law changes would jeopardize our REIT status.

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If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates.  Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified from taxation as a REIT for four years following the year in which we failed to qualify as a REIT.  If we fail to qualify as a REIT, we would have to pay significant income taxes.  We therefore would have less money available for investments or for distributions to security holders.  This would likely have a significant adverse effect on the valuemay periodically collect and store personally identifiable information of our securities.residents and prospective residents in connection with our leasing activities, and we may collect and store personally identifiable information of our employees and their dependents.  In addition, we would no longer be required to make any distributions to security holders.  Even if we qualify as a REIT, we are and will continue to be subject to certain federal, state and local taxes on our income and property.  In addition, various business activities which generate income that is not qualifying income for a REIT are conducted through taxable REIT subsidiaries and will be subject to federal and state income tax at regular corporate rates to the extent they generate taxable income.

The effect of the Tax Act is uncertain.

On December 22, 2017, the President signed into law H.R. 1, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), with most provisions having an initial effective date of January 1, 2018.  The Tax Act makes major changes to the Internal Revenue Code, as amended, including several provisionsoften engage third-party service providers that may affecthave access to such personally identifiable information in connection with providing necessary information technology, security and other business services to us.  The systems of these third-party service providers may contain defects in design or other problems that could unexpectedly compromise personally identifiable information.  Although we make efforts to maintain the taxation of REITssecurity and their security holders.  The Tax Act is not expected to have a material impact on our REIT or subsidiary entities, the size and characterintegrity of our dividends, our ability to continue to qualify as a REIT or on our results of operations.  In addition, the Tax Act is expected to have a favorable impact on the effective tax rateinformation technology networks and those of our shareholders and our residents.  However, the complete impact of the Tax Act is not yet fully known and there can be no assurances that it will have a neutral or favorable impact.  Technical corrections or other amendments to the Tax Act or administrative guidance interpreting the Tax Act may be forthcoming at any time.  Prospective and current shareholders should consult with their tax advisors with respect to the effect of the Tax Act and any other regulatory or administrative developments and proposals and their potential effect on your investment.

We could be disqualified as a REIT or have to pay taxes if our merger partners did not qualify as REITs.

If any of our prior merger partners had failed to qualify as a REIT throughout the duration of their existence, then they might have had undistributed “Subchapter C corporation earnings and profits” at the time of their merger with us.  If that were the casethird-party providers and we did not distribute those earnings and profits prior to the end of the year in which the merger took place, we might not qualify as a REIT.  We believe, based in part upon opinions of legal counsel received pursuant to the terms of our merger agreements as well as our own investigations, among other things, that each of our prior merger partners qualified as a REIT and that, in any event, none of them had any undistributed “Subchapter C corporation earnings and profits” at the time of their merger with us.  If any of our prior merger partners failed to qualify as a REIT, an additional concern would be that they could have been required to recognize taxable gain at the time they merged with us.  We would be liable for the tax on such gain.  We also could have to pay corporate income tax on any gain existing at the time of the applicable merger on assets acquired in the merger if the assets are sold within ten years of the merger.

Compliance with REIT distribution requirements may affect our financial condition and our shareholders’ liquidity.

Distribution requirements may limit our flexibilityimplemented various measures to manage our portfolio.

We may be required from time to time, under certain circumstances, to accrue as income for tax purposes interest and rent earned but not yet received.  We may incur a reduction in tax depreciation without a reduction in capital expenditures.  Provisions of the Tax Act may require that we depreciate existing assets over a 30-year or potentially a 40-year useful life, which may substantially increase our taxable income.  In addition, gain from the sale of property may exceed the amount of cash received on a leverage-neutral basis.  A substantial increase to our taxable income may reduce the flexibility of the Company to manage its portfolio through dispositions of properties in non-1031 exchange transactions or cause the Company to borrow funds or liquidate investments on adverse terms in order to meet these distribution requirements.

Tax elections regarding distributions may impact future liquidity of the Company or our shareholders.

Under certain circumstances we have made and/or may consider making again in the future, a tax election to treat future distributions to shareholders as distributions in the current year.  This election, which is provided for in the Internal Revenue Code, may allow us to avoid increasing our dividends or paying additional income taxes in the current year.  However, this could result in a constraint on our ability to decrease our dividends in future years without creating risk of either violating the REIT distribution requirementsa security breach or generating additional income tax liability.

The Internal Revenue Service has published several rulings that allow REITs to offer shareholders the choice of stock or cash with respect to the receipt of a dividend (an “elective stock dividend”).  However, REITs are also permitted to limit the amount of cash paid to all shareholders to 20% of the total dividend paid.  Therefore, it is possible that the total tax burden to shareholders resulting from an elective stock dividend may exceed the amount of cash received by the shareholder.

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Federal Income Tax Considerations

General

The following discussion summarizes the federal income tax considerations material to a holder of common shares.  It is not exhaustive of all possible tax considerations.  For example, it does not give a detailed discussion of any state, local or foreign tax considerations.  The following discussion also does not address all tax matters that may be relevant to prospective shareholders in light of their particular circumstances.  Moreover, it does not address all tax matters that may be relevant to shareholders who are subject to special treatment under the tax laws, such as insurance companies, tax-exempt entities, financial institutions or broker-dealers, foreign corporations, persons who are not citizens or residents of the United States and persons who own shares through a partnership or other entity treated as a flow-through entity for federal income tax purposes.

The specific tax attributes of a particular shareholder could have a material impact on the tax considerations associated with the purchase, ownership and disposition of common shares.  Therefore, it is essential that each prospective shareholder consult with his or her own tax advisors with regard to the application of the federal income tax laws to the shareholder’s personal tax situation, as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

The information in this section is based on the current Internal Revenue Code, current, temporary and proposed Treasury regulations, the legislative history of the Internal Revenue Code, current administrative interpretations and practices of the Internal Revenue Service, including its practices and policies as set forth in private letter rulings, which are not binding on the Internal Revenue Service, and existing court decisions.  Future legislation, regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law.  Any change could apply retroactively.  Thus, it is possible that the Internal Revenue Service could challenge the statements in this discussion, which do not bind the Internal Revenue Service or the courts, and that a court could agree with the Internal Revenue Service.

Our taxation

We elected REIT status beginning with the year that ended December 31, 1992.  In any year in which we qualify as a REIT, we generally will not be subject to federal income tax on the portion of our REIT taxable income or capital gain that we distribute to our shareholders.  This treatment substantially eliminates the double taxation that applies to most corporations, which pay a tax on their income and then distribute dividends to shareholders who are in turn taxed on the amount they receive.  We elected taxable REIT subsidiary status for certain of our corporate subsidiaries engaged in activities which cannot be performed directly by a REIT, such as condominium conversion and sale activities.  As a result, we will be subject to federal income tax on the taxable income generated by these activities in our taxable REIT subsidiaries.

We will be subject to federal income tax at regular corporate rates upon our REIT taxable income or capital gains that we do not distribute to our shareholders.  In addition, we will be subject to a 4% excise tax if we do not satisfy specific REIT distribution requirements.  For tax years prior to January 1, 2018, we could also be subject to the “alternative minimum tax” on our items of tax preference; pursuant to the Tax Act, for tax years beginning January 1, 2018, the corporate alternative minimum tax has been permanently eliminated.  In addition, any net income from “prohibited transactions” (i.e., dispositions of property, other than property held by a taxable REIT subsidiary, held primarily for sale to customers in the ordinary course of business) will be subject to a 100% tax.  We could also be subject to a 100% penalty tax on certain payments received from or on certain expenses deducted by a taxable REIT subsidiary if any such transaction is not respected by the Internal Revenue Service.  If we fail to satisfy the 75% gross income test or the 95% gross income test (described below) but have maintained our qualification as a REIT because we satisfied certain other requirements, we will still generally be subject to a 100% penalty tax on the taxable income attributable to the gross income that caused the income test failure.  If we fail to satisfy any of the REIT asset tests (described below) by more than a de minimis amount, due to reasonable cause, and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest marginal corporate tax rate multiplied by the net income generated by the non-qualifying assets.  If we fail to satisfy any provision of the Internal Revenue Code that would result in our failure to qualify as a REIT (other than a violation of the REIT gross income or asset tests described below) and the violation is due to reasonable cause, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.  Moreover, we may be subject to taxes in certain situations and on certain transactions that we do not presently contemplate.

We believe that we have qualified as a REIT for all of our taxable years beginning with 1992.  We also believe that our current structure and method of operation is such that we will continue to qualify as a REIT.  However, given the complexity of the REIT qualification requirements, we cannot provide any assurance that the actual results of our operations have satisfied or will satisfy the requirements under the Internal Revenue Code for a particular year.

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If we fail to qualify for taxation as a REIT in any taxable year and the relief provisions described herein do not apply, we will be subject to tax on our taxable income at regular corporate rates.  Also, for tax years prior to January 1, 2018, we may be subject to the corporate “alternative minimum tax.”  As a result, our failure to qualify as a REIT would significantly reduce the cash we have available to distribute to our shareholders.  Unless entitled to statutory relief, we would not be able to re-elect to be taxed as a REIT until our fifth taxable year after the year of disqualification.  It is not possible to state whether we would be entitled to statutory relief.

Our qualification and taxation as a REIT depend on our ability to satisfy various requirements under the Internal Revenue Code.  We are required to satisfy these requirements on a continuing basis through actual annual operating and other results.  Accordingly,disruption, there can be no assurance that weour security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

We address potential breaches or disclosure of this confidential personally identifiable information by implementing a variety of security measures intended to protect the confidentiality and security of this information including (among others):  (a) engaging reputable, recognized firms to help us design and maintain our information technology and data security systems; (b) conducting periodic testing and verification of information and data security systems, including performing ethical hacks of our systems to discover where any vulnerabilities may exist; (c) providing periodic employee awareness training around phishing and other scams, malware and other cyber risks; and (d) systematically deleting personally identifiable information that no longer is required.  The Company also has a cyber liability insurance policy to provide some coverage for certain risks arising out of data and network breaches and data privacy regulations which provides a policy aggregate limit and a per occurrence deductible.  Cyber liability insurance generally covers, among other things, costs associated with the wrongful release, through inadvertent breach or network

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attack, of personally identifiable information.  However, there can be no assurance that these measures will prevent a cyber incident or that our cyber liability insurance coverage will be sufficient to cover our losses in the event of a cyber incident.

A breach or significant and extended disruption in the function of our systems, including our primary website, could damage our reputation and cause us to lose residents and revenues, result in a violation of applicable privacy and other laws, generate third-party claims, result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personally identifiable and confidential information and require us to incur significant expenses to address and remediate or otherwise resolve these kinds of issues.  We may not be able to continuerecover these expenses in whole or in any part from our service providers, our insurers or any other responsible parties.  As a result, there can be no assurance that our financial results would not be negatively impacted.

We are also subject to laws, rules, and regulations in the United States, such as the California Consumer Privacy Act (“CCPA”), relating to the collection, use, and security of resident, customer, employee and other data. Evolving compliance and operational requirements under the CCPA and the privacy laws of other jurisdictions in which we operate in a manner so asmay impose significant costs that are likely to remain qualified as a REIT.increase over time. Our failure to comply with laws, rules, and regulations related to privacy and data protection could harm our business or reputation or subject us to fines and penalties.

Ownership of Taxable REIT Subsidiaries by Us.  The Internal Revenue Code provides that REITs may own greater than ten percentAudit Committee is primarily responsible for oversight of the voting powerrisk management process related to cybersecurity and valuetypically meets no less often than annually with Company information technology personnel to discuss recent trends in cyber risks and the Company’s strategy to defend its business systems and information against cyber attacks as well as the Company’s efforts to comply with data privacy laws such as the CCPA.

Our business and operations rely on specialized information technology systems, the failure of or inadequacy of which could impact our business.

Our ability to identify, implement and maintain appropriate information technology systems differentiates and creates competitive advantages for us in the securitiesoperations of our business.  These systems often are developed and hosted by third-party vendors whom we rely upon for ongoing maintenance, upgrades and enhancements.  While we maintain a “taxable REIT subsidiary”rigorous process around selecting appropriate information technology systems and partnering with vendors, our failure to adequately do so could negatively impact our operations and competitive position.

We depend on our key personnel.

We depend on the efforts of our trustees and executive officers.  If one or “TRS”, provided that the aggregate valuemore of all of the TRS securities held by the REIT does not exceed 25% of the REIT’s total asset value (20% for taxable years beginning January 1, 2018).  TRSs are corporations subject to tax as a regular “C” corporation that have elected, jointly with a REIT,them resign or otherwise cease to be a TRS.  Generally, a taxable REIT subsidiary may own assets that cannot otherwise be ownedemployed by a REIT and can perform impermissible tenant services (discussed below), which would otherwise taint our rental income under the REIT income tests.  However, the REIT will be obligated to pay a 100% penalty tax on some payments that we receive or on certain expenses deducted by our TRSs if the economic arrangements between us, our tenantsbusiness and the TRS are not comparable to similar arrangements among unrelated parties.  A TRSresults of operations and financial condition could be adversely affected.  

Litigation risk could affect our business.

We may also receive income from prohibited transactions without incurring the 100% federal income tax liability imposed on REITs.  Income from prohibited transactions may include the purchasebecome involved in legal proceedings, claims, actions, inquiries and sale of land, the purchase and sale of completed development properties and the sale of condominium units.

TRSs pay federal and state income tax at the full applicable corporate rates.  The amount of taxes paid on impermissible tenant services income and the sale of real estate held primarily for sale to customersinvestigations in the ordinary course of businessbusiness.  These legal proceedings may include, but are not limited to, proceedings related to consumer, shareholder, securities, employment, environmental, development, condominium conversion, tort, eviction and commercial legal issues.  Litigation can be lengthy and expensive, and it can divert management's attention and resources. Results cannot be predicted with certainty, and an unfavorable outcome in litigation could result in liability material to our financial condition or results of operations.

Insurance policies can be costly and may not cover all losses, which may adversely affect our financial condition or results of operations.

The Company’s property, general liability and workers compensation insurance policies provide coverage with substantial per occurrence deductibles and/or self-insured retentions.  These self-insurance retentions can be a material portion of insurance losses in excess of the base deductibles.  While the Company has previously purchased incremental insurance coverage in the event of multiple non-catastrophic occurrences within the same policy year, these substantial deductible and self-insured retention amounts do expose the Company to greater potential for uninsured losses and this additional multiple occurrences coverage may not be available at all or on commercially reasonable terms in the future.  We believe the policy specifications and insured limits of these policies are adequate and appropriate; however, there are certain types of extraordinary losses which may not be adequately covered under our insurance program.  As a result, our financial results could be adversely affected and may vary significantly from period to period.

The Company relies on third-party insurance providers for its property, general liability, workers compensation and other insurance, and should any of them experience liquidity issues or other financial distress, it could negatively impact their ability to pay claims under the Company’s policies.  

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Earthquake risk:  Our policies insuring against earthquake losses have substantial deductibles which are applied to the values of the buildings involved in the loss.  With the geographic concentration of our properties, a single earthquake affecting a market may have a significant negative effect on our financial condition and results of operations.  We cannot assure that an earthquake would not cause damage or losses greater than insured levels.  In the event of a loss in excess of insured limits, we could lose our capital invested in the affected property or market, as well as anticipated future revenue.

Terrorism risk:  The Company has terrorism insurance coverage which excludes losses from nuclear, biological and chemical attacks.  In the event of a terrorist attack impacting one or more of our properties, we could lose the revenues from the property, our capital investment in the property and possibly face liability claims from residents or others suffering injuries or losses.

Catastrophic weather and natural disaster risk:  Our properties may be materiallocated in amount.  The TRSs will attemptareas that could experience catastrophic weather and other natural disasters from time to reduce, if possible, the amount oftime, including wildfires, snow or ice storms, hail, windstorms or hurricanes, drought, flooding or other severe disasters.  These severe weather and natural disasters could cause substantial damages or losses to our properties which may not be covered or could exceed our insurance coverage.  Exposure to this risk could also result in a decrease in demand for properties located in these taxes, but we cannot guarantee whether,areas or the extent to which, measures taken to reduceaffected by these taxes will be successful.conditions.  

Climate change risk: To the extent that significant changes in the climate occur in areas where our properties are located, we may experience severe weather, which may result in physical damage to or decrease the demand for properties located in these companies are requiredareas or affected by these conditions. Should the impact of climate change be material in nature, significant property damage or destruction of our properties could result.  In addition, climate change could cause a significant increase in insurance premiums and deductibles or a decrease in the availability of coverage, either of which could expose the Company to pay taxes, less casheven greater uninsured losses. Our financial condition or results of operations may be available for distributions to shareholders.

Share Ownership Test and Organizational Requirement.  In order to qualify as a REIT, our shares of beneficial interest must be held by a minimum of 100 persons for at least 335 days of a taxable year that is 12 months, or during a proportionate part of a taxable year of less than 12 months.  Also, not more than 50% in value of our shares of beneficial interest may be owned directly or indirectly by applying certain constructive ownership rules, by five or fewer individuals during the last half of each taxable year.adversely affected. In addition, we must meet certain other organizational requirements, including, but not limited to, that (i) the beneficial ownershipchanges in us is evidenced by transferable sharesfederal, state and (ii) we are managed by one or more trustees.  We believe that we have satisfied all of these testslocal legislation and all other organizational requirements and that we will continue to do so in the future.  In order to ensure compliance with the 100 person test and the 50% share ownership test discussed above, we have placed certain restrictions on the transfer of our shares that are intended to prevent further concentration of share ownership.  However, such restrictions may not prevent us from failing these requirements, and thereby failing to qualify as a REIT.

Gross Income Tests.  To qualify as a REIT, we must satisfy two gross income tests:

To qualify as rents from real property for the purpose of satisfying the gross income tests, rental payments must generally be received from unrelated persons and not beregulation based on the net income of the resident.  Also, the rent attributable to personal property must not exceed 15% of the total rent.  We may generally provide services to residents without “tainting” our rental income only if such services are “usually or customarily rendered” in connection with the rental of real property and not otherwise considered “impermissible services”.  If such services are impermissible, then we may generally provide them only if they are considered de minimis in amount, or are provided through an independent contractor from whom we derive no revenue and that meets other requirements, or through a taxable REIT subsidiary.  We believe that services provided to residents by us either are usually or customarily rendered in connection with the rental of real property and not otherwise considered

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impermissible, or, if considered impermissible services, will meet the de minimis test or will be provided by an independent contractor or taxable REIT subsidiary.  However, we cannot provide any assurance that the Internal Revenue Service will agree with these positions.

If we fail to satisfy one or both of the gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain provisions of the Internal Revenue Code.  In this case, a penalty tax would still be applicable as discussed above.  Generally, it is not possible to state whether in all circumstances we would be entitled to the benefit of these relief provisions and in the event these relief provisions do not apply, we will not qualify as a REIT.

Asset Tests.  In general, on the last day of each quarter of our taxable year, we must satisfy five tests relating to the nature of our assets:

The 10% value test described in clause (3)(b) above does not apply to nonqualified publicly offered REIT debt instruments or to certain securities that fall within a safe harbor under the Code.  Under the safe harbor, the following are not considered “securities” held by us for purposes of this 10% value test: (i) straight debt securities, (ii) any loan of an individual or an estate, (iii) certain rental agreements for the use of tangible property, (iv) any obligation to pay rents from real property, (v) any security issued by a state or any political subdivision thereof, foreign government or Puerto Rico only if the determination of any payment under such security is not based on the profits of another entity or payments on any obligation issued by such other entity, or (vi) any security issued by a REIT.  The timing and payment of interest or principal on a security qualifying as straight debt may be subject to a contingency provided that (A) such contingency does notconcerns about climate change the effective yield to maturity, not considering a de minimis change which does not exceed the greater of ¼ of 1% or 5% of the annual yield to maturity or we own $1,000,000 or less of the aggregate issue price or value of the particular issuer’s debt and not more than 12 months of unaccrued interest can be required to be prepaid or (B) the contingency is consistent with commercial practice and the contingency is effective upon a default or the exercise of a prepayment right by the issuer of the debt.  If we hold indebtedness from any issuer, including a REIT, the indebtedness will be subject to, and may cause a violation of, the asset tests, unless it is a qualifying real estate asset or otherwise satisfies the above safe harbor.  We currently own equity interests in certain entities that have elected to be taxed as REITs for federal income tax purposes and are not publicly traded.  If any such entity were to fail to qualify as a REIT, we would not meet the 10% voting stock limitation and the 10% value limitation and we would, unless certain relief provisions applied, fail to qualify as a REIT.  We believe that we and each of the REITs we own an interest in have and will comply with the foregoing asset tests for REIT qualification.  However, we cannot provide any assurance that the Internal Revenue Service will agree with our determinations.

If we fail to satisfy the 5% or 10% asset tests described above after a 30-day cure period provided in the Internal Revenue Code, we will be deemed to have met such tests ifcould adversely impact the value of our non-qualifying assets is de minimis (i.e., does not exceed the lesserproperties or result in increased capital expenditures on our existing properties and our new development properties.

Provisions of 1%our Declaration of Trust and Bylaws could inhibit changes in control.

Certain provisions of our Declaration of Trust and Bylaws may delay or prevent a change in control of the total valueCompany or other transactions that could provide the security holders with a premium over the then-prevailing market price of their securities or which might otherwise be in the best interest of our assets atsecurity holders.  This includes the endOwnership Limit described above.  While our existing preferred shares/preference units do not have all of these provisions, any future series of preferred shares/preference units may have certain voting provisions that could delay or prevent a change in control or other transactions that might otherwise be in the applicable quarter or $10,000,000) and we disposeinterest of the non-qualifying assets within six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered.  For violations due to reasonable cause and not willful neglect that are in excess of the de minimis exception described above, we may avoid disqualification as a REIT under any of the asset tests, after the 30-day cure period, by disposing of sufficient assets to meet the asset test within such six month period, paying a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the non-qualifying assets and disclosingour security holders.  Our Bylaws require certain information to the Internal Revenue Service.  If we cannot avail ourselves of these relief provisions,be provided by any security holder, or if we fail to timely cure any noncompliancepersons acting in concert with the asset tests, we would cease to qualify as a REIT.

Annual Distribution Requirements.  To qualify as a REIT, we are generally required to distribute dividends, other than capital gain dividends, to our shareholders each year in an amount at least equal to 90% of our REIT taxable income.  These

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distributions must be paid either in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the prior year and if paid with or before the first regular dividend payment date after the declaration is made.  We intend to make timely distributions sufficient to satisfy our annual distribution requirements.  To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100% of our REIT taxable income, as adjusted, we are subject to tax on these amounts at regular corporate rates.  We will be subject to a 4% excise tax on the excess of the required distribution over the sum of amounts actually distributed and amounts retained for which federal income tax was paid, if we fail to distribute during each calendar year at least the sum of:  (1) 85% of our REIT ordinary income for the year; (2) 95% of our REIT capital gain net income for the year; and (3) any undistributed taxable income from prior taxable years.  A REIT may elect to retain rather than distribute allsuch security holder, who proposes business or a portionnominee at an annual meeting of its net capital gainsshareholders, including disclosure of information related to hedging activities and pay the tax on the gains.  In that case, a REIT may elect to have its shareholders include their proportionate share of the undistributed net capital gains in income as long-term capital gains and receive a credit for their share of the tax paid by the REIT.  For purposes of the 4% excise tax described above, any retained amounts would be treated as having been distributed.

Ownership of Partnership Interests By Us.  As a result of our ownership of the Operating Partnership, we will be considered to own and derive our proportionate share of the assets and items of income of the Operating Partnership, respectively, for purposes of the REIT asset and income tests, including its share of assets and items of income of any subsidiaries that are partnerships or limited liability companies.

State and Local Taxes.  We may be subject to state or local taxation in various jurisdictions, including those in which we transact business or reside.  State and local tax treatment may not conform to the federal income tax treatment discussed above and any changes in the federal tax code may not be adopted by the states, potentially leading to material tax liabilities for the Company and its shareholders.  In addition, state and local taxing jurisdictions may adopt new legislation or tax regimes which could significantly impact our tax liabilities or require the Company to withhold taxes from shareholders.  Consequently, prospective shareholders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in common shares.

Taxation of domestic shareholders subject to U.S. tax

General.  If we qualify as a REIT, distributions made to our taxable domestic shareholdersstrategies with respect to their common shares,our securities.  These requirements could delay or prevent a change in control or other than capital gain distributions and distributions attributabletransactions that might otherwise be in the interest of our security holders.  The Board of Trustees may use its powers to taxable REIT subsidiaries, will be treated as ordinary income to the extent that the distributions come out of earnings and profits.  These distributions will not be eligible for the dividends received deduction for shareholders that are corporations nor will they constitute “qualified dividend income” under the Internal Revenue Code, meaning that such dividends will be taxed at marginal rates applicable to ordinary income rather than the special capital gain rates currently applicable to qualified dividend income distributed to shareholders who satisfy applicable holding period requirements.  In determining whether distributions are out of earnings and profits, we will allocate our earnings and profits first toissue preferred shares and second to set the common shares.  The portionterms of ordinary dividends which represent ordinary dividends we receive fromsuch securities to delay or prevent a TRS, will be designated as “qualified dividend income” to REIT shareholders.  These qualified dividends are eligible for preferential tax rates if paid to our non-corporate shareholders.  

To the extent we make distributions to our taxable domestic shareholderschange in excess of our earnings and profits, such distributions will be considered a return of capital.  Such distributions will be treated as a tax-free distribution and will reduce the tax basis of a shareholder’s common shares by the amountcontrol of the distribution so treated.  ToCompany even if a change in control were in the extent such distributions cumulatively exceed a taxable domestic shareholder’s tax basis, such distributions are taxable as gain from the sale of shares.  Shareholders may not include in their individual income tax returns any of our net operating losses or capital losses.

Dividends declared by a REIT in October, November, or December with a record date in such month, are deemed to have been paid by the REIT and received by its shareholders on December 31 of that year, so long as the dividends are actually paid during Januaryinterest of the following year.  However, this treatment only applies to the extent of the REIT’s earnings and profits existing on December 31.  To the extent the shareholder distributions paid in January exceed available earnings and profits as of December 31, the excess will be treated as a distribution taxable to shareholders in the year paid.  As such, for tax reporting purposes, January distributions paid to our shareholders may be split between two tax years.security holders.

A REIT may make an election under the Internal Revenue Code to treat certain dividends that are paid in a taxable year, as being made by the REIT in the previous taxable year.  A shareholder is required to include the amount of the dividend in the taxable year that it is paid by the REIT.

Distributions made by us that we properly designate as capital gain dividends will be taxable to taxable domestic shareholders as gain from the sale or exchange of a capital asset held for more than one year.  This treatment applies only to the extent that the designated distributions do not exceed our actual net capital gain for the taxable year or the amount of

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distributions treated as dividends for the taxable year.  It applies regardless of the period for which a domestic shareholder has held his or her common shares.  Despite this general rule, corporate shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income.

Generally, our designated capital gain dividends will be broken out into net capital gains distributions (which are taxable to taxable domestic shareholders that are individuals, estates or trusts at a maximum rate of 20% for individual taxpayers in the highest tax bracket) and unrecaptured Section 1250 gain distributions (which are taxable to taxable domestic shareholders that are individuals, estates or trusts at a maximum rate of 25%).

Certain U.S.  shareholders that are taxed as individuals, estates or trusts may also be required to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of shares.

If, for any taxable year, we elect to designate as capital gain dividends any portion of the dividends paid or made available for the year to holders of all classes of shares of beneficial interest, then the portion of the capital gains dividends that will be allocable to the holders of common shares will be the total capital gain dividends multiplied by a fraction.  The numerator of the fraction will be the total dividends paid or made available to the holders of the common shares for the year.  The denominator of the fraction will be the total dividends paid or made available to holders of all classes of shares of beneficial interest.

We may elect to retain (rather than distribute as is generally required) net capital gain for a taxable year and pay the income tax on that gain.  If we make this election, shareholders must include in income, as long-term capital gain, their proportionate share of the undistributed net capital gain.  Shareholders will be treated as having paid their proportionate share of the tax paid by us on these gains.  Accordingly, they will receive a tax credit or refund for the amount.  Shareholders will increase the basis in their common shares by the difference between the amount of capital gain included in their income and the amount of the tax they are treated as having paid.  Our earnings and profits will be adjusted appropriately.

In general, a shareholder will recognize gain or loss for federal income tax purposes on the sale or other disposition of common shares in an amount equal to the difference between:

The gain or loss will be capital gain or loss if the common shares were held as a capital asset.  Generally, the capital gain or loss will be long-term capital gain or loss if the common shares were held for more than one year.

In general, a loss recognized by a shareholder upon the sale of common shares that were held for six months or less, determined after applying certain holding period rules, will be treated as long-term capital loss to the extent that the shareholder received distributions that were treated as long-term capital gains.  For shareholders who are individuals, trusts and estates, the long-term capital loss will be apportioned among the applicable long-term capital gain rates to the extent that distributions received by the shareholder were previously so treated.

Taxation of domestic tax-exempt shareholders

Most tax-exempt organizations are not subject to federal income tax except to the extent of their unrelated business taxable income, which is often referred to as UBTI.  Unless a tax-exempt shareholder holds its common shares as debt financed property or uses the common shares in an unrelated trade or business, distributions to the shareholder should not constitute UBTI.  Similarly, if a tax-exempt shareholder sells common shares, the income from the sale should not constitute UBTI unless the shareholder held the shares as debt financed property or used the shares in a trade or business.

However, for tax-exempt shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans, income from owning or selling common shares will constitute UBTI unless the organization is able to properly deduct amounts set aside or placed in reserve so as to offset the income generated by its investment in common shares.  These shareholders should consult their own tax advisors concerning these set aside and reserve requirements which are set forth in the Internal Revenue Code.  In addition, certain provisions of the Tax Act may impact a tax-exempt shareholder’s calculation of UBTI.  These shareholders should consult their own tax advisors concerning the impact of the Tax Act and their federal income tax obligations.

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In addition, certain pension trusts that own more than 10% of a “pension-held REIT” must report a portion of the distributions that they receive from the REIT as UBTI.  We have not been and do not expect to be treated as a pension-held REIT for purposes of this rule.

Taxation of foreign shareholders

The following is a discussion of certain anticipated United States federal income tax consequences of the ownership and disposition of common shares applicable to a foreign shareholder.  For purposes of this discussion, a “foreign shareholder” is any person other than:

Distributions by Us.  Distributions by us to a foreign shareholder that are neither attributable to gain from sales or exchanges by us of United States real property interests nor designated by us as capital gains dividends will be treated as dividends of ordinary income to the extent that they are made out of our earnings and profits.  These distributions ordinarily will be subject to withholding of United States federal income tax on a gross basis at a 30% rate, or a lower treaty rate, unless the dividends are treated as effectively connected with the conduct by the foreign shareholder of a United States trade or business.  Please note that under certain treaties lower withholding rates generally applicable to dividends do not apply to dividends from REITs.  Dividends that are effectively connected with a United States trade or business will be subject to tax on a net basis at graduated rates, and are generally not subject to withholding.  Certification and disclosure requirements must be satisfied before a dividend is exempt from withholding under this exemption.  A foreign shareholder that is a corporation also may be subject to an additional branch profits tax at a 30% rate or a lower treaty rate.

We expect to withhold United States income tax at the rate of 30% on any such distributions made to a foreign shareholder unless:

If such distribution is in excess of our current or accumulated earnings and profits, it will not be taxable to a foreign shareholder to the extent that the distribution does not exceed the adjusted basis of the shareholder’s common shares.  Instead, the distribution will reduce the adjusted basis of the common shares.  To the extent that the distribution exceeds the adjusted basis of the common shares, it will give rise to gain from the sale or exchange of the shareholder’s common shares.  The tax treatment of this gain is described below.

We intend to withhold at a rate of 30%, or a lower applicable treaty rate, on the entire amount of any distribution not designated as a capital gain distribution.  In such event, a foreign shareholder may seek a refund of the withheld amount from the IRS if it is subsequently determined that the distribution was, in fact, in excess of our earnings and profits, and the amount withheld exceeded the foreign shareholder’s United States tax liability with respect to the distribution.

Distributions to a foreign shareholder that we designate at the time of the distributions as capital gain dividends, other than those arising from the disposition of a United States real property interest, generally will not be subject to United States federal income taxation unless:

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Under the Foreign Investment in Real Property Tax Act, which is known as FIRPTA, distributions to a foreign shareholder (other than certain qualified shareholders and qualified foreign pension funds discussed below) that are attributable to gain from sales or exchanges of United States real property interests will cause the foreign shareholder to be treated as recognizing the gain as income effectively connected with a United States trade or business.  This rule applies whether or not a distribution is designated as a capital gain dividend.  Accordingly, foreign shareholders generally would be taxed on these distributions at the same rates applicable to U.S. shareholders, subject to a special alternative minimum tax in the case of nonresident alien individuals.  In addition, a foreign corporate shareholder might be subject to the branch profits tax discussed above, as well as U.S. federal income tax return filing requirements.  We are required to withhold 21% of these distributions.  The withheld amount can be credited against the foreign shareholder’s United States federal income tax liability.

Although the law is not entirely clear on the matter, it appears that amounts we designate as undistributed capital gains in respect of the common shares held by U.S. shareholders would be treated with respect to foreign shareholders in the same manner as actual distributions of capital gain dividends.  Under that approach, foreign shareholders would be able to offset as a credit against their United States federal income tax liability their proportionate share of the tax paid by us on these undistributed capital gains.  In addition, if timely requested, foreign shareholders might be able to receive from the IRS a refund to the extent their proportionate share of the tax paid by us were to exceed their actual United States federal income tax liability.

Foreign Shareholders’ Sales of Common Shares.  Gain recognized by a foreign shareholder upon the sale or exchange of common shares generally will not be subject to United States taxation unless the shares constitute a “United States real property interest” within the meaning of FIRPTA.  The common shares will not constitute a United States real property interest so long as we are a domestically controlled REIT.  A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50% in value of its stock is held directly or indirectly by foreign shareholders.   We believe that we are a domestically controlled REIT.  Therefore, we believe that the sale of common shares will not be subject to taxation under FIRPTA.  However, because common shares and preferred shares are publicly traded, we cannot guarantee that we will continue to be a domestically controlled REIT.  In any event, gain from the sale or exchange of common shares not otherwise subject to FIRPTA will be subject to U.S. tax, if either:

Even if we do not qualify as or cease to be a domestically controlled REIT, gain arising from the sale or exchange by a foreign shareholder of common shares still would not be subject to United States taxation under FIRPTA as a sale of a United States real property interest if:

If gain on the sale or exchange of common shares were subject to taxation under FIRPTA, the foreign shareholder would be subject to regular United States income tax with respect to the gain in the same manner as a taxable U.S. shareholder, subject to any applicable alternative minimum tax, a special alternative minimum tax in the case of nonresident alien individuals and the possible application of the branch profits tax in the case of foreign corporations.  The purchaser of the common shares would be required to withhold and remit to the IRS 15% of the purchase price.

Exception to FIRPTA for Qualified Shareholders.  For dispositions and distributions after December 18, 2015, stock of a REIT held (directly or through partnerships) by a “qualified shareholder” will not be treated as United States real property interest, and capital gain dividends from such a REIT will not be treated as gain from the sale of a United States real property interest.  This exception does not apply to persons that hold an interest, taking into account applicable constructive ownership rules, more than 10% of the stock of the REIT (unless that interest is solely as a creditor (an “applicable investor”)).   If the qualified shareholder has such an “applicable investor,” the portion of REIT stock indirectly owned through the qualified shareholder by the applicable investor will be treated as gains from the sale of United States real property interests.  For these purposes, a “qualified shareholder” is a foreign person which is in a treaty jurisdiction and satisfies certain publicly traded requirements, is a “qualified collective investment vehicle” and maintains records on the identity of certain 5% owners.  A

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“qualified collective investment vehicle” is a foreign person that is eligible for a reduced withholding rate with respect to ordinary REIT dividends even if such person holds more than 10% of the REIT’s stock, a publicly traded partnership that is a withholding foreign partnership that would be a United States real property holding corporation if it were a United States corporation, or is designated as a qualified collective investment vehicle by the Secretary of the Treasury and is either fiscally transparent within the meaning of the Code or required to include dividends in its gross income but entitled to a deduction for distribution to its investors.  Finally, capital gain dividends and nondividend redemption and liquidating distributions to a qualified shareholder that are not allocable to an applicable investor will be treated as ordinary dividends.

Exception to FIRPTA Withholding for Qualified Foreign Pension Funds.  For distributions or disposition of REIT stock after December 18, 2015, “qualified foreign pension funds” and entities that are wholly owned by a qualified foreign pension fund are exempted from FIRPTA withholding.  For these purposes, a “qualified foreign pension fund” is any trust, corporation, or other organization or arrangement if (i) it was created or organized under foreign law, (ii) it was established to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers in consideration for services rendered, (iii) it does not have a single participant or beneficiary with a right to more than 5% of its assets or income, (iv) it is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in the country in which it is established or operates, and (v) under the laws of the country in which it is established or operates, either contributions to such fund which would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such fund or taxed at a reduced rate, or taxation of any investment income of such fund is deferred or such income is taxed at a reduced rate.

Information reporting requirement and backup withholding

We will report to our domestic shareholders and the Internal Revenue Service the amount of distributions paid during each calendar year and the amount of tax withheld, if any.  Under certain circumstances, domestic shareholders may be subject to backup withholding.  Backup withholding will apply only if such domestic shareholder fails to furnish certain information to us or the Internal Revenue Service.  Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations.  Domestic shareholders should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption.  Backup withholding is not an additional tax.  Rather, the amount of any backup withholding with respect to a payment to a domestic shareholder will be allowed as a credit against such person’s United States federal income tax liability and may entitle such person to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

Withholding on foreign financial institutions and non-U.S. shareholders

The Foreign Account Tax Compliance Act (“FATCA”) imposes a U.S. withholding tax at a 30% rate on dividends and on proceeds from the sale of our shares paid beginning January 1, 2019 to “foreign financial institutions” (as defined under FATCA) and certain other foreign entities if certain due diligence and disclosure requirements related to U.S. accounts with, or ownership of, such entities are not satisfied or an exemption does not apply.  If FATCA withholding is imposed, non-U.S. beneficial owners that are otherwise eligible for an exemption from, or a reduction of, U.S. withholding tax with respect to such distributions and sale proceeds would be required to seek a refund from the Internal Revenue Service to obtain the benefit of such exemption or reduction.  Any payment made by us that is subject to withholding under FATCA or otherwise will be net of the amount required to be withheld.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2017,2021, the Company, directly or indirectly through investments in title holding entities, owned all or a portion of 305310 properties located in 10 states and the District of Columbia consisting of 78,61180,407 apartment units.  See Item 1, Business, for additional information regarding the Company’s properties and the markets/metro areas upon which we are focused.  The Company’s properties are summarized by building type in the following table:

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The Company’s properties are summarized by ownership type in the following table:

The following table sets forth certain information by market relating to the Company’s properties at December 31, 2017:

Note: Projects under development are not included in the Portfolio Summary until construction has been completed.

As of December 31, 2017, the Company’s same store occupancy was 95.9% and its total portfolio-wide occupancy, which includes completed development properties in various stages of lease-up, was 95.0%.  Certain of the Company’s properties are encumbered by mortgages and additional detail can be found on Schedule III – Real Estate and Accumulated Depreciation.  Resident leases are generally for twelve months in length and can require security deposits.  The garden-style propertiesGarden-style are generally defined as properties with two and/or three story buildings while the mid-rise/high-rise are generally defined as properties with greater than three story buildings.  These two property types typically provide residents with amenities, such as rooftop decks and swimming pools, fitness centers and community rooms.  In addition, many of our urban properties have non-residential components, such as parking garagegarages and/or retail components.spaces.

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The consolidatedCompany’s properties currentlyare summarized by ownership type in the following table:

The following table sets forth certain information by market relating to the Company’s properties at December 31, 2021:

Note: Projects under development are not included in the Portfolio Summary until construction has been completed.

The following tables provide a rollforward of the apartment units included in Same Store Properties (please refer to the Definitions section in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations) and a reconciliation of apartment units included in Same Store Properties to those included in Total Properties for the year ended December 31, 2021:

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The properties in various stages of development and lease-up at December 31, 20172021 are included in the following table: