AVALONBAY COMMUNITIES INC

In addition to the other information set forth in this report, you should carefully consider the risk factors that could materially affect our business, financial condition or future results discussed in the Form 10-K for the year ended December 31, 2025 in Part I, Item 1A. "Risk Factors." The risks described in the Form 10-K and in this Item 1A are not the only risks that could affect the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results in the future. Other than the risk factors discussed below, there have been no material changes to our risk factors since December 31, 2025.

Risks Related to the Merger

The Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material adverse effects on the Company. The completion of the Merger is subject to a number of conditions, including, among others, the approval of the Equity Residential share issuance proposal by the Equity Residential shareholders, the approval of the Company’s Merger proposal by our stockholders, and the absence of a law or order restraining, enjoining, rendering illegal or otherwise prohibiting the consummation of the Merger, which make the completion of the Merger and timing thereof uncertain. In addition, Equity Residential and the Company are entitled to terminate the Merger Agreement under certain circumstances.

If the Merger is not completed, the Company’s ongoing business may be materially adversely affected and, without realizing any of the benefits of having completed the Merger, the Company will be subject to a number of risks, including the following:

•we could owe substantial termination fees to Equity Residential under certain circumstances;

•if the Merger Agreement is terminated and the Company’s board seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms agreed to in the Merger Agreement;

•time, resources, and costs committed by our management team to matters relating to the Merger could otherwise have been devoted to pursuing other beneficial opportunities for the Company;

•we may experience negative reactions from the financial markets or from their customers, suppliers, employees, labor unions or other business partners; and

•the Company will be required to pay its costs relating to the Merger, such as legal, accounting, financial advisory and printing fees, whether or not the Merger is completed.

In addition, if the Merger is not completed, the Company could be subject to litigation related to any failure to complete the Merger or to any enforcement proceeding commenced against the Company to perform its obligations under the Merger Agreement, and whether or not any such litigation has any merit, the cost of defending such litigation may be significant. The materialization of any of these risks could adversely impact our ongoing businesses.

Similarly, delays in the completion of the Merger could, among other things, result in additional transaction costs, loss of revenue, or other negative effects associated with uncertainty about completion of the Merger.

The exchange ratio will not be adjusted in the event of any change in either Equity Residential’s or the Company’s stock price. As a result, the Merger consideration payable to our stockholders may be subject to change if Equity Residential’s stock price fluctuates. Upon completion of the Merger, each eligible share of our common stock will be converted into the right to receive 2.793 Equity Residential common shares, plus the right to receive cash in lieu of fractional Equity Residential common shares, if any, into which such AvalonBay common stock would have been converted. The exchange ratio will not be adjusted for changes in the market price of either Equity Residential common shares or our common stock between the date the Merger Agreement was signed and completion of the Merger. Due to the fixed nature of the exchange ratio, fluctuations in the price of Equity Residential common shares will drive corresponding changes in the value of the Merger consideration payable to each AvalonBay stockholder, and accordingly, at the time of the Company’s special meeting, our stockholders will not know or be able to determine the market value of the consideration they will receive upon completion of the Merger. Factors influencing stock prices include:

•market reaction to the Merger announcement and combined company prospects;

•changes in the respective business, operations, assets, liabilities or financial outlook of either company;

•investor sentiment and perceived likelihood of closing of the Merger;

•economic conditions, geopolitical uncertainties, interest rates, regulatory developments and other factors generally affecting the market prices of Equity Residential common shares and our common stock and the broader financial markets;

•federal, state and local legislation, governmental regulation and legal developments in the businesses in which Equity Residential and the Company operate; and

•other factors beyond the control of Equity Residential and the Company.

The price of Equity Residential common shares has fluctuated since the date the Merger Agreement was executed, and may continue to fluctuate through the date of each of the Equity Residential special meeting and the Company’s special meeting and the date the Merger is completed. For example, based on the range of closing prices of Equity Residential common shares during the period from May 20, 2026, the last trading day before the public announcement of the Merger Agreement, through July 24, 2026, the exchange ratio resulted in an implied value of the Merger consideration ranging from a high of approximately $195.93 to a low of approximately $179.00 for each share of our common stock. The actual market value of the Equity Residential common shares received by our stockholders upon completion of the Merger may result in an implied value of the Merger consideration outside this range.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger, which could discourage a potential competing acquiror of the Company from making an alternative proposal and, in specified circumstances, could require the Company to pay substantial termination fees to Equity Residential. The Merger Agreement contains certain provisions that restrict our ability to initiate, solicit, knowingly encourage or, subject to certain exceptions, engage in discussions or negotiations with respect to, or to approve or recommend, any alternative proposal. Further, even if the Equity Residential board withdraws or qualifies its recommendation with respect to the Equity Residential share issuance proposal or if our board withdraws or qualifies its recommendation with respect to the AvalonBay Merger proposal, Equity

Residential or AvalonBay, as the case may be, will still be required to submit each such proposal to a vote at their respective special meeting. In addition, the other party generally has an opportunity to offer to modify the terms of the transactions contemplated by the Merger Agreement in response to any alternative proposal before the board of the company that has received the alternative proposal may withdraw or qualify its recommendation with respect to the applicable Merger-related proposal.

In some circumstances, upon termination of the Merger Agreement in connection with an alternative proposal, we may be required to pay a termination fee of $1.070 billion to Equity Residential.

These provisions could discourage a potential third-party acquiror or Merger partner that might have an interest in acquiring all or a significant portion of the Company, or pursuing an alternative acquisition transaction, from considering or proposing such a transaction, even if it were prepared to pay consideration with a higher per-share value than the per-share value proposed to be received or realized in the Merger. In particular, a termination fee, if applicable, could result in a potential third-party acquiror or Merger partner proposing to pay a lower price to our stockholders than it might otherwise have proposed to pay absent such a fee.

If the Merger Agreement is terminated in accordance with its terms, and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

The Merger will result in changes to the Equity Residential board that may affect the strategy of the combined company as compared to that of Equity Residential and AvalonBay independently. If the Merger is completed, the composition of the Equity Residential board will change. Immediately following the Merger, the combined company board will consist of fourteen (14) members, seven (7) of whom are current trustees of Equity Residential and seven (7) of whom are current directors of AvalonBay. The composition of the combined company board may affect the business strategy and operating decisions of the combined company upon the completion of the Merger.

We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business and operations. In connection with the pendency of the Merger, some customers, suppliers and other persons with whom we have a business relationship have delayed or deferred or may delay or defer certain business decisions or terminate, change, or renegotiate their relationships with us as a result of the Merger, which could negatively affect our revenues, earnings, and cash flows, as well as the market price of our common stock, regardless of whether the Merger is completed.

Under the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Merger, which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness, incur capital expenditures, settle litigation, amend organizational documents, declare dividends, enter new business lines and invest in third parties. Such limitations could adversely affect our businesses and operations prior to the completion of the Merger.

Uncertainties associated with the Merger may cause a loss of management personnel and other key employees, and AvalonBay and Equity Residential may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future business and operations of the combined company or, in the event the Merger is not completed, AvalonBay. AvalonBay and Equity Residential are dependent on the experience and industry knowledge of their respective management personnel and other key employees to execute their business plans. The combined company's success after the completion of the Merger will depend in part upon the ability of AvalonBay and Equity Residential to attract, motivate, and retain key management personnel and other key employees. Prior to completion of the Merger, current and prospective employees of AvalonBay and Equity Residential may experience uncertainty about their roles within the combined company following the completion of the Merger, which may have an adverse effect on the ability of each of AvalonBay and Equity Residential to attract, motivate or retain management personnel and other key employees. In addition, no assurance can be given that the combined company will be able to attract, motivate or retain management personnel and other key employees to the same extent that AvalonBay and Equity Residential have previously been able to attract or retain their own employees. These same risks apply to the ability of AvalonBay to retain its key management personnel and other key employees, in the event the Merger is not completed.

If the Merger is not consummated by the outside date, either Equity Residential or AvalonBay may terminate the Merger Agreement. Either Equity Residential or AvalonBay may terminate the Merger Agreement if the Merger has not been consummated by the outside date in the Merger Agreement. However, this termination right will not be available to a party if that party materially breached any of its obligations under the Merger Agreement and that breach resulted in the failure to consummate the Merger before such date. Any termination of the Merger Agreement may adversely affect our business, financial condition, results of operations and growth prospects.

If the Merger does not qualify as a “reorganization” under Section 368(a) of the Code, U.S. Holders of our common stock may be required to pay additional U.S. federal income taxes. Equity Residential and AvalonBay intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. It is a condition to the obligation of each of Equity Residential and AvalonBay to complete the Merger that it receive an opinion from its respective external counsel (or other nationally recognized tax counsel as may be reasonably acceptable to the other party), dated as of the closing date of the Merger, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

The foregoing opinions of counsel will be based on, among other things, certain representations made by Equity Residential and AvalonBay and certain assumptions, all of which must be consistent with the state of facts existing at the time of the Merger. If any of these representations or assumptions is, or becomes, inaccurate or incomplete, such opinion may be invalid, and the conclusions reached therein could be jeopardized. An opinion of counsel is not binding on the U.S. Internal Revenue Service (“IRS”) or the courts, and Equity Residential and AvalonBay have not sought and will not seek any ruling from the IRS regarding any matters relating to the Merger. As a result, there can be no assurance that the IRS would not assert that the Merger does not qualify as a “reorganization,” or that a court would not sustain such a position. If the IRS or a court were to determine that the Merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. Holder (as defined below) generally would recognize gain or loss, as applicable, in an amount equal to the difference, if any, between (i) the fair market value of the Equity Residential common shares received by such U.S. Holder in the Merger and cash received in lieu of a fractional Equity Residential common share and (ii) such U.S. Holder’s adjusted tax basis in its shares of our common stock exchanged therefor. The term “U.S. Holder” means a beneficial owner of our common stock that is or is treated as, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a United States person for U.S. federal income tax purposes.

We have been and may continue to be the target of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the Merger from being completed, whether or not such lawsuits have any merit. Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against or otherwise resolving these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition, and, in turn, if the Merger closes, on the liquidity and financial condition of the combined company. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, or from being completed within the expected timeframe, which may adversely affect our businesses, financial positions and results of operations.

Our stockholders will not have appraisal rights or dissenters’ rights in the Merger. Appraisal rights (also known as dissenters’ rights) are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a Merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.

Under Maryland law, dissenting stockholders may have, subject to satisfying certain procedures, the right to demand and receive payment of the fair value of their shares of stock in connection with certain transactions (often referred to as appraisal rights), including a proposed Merger, share exchange or sale of substantially all of the assets of the corporation. Under Maryland law and the Company’s charter, however, our stockholders are not entitled to appraisal or dissenters’ rights in connection with the Merger or any of the Transactions.

Even if the AvalonBay Merger proposal is approved by our stockholders, the date that our stockholders will receive the Merger consideration is still uncertain. Completing the Merger is subject to numerous conditions, not all of which are controllable or waivable by Equity Residential and AvalonBay. Accordingly, if the AvalonBay Merger proposal is approved by our stockholders, the date that our stockholders will receive the Merger consideration depends on the completion date of the Merger, which is uncertain.

Risks Relating to the Combined Company after Completion of the Merger

The combined company may be unable to successfully integrate the businesses of Equity Residential and AvalonBay and realize the anticipated benefits of the Merger. The success of the Merger will depend, in part, on the combined company’s ability to successfully combine the businesses of Equity Residential and AvalonBay, which currently operate as independent public companies, and realize the anticipated benefits, including synergies, cost savings, innovation, operational efficiencies and reduced cost of capital, from the combination. If the combined company is unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully, or at all, or may take longer to realize than expected and the value of its common shares may be harmed. Additionally, as a result of the Merger, rating agencies may take negative actions against the combined company’s credit ratings, which may increase the combined company’s financing costs, including in connection with any financing of the Merger.

The Merger involves the integration of Equity Residential’s and AvalonBay’s businesses, which is a complex, costly, and time-consuming process. Neither Equity Residential nor AvalonBay has previously completed a transaction comparable in size or scope to the Merger. The integration of the two companies may result in material challenges, including, without limitation:

•managing a larger combined company;

•issues in integrating information technology, operational, safety, communications and other systems, including maintaining cybersecurity and data privacy protections and avoiding security breaches, data loss, or service interruptions during the integration of the combined company’s systems;

•coordinating geographically separate organizations;

•legislative, regulatory and economic developments, including the level of new multifamily communities construction and development, government regulations and competition, that may restrict or adversely impact the combined company’s business operations;

•expansion of rent control, rent stabilization, eviction moratoriums or other regulations that restrict the methods and strategies of the combined company’s business; and

•unforeseen expenses or delays associated with the Merger.

Equity Residential and AvalonBay have operated, and until completion of the Merger will continue to operate, independently. Equity Residential and AvalonBay have not yet determined the exact nature of how the businesses and operations of the two companies will be combined after the Merger. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. In particular, the integration of two large multifamily REIT platforms – each with its own property management systems, technology platforms, employee benefit plans, and corporate cultures – presents significant operational challenges. Integration costs may exceed current estimates, and the combined company may incur significant one-time charges in connection with the integration.

Our stockholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over the policies of the combined company than they now have on the policies of AvalonBay. Our stockholders presently have the right to vote in the election of our board and on other matters affecting the Company. Immediately after the Merger is completed, it is expected that legacy AvalonBay stockholders will own approximately 51% of the combined company’s common shares outstanding, based on the number of shares and stock-based awards of Equity Residential and AvalonBay outstanding as of July 6, 2026. As a result, our current stockholders will have less influence on the policies of the combined company than they now have on the policies of AvalonBay as an individual company.

The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the Merger. Following the completion of the Merger, the size of the combined company’s business will be significantly larger than the current size of either Equity Residential’s or AvalonBay’s respective businesses. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement operational, managerial, financial and strategic initiatives that address not only the integration of two independent stand-alone companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, synergies, cost savings and other benefits currently anticipated from the Merger.

The combined company is expected to incur substantial expenses related to the completion of the Merger and the integration of Equity Residential and AvalonBay. The combined company is expected to incur substantial expenses in connection with the completion of the Merger and the integration of Equity Residential and AvalonBay. There are a large number of processes, policies, procedures, operations, technologies, and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. The substantial majority of these costs will be non-recurring expenses related to the Merger (including any financing of the Merger), facilities, and systems consolidation costs. The combined company may incur additional costs to retain employees and/or maintain employee morale and to attract, motivate, or retain management personnel and other key employees. Equity Residential and AvalonBay will also incur transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. Additionally, as a result of the Merger, rating agencies may take negative actions with regard to the combined company’s credit ratings, which may increase the combined company’s financing costs, including in connection with any financing of the Merger. These incremental transaction and Merger-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term, and in the event there are material unanticipated costs.

In connection with the Merger, the combined company may refinance a significant amount of indebtedness and cannot guarantee that it will be able to obtain the necessary funds on favorable terms or at all. In connection with the Merger, the combined company may seek to refinance some or all of the indebtedness of each of Equity Residential and AvalonBay or, alternatively, seek any waivers or amendments that may be necessary or advisable to permit certain indebtedness to remain outstanding following the Merger. The combined company’s ability to obtain such refinancing, waivers or amendments will depend on, among other factors, prevailing market conditions and other factors beyond the control of the combined company. We cannot assure you that the combined company will be able to obtain financing on terms acceptable to the combined company or at all, and any such failure could materially adversely affect the operations and financial conditions of the combined company. If the combined company is not able to obtain such refinancing, waivers or amendments, it may be required to repay some or all of such indebtedness upon consummation of the Merger. Under such circumstances, the combined company may not have sufficient resources to repay such indebtedness. Completion of the Merger is not conditioned on completing such financing transactions.

The combined company will have significantly greater indebtedness than either Equity Residential or AvalonBay on a standalone basis, which may adversely affect the combined company’s financial flexibility and increase its exposure to interest rate risk. The significantly increased level of indebtedness of the combined company following the closing of the Merger may limit the combined company’s financial flexibility, increase its exposure to interest rate fluctuations, and require a greater portion of the combined company’s cash flows to be dedicated to debt service. A significant portion of the combined company’s indebtedness may bear interest at variable rates, and increases in interest rates could materially increase the combined company’s interest expense and adversely affect its financial condition and results of operations.

Following the Merger, the combined company cannot assure you that it will be able to pay dividends at or above the rate currently paid by Equity Residential or AvalonBay. Following the Merger, the combined company is expected to pay an initial annualized dividend equivalent to Equity Residential’s existing dividend per share, which is higher than AvalonBay’s current dividend yield per share. However, there can be no guarantee that shareholders of the combined company will receive dividends at the same rate, or any rate, that they received as Equity Residential shareholders or AvalonBay stockholders prior to the Merger. Dividend payments are subject to the discretion of the combined company board, which reserves the right to change the combined company’s dividend policy at any time and for any reason, including as a result of the other risk factors discussed in this section.

The combined company may incur adverse tax consequences if Equity Residential or AvalonBay has failed or fails to qualify as a REIT for U.S. federal income tax purposes. Each of Equity Residential and AvalonBay has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so through the time of the Merger. The combined company intends to continue operating in such a manner following the Merger. Neither Equity Residential nor AvalonBay has requested or plans to request a ruling from the IRS that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of Equity Residential or AvalonBay may affect each company’s ability to qualify as a REIT. In order to qualify as a REIT, each of Equity Residential and AvalonBay must satisfy a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.

The closing of the Merger is conditioned on receipt by Equity Residential of an opinion from Goodwin Procter LLP (“Goodwin”) (or other nationally recognized tax counsel reasonably acceptable to Equity Residential), dated as of the closing date of the Merger, substantially in the form attached to the Merger Agreement, to the effect that, beginning with its taxable year ended December 31, 1994 and through its taxable year ending immediately prior to the Effective Time, AvalonBay has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and receipt by AvalonBay of an opinion from DLA Piper LLP (US) (“DLA Piper”) (or other nationally recognized tax counsel as may be reasonably acceptable to AvalonBay), dated as of the closing date of the Merger, substantially in the form attached to the Merger Agreement, to the effect that, beginning with its taxable year ended December 31, 1992, Equity Residential has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and Equity Residential’s proposed method of organization and operation will enable it to continue to satisfy the requirements for qualification and taxation as a REIT under the Code for its taxable year which includes the closing date of the Merger and thereafter. The foregoing REIT opinions, however, will be based on the factual representations provided by Equity Residential and AvalonBay to counsel and limited by the exceptions, assumptions and qualifications set forth therein, and if any such representations are or become inaccurate or incomplete, such opinions may be invalid and the conclusions reached therein could be jeopardized. The foregoing REIT opinions are not a guarantee that Equity Residential or AvalonBay, in fact, has qualified, or, in the case of Equity Residential, will continue to qualify, as a REIT, nor are such opinions binding on the IRS and there can be no assurance that the IRS will not take a contrary position or that such position would not be sustained.

If, notwithstanding the opinions described above, Equity Residential (or, following the Merger, the combined company) loses its REIT status, or is determined to have failed to qualify as a REIT in a prior year, it will face serious tax consequences that would substantially reduce the funds available for distribution to its shareholders, because:

•it would be subject to U.S. federal, state and local income tax on its net income at regular corporate rates for the years it did not qualify as a REIT (and, for such years, would not be allowed a deduction for dividends paid to shareholders in computing its taxable income);

•it could be subject to a U.S. federal alternative minimum tax, stock buyback excise tax, and possibly increased state and local taxes for such periods;

•unless it is entitled to relief under certain U.S. federal income tax laws, neither it nor any “successor” company could re-elect REIT status until the fifth calendar year after the year in which it was disqualified as a REIT;

•if it were to re-elect REIT status, it would have to distribute all earnings and profits from non-REIT years before the end of the first new REIT taxable year; and

•for five years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, it could be subject to U.S. federal corporate level income tax with respect to any built-in gain inherent in such asset at the time of re-election.

Even if Equity Residential (or, following the Merger, the combined company) retains its REIT status, if AvalonBay is determined to have lost its REIT status for a taxable year ending on or before the Merger, AvalonBay would be subject to adverse tax consequences similar to those described above. This could substantially reduce the combined company’s funds available for distributions to shareholders, because, assuming that the combined company otherwise maintains its REIT qualification:

•the combined company generally would be subject to U.S. federal corporate level income tax with respect to the built-in gain on each asset of AvalonBay existing at the time of the Merger if the combined company were to dispose of the AvalonBay asset during the five-year period following the Merger;

•the combined company would succeed to any earnings and profits accumulated by AvalonBay for taxable periods that it did not qualify as a REIT, and the combined company would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits (or if the combined company does not timely distribute those earnings and profits, the combined company could fail to qualify as a REIT); and

•if AvalonBay incurred any unpaid tax liabilities, including penalties and interest, prior to the Merger, those tax liabilities would be transferred to the combined company as a result of the Merger.

If there is an adjustment to AvalonBay’s taxable income or dividends paid deductions, the combined company could elect to use the deficiency dividend procedure in order to maintain AvalonBay’s REIT status. That deficiency dividend procedure could require the combined company to make significant distributions to its shareholders and to pay significant interest to the IRS.

As a result of all these factors, Equity Residential’s or AvalonBay’s (or, following the Merger, the combined company’s) failure to qualify as a REIT could impair the combined company’s ability to expand its business and raise capital, and would materially adversely affect the value of its common shares.