Vivmark Residential (0IIB) Risk Analysis

Appraisal rights (also known as dissenters' rights) are statutory rights that, if applicable under law, enable shareholders todissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares asdetermined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with theextraordinary transaction. Under Maryland law, dissenting shareholders may have, subject to satisfying certain procedures, the right to demand and receivepayment 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 Real EstateInvestment Trust Law and the Company's declaration of trust, the Company's shareholders are not entitled to appraisal or dissenters'rights in connection with the Merger, the Share Issuance or any other transactions contemplated by the Merger Agreement.

The Company's shareholders presently have the right to vote in the election of the Board of Trustees and on other matters affecting the Company. Immediately after the Merger is completed, it is expected that the Company's legacy shareholders will own approximately 49% of the combined company's common shares outstanding and AvalonBay's legacy stockholders will own approximately 51% of the combined company's common shares outstanding. As a result, the Company's current shareholders will have less influence on the policies of the combined company than they now have on the policies of the Company as an individual company.

Following the Merger, the combined company is expected to pay an initial annualized dividend equivalent to the Company'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 shareholders of the Company or stockholders of AvalonBay prior to the Merger. Dividend payments are subject to the discretion of the Board of Trustees, 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.

In connection with the Merger, the combined company may seek to refinance some or all of the indebtedness of each of the Company 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. The Company 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 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's consolidated indebtedness may have the effect of, among other things, increasing borrowing costs. In addition, the amount of cash required to service the indebtedness levels will be greater than the amount of cash flows required to service the indebtedness of Equity Residential and AvalonBay individually prior to completion of the Merger. The level of indebtedness of the combined company following the Merger could also reduce or limit dividend payments, share repurchases, and other activities and may create competitive disadvantages relative to other companies with lower debt levels. The combined company may be required to raise additional financing for working capital, capital expenditures, acquisitions, or other general corporate purposes. Following the Merger, the combined company's ability to arrange additional financing or refinancing will depend on, among other factors, its financial condition and performance, as well as prevailing market conditions, the terms of third-party debt financing incurred in connection with the consummation of the Merger (if any), and other factors beyond its control. There can be no assurance that the combined company will be able to obtain additional financing or arrange refinancing on terms acceptable to it or at all, and any such failure could materially adversely affect its operations and financial condition. Additionally, the combined company expects that the agreements that will govern the terms of its indebtedness will contain a number of restrictive covenants (including, without limitation, financial maintenance covenants) that impose significant operating and financial restrictions on the combined company and may limit its ability to engage in acts that may be in its long-term best interest. Moreover, the combined company's ability to satisfy any financial maintenance covenants may be affected by events beyond its control and, as a result, it cannot provide assurance that it will be able to satisfy any such covenants. Following the Merger, a breach of the covenants under the agreements that will govern the terms of any of the combined company's indebtedness could result in a default or an event of default under the applicable indebtedness agreement. Such an event of default or a default that matures into an event of default may allow the applicable creditors to foreclose on any collateral for such debt, accelerate the related debt, and/or terminate any related commitments to extend further credit and may result in a default or an event of default under or the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event debtholders accelerate the repayment of the combined company's indebtedness, the combined company may not have sufficient resources to repay such indebtedness.

The completion of the Merger is subject to a number of conditions, including, among others, the approval of the issuance of shares of the Company in connection with the Merger by the Company's shareholders, the approval of the Merger by the AvalonBay stockholders and the absence of a law or order restraining, enjoining, rendering illegal or otherwise prohibiting the consummation of the Merger, which makes the completion of the Merger and timing thereof uncertain. In addition, the Company and AvalonBay 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: - The market price of the Common Shares could decline;- The Company could owe substantial termination fees to AvalonBay under certain circumstances;- If the Merger Agreement is terminated and the Board of Trustees seeks another business combination, the Company's shareholders cannot be certain that the Company 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 the Company's management team to matters relating to the Merger could otherwise have been devoted to pursuing other beneficial opportunities for the Company;- The Company may experience negative reactions from the financial markets or from its 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 the Company's ongoing business. 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.

Following the completion of the Merger, the size of the combined company's business will be significantly larger than the current size of either the Company'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 in connection with the completion of the Merger and the integration of the Company 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. The Company 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.

The completion of the Merger may trigger change in control or other provisions in certain agreements to which Equity Residential, AvalonBay or their respective subsidiaries are a party. If Equity Residential and AvalonBay are unable to obtain certain consents or waivers from the applicable counterparties, the counterparties may exercise their rights and remedies under the applicable agreements, potentially resulting in defaults, accelerations of indebtedness, termination of the applicable agreements, or claims for monetary damages. Even if Equity Residential and AvalonBay are able to negotiate the required consents or waivers, the counterparties may require a fee for such consents or waivers or seek to renegotiate the agreements on terms less favorable to Equity Residential, AvalonBay or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company's business, financial condition and results of operations.

The success of the Merger will depend, in part, on the combined company's ability to successfully combine the businesses of the Company 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 the 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 the Company's and AvalonBay's businesses, which is a complex, costly, and time-consuming process. Neither the Company 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: - The diversion of management's attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management's attention to the Merger;- Managing a larger combined company;- Creating, implementing, and executing a unified business strategy and operational, financial and managerial control with respect to the combined entity;- Maintaining employee morale and attracting, motivating and retaining management personnel and other key employees;- The possibility of faulty assumptions underlying expectations regarding the integration process;- Retaining existing business and operational relationships and attracting new business and operational relationships;- 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;- Consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies;- 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. Many of these factors will be outside of the combined company's control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management's time and energy, which could materially affect the combined company's financial position, results of operations and cash flows. The Company and AvalonBay have operated, and until completion of the Merger will continue to operate, independently. The Company 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.

Either the Company 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 the Company's business, financial condition, results of operations and growth prospects.

The Merger Agreement contains certain provisions that restrict the Company's 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 Board of Trustees withdraws or qualifies its recommendation with respect to the Share Issuance, the Company will still be required to submit the Share Issuance to a vote at its special meeting. In addition, AvalonBay 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 Trustees may withdraw or qualify its recommendation with respect to the Share Issuance. In some circumstances, upon termination of the Merger Agreement in connection with an alternative proposal, the Company may be required to pay a termination fee of approximately $1.005 billion to AvalonBay. This provision could discourage a potential third-party acquirer 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 acquirer or merger partner proposing to pay a lower price to the Company's shareholders than it might otherwise have proposed to pay absent such a fee. If the Merger Agreement is terminated in accordance with its terms, and the Company determines to seek another business combination, the Company may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.

If the Merger is completed, the composition of the Board of Trustees will change. Immediately following the Merger, the Board of Trustees will consist of fourteen (14) members, seven (7) of whom are current trustees of the Company and seven (7) of whom are current directors of AvalonBay. The composition of the Board of Trustees may affect the business strategy and operating decisions of the combined company upon the completion of the Merger.