<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-36487
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER 14, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 8, 1997)
$100,000,000
CHELSEA GCA REALTY PARTNERSHIP, L.P.
% NOTES DUE 2007
------------------
Interest on the % Notes due 2007 (the "Notes") issued by Chelsea GCA
Realty Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), will be payable semi-annually on April and October of each
year, beginning on April , 1998. The Notes will mature on October , 2007,
but are subject to redemption at the option of the Operating Partnership, in
whole or in part, at any time, at the redemption prices set forth herein, plus
accrued and unpaid interest. See "Description of the Notes."
The Notes will be represented by a single fully-registered Note in
book-entry form (the "Global Note") registered in the name of The Depository
Trust Company (the "Depositary") or its nominee. Beneficial interests in the
Global Note will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and, with respect to the
beneficial owners' interests, by the Depositary's participants. Except as
described in this Prospectus Supplement, Notes in definitive form will not be
issued. See "Description of the Notes -- Book-Entry, Delivery and Form."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 IN THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PROCEEDS TO THE
PRICE TO UNDERWRITING OPERATING PARTNERSHIP
PUBLIC (1) DISCOUNT(2) (1)(3)
<S> <C> <C> <C>
Per Note............................................. % % %
Total................................................ $ $ $
</TABLE>
(1) Plus accrued interest, if any, from October , 1997.
(2) The Operating Partnership and the Company (as defined herein) have agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933. See "Underwriting."
(3) Before deducting expenses payable by the Operating Partnership estimated at
$200,000.
The Notes are being offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters, to approval of
certain legal matters by counsel for the Underwriters and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and reject orders in whole or in part. It is expected that delivery
of the Global Note will be made in book-entry form only through the facilities
of the Depositary on or about October , 1997 against payment therefor in
immediately available funds.
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
------------------------
The date of this Prospectus Supplement is October , 1997.
<PAGE>
Chelsea GCA Realty
[Map of United States highlighting
the Operating Partnership's outlet centers]
The Underwriters may engage in transactions that stabilize, maintain or
otherwise affect the price of the Notes. Such transactions may include
stabilizing and the purchase of Notes to cover syndicate short positions. For a
description of these activities, see "Underwriting" herein.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND
THEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, THE FINANCIAL AND STATISTICAL
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF JUNE 30,
1997. ALL REFERENCES TO THE OPERATING PARTNERSHIP IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS INCLUDE THE OPERATING PARTNERSHIP, THOSE
ENTITIES OWNED OR CONTROLLED BY THE OPERATING PARTNERSHIP AND PREDECESSORS OF
THE OPERATING PARTNERSHIP, UNLESS THE CONTEXT INDICATES OTHERWISE.
THE OPERATING PARTNERSHIP
Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"), is 81.6% owned and managed by its sole general
partner, Chelsea GCA Realty, Inc. ("Chelsea GCA" or the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"). The
Operating Partnership owns, develops, redevelops, leases, markets and manages
upscale and fashion-oriented manufacturers' outlet centers. As of June 30, 1997,
the Operating Partnership owned and operated 19 centers (the "Properties"),
containing approximately 4.0 million square feet of gross leasable area ("GLA"),
in eleven states. The Properties are generally located near densely populated,
high-income metropolitan areas or at or near major tourist destinations. The
Operating Partnership's existing portfolio includes properties in or near New
York, Los Angeles, San Francisco, Atlanta, Sacramento, Portland (Oregon), Kansas
City, Cleveland, Honolulu, the Napa Valley, Palm Springs and the Monterey
Peninsula. As of June 30, 1997, the Operating Partnership's portfolio was 98%
leased and contained approximately 1,100 stores with approximately 350 different
tenants.
During 1996, the Properties generated weighted average reported tenant sales
of $345 per square foot. During 1996 and the first six months of 1997, the
Operating Partnership's same-center sales (excluding sales attributable to
increased GLA) increased 11% and 9% compared to 1995 and the first six months of
1996, respectively. Following the completion of the offering of Notes hereby
(the "Offering"), assuming a price of $41.625 per Operating Partnership common
unit (based on the market price of $41.625 per share of the Company's Common
Stock (the "Common Stock") as of October 10, 1997), plus a liquidation
preference of $50.00 per Operating Partnership preferred unit, the Operating
Partnership's ratio of debt to total market capitalization (defined as the value
of outstanding Operating Partnership units plus total debt) will be
approximately 24%.
Between the Company's initial public offering of Common Stock and the
formation transactions in November 1993 ("IPO") and June 30, 1997, the Operating
Partnership developed, acquired and opened approximately 2.3 million square feet
of new GLA (representing a 144% increase), contained in seven new centers, one
acquired center and twelve expanded centers. In March 1997, the Operating
Partnership acquired Waikele Factory Outlets, a manufacturers' outlet center
located near Honolulu, Hawaii with 214,000 square feet of GLA. The Operating
Partnership has scheduled an October 15, 1997 opening of a new center in
Wrentham, Massachusetts (near the junction of Interstates 95 and 495 between
Boston and Providence) containing 227,000 square feet of GLA. The Operating
Partnership has expansion projects under construction, including a 270,000
square foot expansion of Woodbury Common Premium Outlets (Central Valley, New
York--New York metropolitan area). The Operating Partnership is also in the
process of entitling sites and planning development projects for 1998 and
beyond. See "The Operating Partnership--Growth Strategy."
S-3
<PAGE>
The Operating Partnership was formed through the 1993 merger of The Chelsea
Group ("Chelsea") and Ginsburg Craig Associates ("GCA"), two leading outlet
center development companies. The Properties are owned by, and their operations
are conducted through, the Operating Partnership. The Company is the sole
general partner of, and as of June 30, 1997, owned a controlling 81.6% interest
in, the Operating Partnership. As of June 30, 1997, management and directors of
the Company owned approximately 14% of the Common Stock of the Company on a
fully diluted basis (i.e., assuming conversion of Operating Partnership common
units into Common Stock). The following chart illustrates the composition of the
common units in the Operating Partnership:
<TABLE>
<C> <S>
CHELSEA GCA REALTY, INC.
(Company)
81.6%
General LIMITED PARTNERS
18.4% Limited
Partner Partners
CHELSEA GCA REALTY PARTNERSHIP, L.P.
(Operating Partnership)
</TABLE>
S-4
<PAGE>
THE OFFERING
All capitalized terms used herein and not defined herein have the meanings
provided in "Description of the Notes." For a more complete description of the
terms of the Notes specified in the following summary, see "Description of the
Notes" herein and "Description of Debt Securities" in the accompanying
Prospectus.
<TABLE>
<S> <C>
Securities Offered................ $100,000,000 aggregate principal amount of % Notes due
2007.
Maturity.......................... October , 2007.
Interest Payment Dates............ April and October , beginning April , 1998.
Optional Redemption............... The Notes will be redeemable at the option of the
Operating Partnership, in whole or in part, at any time,
at the redemption prices set forth herein, plus accrued
and unpaid interest.
Ranking........................... The Notes will constitute unsecured and unsubordinated
indebtedness of the Operating Partnership and will rank
on a parity with all existing and future unsecured and
unsubordinated indebtedness of the Operating
Partnership.
Use of Proceeds................... The net proceeds to the Operating Partnership from the
Offering (approximately $98.8 million) will be used to
repay substantially all borrowings outstanding under the
Credit Facilities (as defined herein), to redeem $40
million aggregate principal amount of the Operating
Partnership's Remarketed Floating Rate Reset Notes due
October 23, 2001 and for general corporate purposes.
Certain Covenants................. The Notes will contain various covenants, including the
following:
LIMITATIONS ON INCURRENCE OF DEBT
(1) The Operating Partnership will not incur any Debt,
if, after giving effect thereto, the aggregate
principal amount of all outstanding Debt of the
Operating Partnership is greater than 60% of the sum
of (i) the Operating Partnership's Total Assets as of
the end of the most recent calendar quarter and (ii)
the increase in the Operating Partnership's Total
Assets since the end of such quarter (including any
increase in the Operating Partnership's Total Assets
resulting from the incurrence of such additional
Debt) (the sum of the Operating Partnership's Total
Assets pursuant to clauses (i) and (ii) is referred
to as "Adjusted Total Assets").
(2) The Operating Partnership will not incur any Secured
Debt if, after giving effect thereto, the aggregate
amount of all outstanding Secured Debt of the
Operating Partnership is greater than 40% of the
Operating Partnership's Adjusted Total Assets.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
(3) The Operating Partnership will not incur any Debt if
the ratio of Consolidated Income Available for Debt
Service for the four consecutive fiscal quarters most
recently ended prior to the date of the incurrence of
such Debt, on a pro forma basis, shall be less than
2.0 times the Annual Service Charge on all Debt
outstanding immediately after the incurrence of such
additional Debt.
(4) The Operating Partnership will not allow any
Restricted Subsidiary to incur any Debt other than
intercompany Debt.
LIMITATIONS ON DISTRIBUTIONS
The Operating Partnership will not make any distribution
unless, immediately after giving pro forma effect to
such distribution, (a) no default under the Indenture,
or event of default under any mortgage, indenture or
instrument under which there may be issued, or by which
there may be secured or evidenced, any Debt of the
Operating Partnership, the Company or any Subsidiary,
shall have occurred or be continuing, (b) the Operating
Partnership could incur at least $1.00 of Debt under the
Indenture covenants limiting the incurrence of Debt and
(c) the aggregate sum of all distributions shall not
exceed the sum of (i) 95% of the aggregate cumulative
Funds From Operations of the Operating Partnership
accrued on a cumulative basis from the date of the
Indenture until the end of the last fiscal quarter prior
to the contemplated payment, and (ii) the aggregate Net
Cash Proceeds received after the date of the Indenture
from the issuance and sale of Capital Stock; PROVIDED,
HOWEVER, that the foregoing limitations shall not apply
to any distribution which is necessary to maintain the
Company's status as a REIT if the aggregate principal
amount of all outstanding Debt of the Company and the
Operating Partnership on a consolidated basis at such
time is less than 60% of Adjusted Total Assets.
For certain defined terms and additional covenants, see
"Description of the Notes -- Certain Covenants" herein
and "Description of Debt Securities -- Certain
Covenants" in the accompanying Prospectus.
</TABLE>
S-6
<PAGE>
THE OPERATING PARTNERSHIP
The Operating Partnership is 81.6% owned and managed by its sole general
partner, the Company, a self-administered and self-managed REIT. All of the
Company's operations are conducted through the Operating Partnership. The
Operating Partnership owns, develops, redevelops, leases, markets and manages
upscale and fashion-oriented manufacturers' outlet centers. As of June 30, 1997,
the Operating Partnership owned and operated 19 centers, containing
approximately 4.0 million square feet of GLA, in eleven states. The Properties
are generally located near densely populated, high-income metropolitan areas or
at or near major tourist destinations. The Operating Partnership's existing
portfolio includes properties in or near New York, Los Angeles, San Francisco,
Atlanta, Sacramento, Portland (Oregon), Kansas City, Cleveland, Honolulu, the
Napa Valley, Palm Springs and the Monterey Peninsula. As of June 30, 1997, the
Operating Partnership's portfolio was 98% leased and contained approximately
1,100 stores with approximately 350 different tenants.
During 1996, the Properties generated weighted average reported tenant sales
of $345 per square foot. During 1996 and the first six months of 1997, the
Operating Partnership's same-center sales (excluding sales attributable to
increased GLA) increased 11% and 9% compared to 1995 and the first six months of
1996, respectively. Following the completion of the Offering, assuming a price
of $41.625 per Operating Partnership common unit (based on the market price of
$41.625 per share of Common Stock as of October 10, 1997), plus a liquidation
preference of $50.00 per Operating Partnership preferred unit, the Operating
Partnership's ratio of debt to total market capitalization (defined as the value
of outstanding Operating Partnership units plus total debt) will be
approximately 24%.
Between the IPO in November 1993 and June 30, 1997, the Operating
Partnership developed, acquired and opened approximately 2.3 million square feet
of new GLA (representing a 144% increase), contained in seven new centers, one
acquired center and twelve expanded centers. In March 1997, the Operating
Partnership acquired Waikele Factory Outlets, a manufacturers' outlet center
located near Honolulu, Hawaii with 214,000 square feet of GLA. The Operating
Partnership has scheduled an October 15, 1997 opening of a new center in
Wrentham, Massachusetts (near the junction of Interstates 95 and 495 between
Boston and Providence) containing 227,000 square feet of GLA. The Operating
Partnership has expansion projects under construction, including a 270,000
square foot expansion of Woodbury Common Premium Outlets (Central Valley, New
York--New York metropolitan area). The Operating Partnership is also in the
process of entitling sites and planning development projects for 1998 and
beyond. See "-- Growth Strategy."
The Operating Partnership was formed through the 1993 merger of Chelsea and
GCA, two leading outlet center development companies. The Properties are owned
by, and their operations are conducted through, the Operating Partnership. The
Company is the sole general partner of, and as of June 30, 1997, owned a
controlling 81.6% interest in, the Operating Partnership. As of June 30, 1997,
management and directors of the Company owned approximately 14% of the Common
Stock of the Company on a fully diluted basis (i.e., assuming conversion of
Operating Partnership common units into Common Stock).
The Operating Partnership is a Delaware limited partnership. Its principal
executive offices are located at 103 Eisenhower Parkway, Roseland, New Jersey
07068, and its telephone number is (973) 228-6111.
THE MANUFACTURERS' OUTLET BUSINESS
Manufacturers' outlets are manufacturer-operated retail stores that sell
primarily first-quality, branded goods at significant discounts from regular
department and specialty store prices. Manufacturers' outlet centers offer
numerous advantages to both consumer and manufacturer: by eliminating the third-
party retailer, manufacturers are often able to charge customers lower prices
for brand name and designer merchandise; manufacturers benefit by being able to
sell first-quality in-season, as well as out-of-season, overstocked or
discontinued merchandise without compromising their relationships with
department stores
S-7
<PAGE>
or hampering the manufacturer's brand name. In addition, outlet stores enable
manufacturers to optimize the size of production runs while maintaining control
of their distribution channels.
COMPETITIVE POSITION
The Operating Partnership believes that its strong tenant relationships,
high-quality property portfolio, and managerial expertise give it significant
advantages in the manufacturers' outlet business.
STRONG TENANT RELATIONSHIPS. The Operating Partnership maintains strong
tenant relationships with high-fashion, upscale manufacturers that have a
selective presence in the outlet industry, such as Ann Taylor, Brooks Brothers,
Cole-Haan, Donna Karan, Joan & David, Jones New York, Nautica, Polo/Ralph Lauren
and Tommy Hilfiger, as well as with national brand-name manufacturers such as
Nine West, Phillips-Van Heusen (Bass, Geoffrey Beene, Van Heusen) and Sara Lee
(Champion, Hanes, Coach Leather, Mark Cross). The Operating Partnership believes
that its ability to draw from both groups is an important factor in providing
broad customer appeal and higher tenant sales.
HIGH QUALITY PROPERTY PORTFOLIO. The Properties generated weighted average
reported tenant sales during 1996 of $345 per square foot. A significant number
of the Operating Partnership's tenants, including Ann Taylor, Brooks Brothers,
Burberrys, Cole-Haan, Donna Karan, Emanuel/Emanuel Ungaro, Joan & David, Jones
New York, Nike, Nine West, Nautica, Polo/Ralph Lauren, Royal Doulton,
Timberland, Tommy Hilfiger and Waterford Wedgewood, reported that the top store
in their outlet chain during 1996 (as measured by sales per square foot or gross
sales) was in one of the Operating Partnership's centers. The Operating
Partnership believes that the quality of its centers gives it significant
advantages in attracting customers and negotiating multi-lease transactions with
tenants.
MANAGEMENT EXPERTISE. The Operating Partnership believes it has a
competitive advantage in the manufacturers' outlet business as a result of its
experience in the business, long-standing relationships with tenants and
expertise in the development and operation of manufacturers' outlet centers. The
Operating Partnership's senior management has been recognized as leaders in the
outlet industry over the last two decades. The Operating Partnership was the
first recipient of the VALUE RETAIL NEWS Award of Excellence. In addition,
management developed a number of the earliest and most successful outlet centers
in the industry, including Liberty Village (one of the first manufacturers'
outlet centers in the U.S.) in 1981, Woodbury Common in 1985, and Desert Hills
and Aurora Farms in 1990. Since the Company's IPO, the Operating Partnership has
added significantly to its senior management in the areas of development,
leasing and property management without increasing general and administrative
expenses as a percentage of total revenues; additionally, the Operating
Partnership intends to continue to invest in systems and controls to support the
planning, coordination and monitoring of its activities.
GROWTH STRATEGY
The Operating Partnership seeks growth through increasing rents in its
existing centers; developing new centers and expanding existing centers; and
acquiring and redeveloping centers.
INCREASING RENTS AT EXISTING CENTERS. The Operating Partnership's leasing
strategy includes aggressively marketing available space and maintaining a high
level of occupancy; providing for inflation-based contractual rent increases or
periodic fixed contractual rent increases in substantially all leases; renewing
leases at higher base rents per square foot; re-tenanting space occupied by
underperforming tenants; and continuing to sign leases that provide for
percentage rents.
DEVELOPING NEW CENTERS AND EXPANDING EXISTING CENTERS. The Operating
Partnership believes there will continue to be significant opportunities to
develop manufacturers' outlet centers across the United States. The Operating
Partnership intends to undertake such development on a selective basis, and
believes that it will have a competitive advantage in doing so as a result of
its development expertise, tenant relationships and access to capital. The
Operating Partnership expects that the development of new
S-8
<PAGE>
centers and the expansion of existing centers will continue to be a substantial
part of its growth strategy. See "Recent Developments." The Operating
Partnership believes that its development experience and strong tenant
relationships enable it to determine site viability on a timely and
cost-effective basis.
There can be no assurance that any development or expansion projects will be
commenced or completed as scheduled.
ACQUIRING AND REDEVELOPING CENTERS. The Operating Partnership intends to
selectively acquire individual properties and portfolios of properties that meet
its strategic investment criteria as suitable opportunities arise. The Operating
Partnership believes that its extensive experience in the outlet center
business, access to capital markets, familiarity with real estate markets and
advanced management systems will allow it to evaluate and execute acquisitions
competitively. Furthermore, management believes that the Operating Partnership
will be able to enhance the operation of acquired properties as a result of its
(i) strong tenant relationships with both national and upscale fashion
retailers, and (ii) development, marketing and management expertise as a
full-service real estate organization. Additionally, the Operating Partnership
may be able to acquire properties on a tax-advantaged basis through the issuance
of Operating Partnership units.
There can be no assurance that any acquisitions will be consummated or, if
consummated, will result in an advantageous return on investment for the
Operating Partnership.
OPERATING STRATEGY
The Operating Partnership's primary business objectives are to enhance the
value of its properties and operations by increasing operating cash flow. The
Operating Partnership plans to achieve these objectives through continuing
efforts to improve tenant sales and profitability and to enhance the opportunity
for higher base and percentage rents.
LEASING. The Operating Partnership pursues an active leasing strategy
through long-standing relationships with a broad range of tenants, including
manufacturers of men's, women's and children's ready-to-wear, lifestyle apparel,
footwear, accessories, tableware, housewares, linens and domestic goods. Key
tenants are placed in strategic locations to draw customers into each center and
to encourage shopping at more than one store. The Operating Partnership
continually monitors tenant mix, store size, store location and sales
performance, and works with tenants to improve each center through re-sizing,
re-location and joint promotion.
MARKET AND SITE SELECTION. To ensure a sound long-term customer base, the
Operating Partnership generally seeks to develop sites near densely-populated,
high-income metropolitan areas, and/or at or near major tourist destinations.
While these areas typically impose numerous restrictions on development and
require compliance with complex entitlement and regulatory processes, the
Operating Partnership believes that these areas provide the most attractive
long-term demographic characteristics.
The Operating Partnership generally seeks to develop sites that can support
at least 200,000 square feet of GLA and that offer the long-term opportunity to
dominate their respective markets through a critical mass of tenants.
MARKETING. The Operating Partnership pursues an active, property-specific
marketing strategy using a variety of media, including newspapers, television,
radio, billboards, regional magazines, guide books and direct mailings. The
centers are marketed to tour groups, conventions and corporations; additionally,
each property participates in joint destination marketing efforts with other
area attractions and accommodations. Virtually all consumer marketing expenses
incurred by the Operating Partnership are reimbursable by tenants.
PROPERTY DESIGN AND MANAGEMENT. The Operating Partnership believes that
effective property design and management are significant factors in the success
of its properties and works continually to maintain
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<PAGE>
or enhance each center's physical plant, original architectural theme and high
level of on-site services. Each property is designed to be compatible with its
environment and is maintained to high standards of aesthetics, ambiance and
cleanliness in order to promote longer visits and repeat visits by shoppers. As
of June 30, 1997, of the Operating Partnership's 312 full-time and 50 part-time
employees, 219 full-time and all part-time employees are involved in on-site
maintenance, security, administration and marketing. Centers are generally
managed by an on-site property manager with oversight from a regional operations
manager.
FINANCING
The Operating Partnership's financing strategy is to maintain a strong,
flexible financial position by: (i) maintaining a conservative level of
leverage, (ii) extending and sequencing debt maturity dates, (iii) managing
floating rate exposure and (iv) maintaining liquidity. Management believes these
strategies will enable the Operating Partnership to access a broad array of
capital sources, including bank or institutional borrowings, secured and
unsecured debt and equity offerings.
The Operating Partnership currently has in place two unsecured bank
revolving lines of credit with an aggregate maximum borrowing amount of $150
million (each, a "Credit Facility" and collectively, the "Credit Facilities").
As a result of the Offering and the application of the net proceeds thereof,
substantially all borrowings outstanding under the Credit Facilities will be
repaid and substantially all of the Credit Facilities will be available for the
Operating Partnership's growth and liquidity needs. Each Credit Facility expires
on March 29, 1998 and bears interest on the outstanding balance, payable
monthly, at LIBOR plus 1.375% or the prime rate, at the Operating Partnership's
option. A fee on the unused portion of the Credit Facilities is payable
quarterly at a rate of 0.25% per annum. The Credit Facilities' bank group is
comprised of five domestic and international banks.
On October 15, 1997, the Company is scheduled to issue 1,000,000 shares of
8 3/8% Series A Cumulative Redeemable Preferred Stock having a liquidation
preference of $50.00 per share. Net proceeds from such issuance of approximately
$48.4 million will be used to repay borrowings under the Credit Facilities.
Following completion of the Offering, assuming a price of $41.625 per
Operating Partnership common unit (based on the market price of $41.625 per
share of Common Stock as of October 10, 1997), plus a liquidation preference of
$50.00 per Operating Partnership preferred unit, the Operating Partnership's
ratio of debt to total market capitalization (defined as the value of
outstanding Operating Partnership units plus total debt) will be approximately
24%. It is the Operating Partnership's policy to limit the extent of its
borrowings to less than 40% of its total market capitalization.
ENVIRONMENTAL MATTERS
The Operating Partnership is not aware of any environmental liabilities
relating to the Properties that would have a material impact on its financial
position and results of operations.
PERSONNEL
As of June 30, 1997, the Operating Partnership had 312 full-time and 50
part-time employees. None of the employees are subject to any collective
bargaining agreements, and the Operating Partnership believes it has good
relations with its employees.
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<PAGE>
RECENT DEVELOPMENTS
OPERATING RESULTS
Since the IPO, the Operating Partnership has improved its operating
performance by a number of measures. Total revenues for the year ended December
31, 1996 increased 26.0% to $91.4 million compared to total revenues of $72.5
million for 1995. Total revenues for the six months ended June 30, 1997
increased 23.3% to $49.3 million compared to $40.0 million for the six months
ended June 30, 1996.
The Operating Partnership has maintained a portfolio occupancy rate of 98%
or more since the IPO while expanding portfolio GLA substantially. The Operating
Partnership's centers produced weighted average reported tenant sales of
approximately $345 per square foot in 1996, compared to $313 and $309 per square
foot in 1995 and 1994, respectively. During the first six months of 1997, the
Operating Partnership's same-center sales (excluding sales attributable to
increased GLA) increased 9% compared to the first six months of 1996.
ACQUISITIONS AND EXPANSIONS
Between January 1, 1997 and June 30, 1997, the Operating Partnership added
approximately 347,000 square feet of GLA to its portfolio as a result of a
214,000 square foot acquisition and three expansions totaling 133,000 square
feet.
A summary of acquisition and expansion activity from January 1, 1997 through
June 30, 1997 is contained below:
<TABLE>
<CAPTION>
ACQUISITION OR
EXPANSION GLA NUMBER
PROPERTY DATE(S) (SQ. FT.) OF STORES CERTAIN TENANTS
- -------------------------------------- --------------- --------- ----------- --------------------------------------
<S> <C> <C> <C> <C>
As of January 1, 1997................. 3,610,000 995
Acquisition:
Waikele............................. March 1997 214,000 51 Bose, Donna Karan, Guess, Levi's, Nine
West, Off 5th-Saks Fifth Avenue
Expansions:
North Georgia....................... March 1997 111,000 32 Joan & David, Liz Claiborne, Williams
Sonoma
Other............................... 22,000 5 Donna Karan, Emanuel/Emanuel Ungaro
--------- -----
Total expansions.................. 133,000 37
--------- -----
As of June 30, 1997................... 3,957,000 1,083
--------- -----
--------- -----
</TABLE>
The most recent newly expanded or acquired centers are discussed below:
WAIKELE, WAIPAHU, HAWAII. Waikele Premium Outlets, a 214,000 square foot
center containing 51 stores, was acquired on March 31, 1997 and is located on
Oahu Highway H-1, 15 miles west of Honolulu. The populations within a 15-mile
and 30-mile radius are approximately 700,000 and 900,000, respectively. Average
household income within a 30-mile radius is approximately $63,000.
CLINTON CROSSING, CLINTON, CONNECTICUT. Clinton Crossing Premium Outlets, a
272,000 square foot center containing 67 stores, opened in August 1996 and is
located approximately 22 miles east of New Haven on I-95 at Exit 63. The
populations within a 30-mile, 60-mile and 100-mile radius are approximately 1.3
million, 5.1 million and 22.2 million, respectively. Average household income
within a 30-mile radius is approximately $69,000.
NORTH GEORGIA, DAWSONVILLE, GEORGIA. North Georgia Premium Outlets, a
403,000 square foot center containing 108 stores, opened in two phases, in May
1996 and May 1997. The center is located 40 miles north of Atlanta on Georgia
State Highway 400 bordering Lake Lanier, at the gateway to the North Georgia
mountains. The populations within a 30-mile, 60-mile and 100-mile radius are
approximately
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700,000, 3.6 million and 5.8 million, respectively. Average household income
within a 30-mile radius is approximately $55,000.
CURRENT AND FUTURE DEVELOPMENT AND EXPANSION
The Operating Partnership has scheduled an October 15, 1997 opening of a new
center in Wrentham, Massachusetts (near the junction of Interstates 95 and 495
between Boston and Providence). The center will contain 227,000 square feet and
57 stores with a concentration of the Operating Partnership's upscale and
fashion-oriented tenants, including Barneys New York, Bose, Brooks Brothers and
Donna Karan, as well as many national brand-name manufacturers.
The Operating Partnership has expansion projects at existing centers under
construction and scheduled to open during the next six months, including a
270,000 square foot expansion of Woodbury Common Premium Outlets (Central
Valley, New York--New York metropolitan area). The Operating Partnership is also
in the process of planning development projects for completion in 1998 and
beyond. These projects are in various stages of development and there can be no
assurance that any of these projects will be completed or opened, or that there
will not be delays in the opening or completion of any of these projects. See
"The Operating Partnership -- Growth Strategy -- Developing New Centers and
Expanding Existing Centers" above and "Risk Factors -- General Real Estate
Investment Risks -- Risks of Development Activities" in the accompanying
Prospectus.
STRATEGIC ALLIANCE
In May 1997, the Operating Partnership announced the formation of a
strategic alliance with Simon DeBartolo Group, Inc. ("Simon") to develop and
acquire high-end outlet centers with GLA of 500,000 square feet or more in the
United States. The Operating Partnership and Simon will be co-managing general
partners, each with 50% ownership of the joint venture and any entities formed
with respect to specific projects; the Operating Partnership will have primary
responsibility for the day-to-day activities of each project. In conjunction
with the alliance, the Company completed the sale to Simon of 1.4 million shares
of Common Stock, aggregating $50 million, on June 16, 1997. Proceeds from the
sale were used to repay borrowings under the Credit Facilities. Simon is one of
the largest publicly traded real estate companies in North America as measured
by market capitalization, and owns, has an interest in and or manages
approximately 130 million square feet of GLA in retail and mixed-use properties.
PREFERRED STOCK OFFERING
On October 15, 1997, the Company is scheduled to issue 1,000,000 shares of
8 3/8% Series A Cumulative Redeemable Preferred Stock having a liquidation
preference of $50.00 per share. Net proceeds from such issuance of approximately
$48 million will be used to repay borrowings under the Credit Facilities.
S-12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the Offering are
estimated to be approximately $98.8 million. The Operating Partnership intends
to use the net proceeds of the Offering to repay substantially all borrowings
outstanding under the Credit Facilities and to redeem $40 million aggregate
principal amount of the Operating Partnership's Remarketed Floating Rate Reset
Notes due October 23, 2001. These notes have a current interest rate thereon of
6.5% per annum. As of October 13, 1997, borrowings under the Credit Facilities
aggregated approximately $87 million (prior to the issuance of the Company's
8 3/8% Series A Cumulative Redeemable Preferred Stock) and the average interest
rate thereon was 7.1% per annum. The remaining proceeds will be used for general
corporate purposes, including the development or acquisition of additional
centers and the expansion of the Operating Partnership's existing centers.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of June 30, 1997, and as adjusted to give effect to the Offering
and the anticipated use of the proceeds from the Offering as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Credit Facilities...................................................................... $ 55,035 $ 5,035(1)
7 3/4% Notes due 2001.................................................................. 99,709 99,709
Remarketed Floating Rate Reset Notes due 2001.......................................... 100,000 60,000
% Notes due 2007.................................................................... -- 100,000
---------- -----------
Total debt........................................................................... 254,744 264,744
---------- -----------
PARTNERS' CAPITAL:
Preferred partnership units outstanding, 1,000,000 as adjusted......................... -- 48,400(2)
General partner units outstanding, 15,253,000 at June 30, 1997 and as adjusted......... 249,363 249,363
Limited partner units outstanding, 3,436,000 at June 30, 1997 and as adjusted.......... 49,155 49,155
---------- -----------
Total partners' capital.............................................................. 298,518 346,918
---------- -----------
Total capitalization............................................................... $ 553,262 $ 611,662
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Represents the outstanding balance under the Credit Facilities as adjusted
for development expenditures subsequent to June 30, 1997, including a new
center (Wrentham Village), an expansion of Woodbury Common and expansions of
other existing centers, less repayment of indebtedness from net proceeds of
approximately $48 million from the sale of the Company's 8 3/8% Series A
Cumulative Redeemable Preferred Stock and approximately $34 million from the
Offering.
(2) Represents net proceeds from the sale of 1,000,000 shares of 8 3/8% Series A
Cumulative Redeemable Preferred Stock, par value $0.01 per share, having a
liquidation preference of $50.00 per share to be issued by the Company on
October 15, 1997.
S-13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and other operating data
of the Operating Partnership and Chelsea GCA Properties (the "Predecessor
Business") on an historical basis. The information should be read in conjunction
with all of the financial statements and notes thereto included in the
accompanying Prospectus and Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Operating Partnership included in the
Operating Partnership's Annual Report on Form 10-K for the year ended December
31, 1996 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
The historical data as of and for the years ended December 31, 1996, 1995
and 1994 and for the period November 2, 1993 (commencement of operations) to
December 31, 1993, has been derived from the historical consolidated financial
statements of the Operating Partnership audited by Ernst & Young LLP,
independent auditors. The historical data as of December 31, 1992 and for the
period January 1, 1992 to November 1, 1993 has been derived from the historical
combined financial statements of the Predecessor Business also audited by Ernst
& Young LLP, independent auditors.
The financial data as of and for the six months ended June 30, 1997 and 1996
has been derived from the unaudited condensed consolidated financial statements.
In management's opinion, the financial data for the six months ended June 30,
1997 and 1996 includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations for the periods presented.
Historical operating results, including net income, may not be comparable to
future operating results. In addition, the Operating Partnership believes that
the book value of the Properties, which reflects historical costs of such real
estate assets less accumulated depreciation, is not indicative of the fair value
of the Properties.
S-14
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P. AND PREDECESSOR BUSINESS(1)
(IN THOUSANDS EXCEPT PER UNIT, RATIO AND CENTER DATA)
<TABLE>
<CAPTION>
CHELSEA GCA REALTY PARTNERSHIP, L.P. CHELSEA GCA PROPERTIES(2)
(CONSOLIDATED) (COMBINED)
-------------------------------------------------------------------- ----------------------------
PERIOD PERIOD
SIX MONTHS ENDED YEAR ENDED NOVEMBER 2, JANUARY 1,
JUNE 30, DECEMBER 31, 1993 TO 1993 TO YEAR ENDED
-------------------- ------------------------------- DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1997 1996 1996 1995 1994 1993 1993 1992
--------- --------- --------- --------- --------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Base rent.......... $ 32,849 $ 26,423 $ 56,390 $ 46,025 $ 34,415 $ 4,913 $ 20,551 $ 21,370
Percentage rent.... 3,082 1,679 7,402 5,336 3,595 1,488 847 2,049
Expense
reimbursements... 12,426 10,854 24,758 19,704 13,584 2,138 8,047 8,471
Other income....... 929 1,028 2,806 1,450 1,551 369 399 873
--------- --------- --------- --------- --------- ------------- ------------- -------------
Total revenues....... 49,286 39,984 91,356 72,515 53,145 8,908 29,844 32,763
Expenses:
Interest........... 7,558 3,426 8,818 3,129 982 163 9,947 11,201
Operating and
maintenance...... 13,527 11,596 26,979 20,984 14,337 2,176 8,917 9,422
Depreciation and
amortization..... 11,968 7,168 18,965 12,823 8,982 1,358 6,255 6,040
General and
administrative... 1,470 1,441 3,342 2,967 2,561 718 1,860 2,120
Other.............. 1,214 1,103 1,892 1,911 1,317 203 1,393 1,140
--------- --------- --------- --------- --------- ------------- ------------- -------------
Total expenses....... 35,737 24,734 59,996 41,814 28,179 4,618 28,372 29,923
Minority interest.... (127) (139) (257) (285) (49) -- (1,128) (1,640)
Net income (loss).... $ 13,422 $ 14,209 $ 30,201 $ 29,365 $ 24,917 $ (5,120) $ 344 $ 1,200
Net income (loss) per
unit................ $ 0.77 $ 0.83 $ 1.76 $ 1.75 $ 1.50 $ (0.31) N/A N/A
Distributions
declared............ $ 22,625 $ 19,684 $ 40,372 $ 35,885 $ 31,618 $ 4,992 N/A N/A
Distributions
declared per unit... $ 1.26 $ 1.15 $ 2.355 $ 2.135 $ 1.90 $ 0.30 N/A N/A
BALANCE SHEET DATA:
Undepreciated real
estate assets....... $ 631,459 $ 463,539 $ 512,354 $ 415,983 $ 332,834 $ 243,218 $ 192,565 $ 158,473
Cash and
equivalents......... 6,377 6,949 13,886 3,987 9,109 57,889 7,236 3,683
--------- --------- --------- --------- --------- ------------- ------------- -------------
Adjusted total
assets........... 637,836 470,488 526,240 419,970 341,943 301,107 199,801 162,156
Total assets......... $ 595,341 $ 459,990 $ 502,212 $ 408,053 $ 330,775 $ 288,732 $ 188,895 $ 152,926
Mortgage notes
payable............. $ -- $ -- $ -- $ -- $ -- $ -- $ 146,199 $ 128,292
Unsecured bank debt.. 55,035 49,000 -- -- -- -- -- --
Secured bank debt.... -- -- -- 96,000 28,000 -- -- --
7 3/4% Notes due
2001................ 99,709 99,627 99,668 -- -- -- -- --
Remarketed Floating
Rate Reset Notes due
2001................ 100,000 -- 100,000 -- -- -- -- --
Obligation under
capital lease....... 9,767 9,865 9,805 9,845 9,830 9,811 9,804 9,769
--------- --------- --------- --------- --------- ------------- ------------- -------------
Debt (including
capital lease)... 264,511 158,492 209,473 105,845 37,830 9,811 156,003 138,061
Partners' capital.... 298,518 258,274 255,636 261,035 257,535 264,236 15,883 1,945
Total liabilities and
partners' capital... $ 595,341 $ 459,990 $ 502,212 $ 408,053 $ 330,775 $ 288,732 $ 188,895 $ 152,926
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
CHELSEA GCA
CHELSEA GCA REALTY PARTNERSHIP, L.P. PROPERTIES(2)
(CONSOLIDATED) (COMBINED)
-------------------------------------------------------------------- -------------
PERIOD PERIOD
SIX MONTHS ENDED YEAR ENDED NOVEMBER 2, JANUARY 1,
JUNE 30, DECEMBER 31, 1993 TO 1993 TO
-------------------- ------------------------------- DECEMBER 31, NOVEMBER 1,
1997 1996 1996 1995 1994 1993 1993
--------- --------- --------- --------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS:
Earnings to fixed charges (3)..... 2.1x 2.9x 2.8x 3.6x 10.4x 16.7x 1.1x
EBITDA to Annual Service Charge
(4)(8)........................... 3.5x 4.6x 4.6x 6.8x 25.7x N/A N/A
Debt to Adjusted Total Assets
(5)(6)........................... 41.5% 33.7% 39.8% 25.2% 11.1% N/A N/A
Secured Debt to Adjusted Total
Assets (6)(7).................... 0% 0% 0% 22.9% 8.2% N/A N/A
Consolidated Income Available for
Debt Service to Annual Service
Charge (8)....................... 3.5x 4.6x 4.6x 6.8x 25.7x N/A N/A
WEIGHTED OWNERSHIP INTEREST:
General partner................... 13,902 11,540 11,802 11,188 10,971 10,937 N/A
Limited partners.................. 3,452 5,508 5,316 5,601 5,669 5,703 N/A
--------- --------- --------- --------- --------- ------------- -------------
Weighted average units
outstanding...................... 17,354 17,048 17,118 16,789 16,640 16,640 N/A
OTHER DATA:
EBITDA (4)........................ $ 33,075 $ 25,844 $ 59,143 $ 46,653 $ 34,930 $ 5,811 $ 17,674
Funds from operations (9)......... $ 24,542 $ 21,520 $ 48,616 $ 41,870 $ 33,631 $ 5,648 $ 7,727
Cash flows from:
Operating activities............ $ 28,765 $ 23,690 $ 52,898 $ 36,330 $ 32,522 $ 5,057 $ 10,397
Investing activities............ $(127,916) $ (51,651) $ (98,956) $ (81,926) $ (79,595) $ (63,918) $ (29,536)
Financing activities............ $ 91,642 $ 30,923 $ 55,957 $ 40,474 $ (1,707) $ 116,570 $ 22,692
GLA at end of period.............. 3,957 3,258 3,610 2,934 2,342 1,879 1,620
Weighted average GLA.............. 3,749 3,023 3,255 2,680 2,001 1,743 1,550
Centers at end of period.......... 19 17 18 16 16 13 12
New center(s) opened.............. -- 1 2 1 3 1 --
Centers expanded.................. 3 2 5 7 2 3 --
Center sold....................... -- -- -- 1 -- -- --
Center acquired................... 1 -- -- -- -- -- --
Occupancy at end of period........ 98% 98% 98% 98% 99% 99% 99%
Operating expense recovery ratio
(10)............................. 92% 94% 92% 94% 95% N/A N/A
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992
-------------
<S> <C>
RATIOS:
Earnings to fixed charges (3)..... 1.2x
EBITDA to Annual Service Charge
(4)(8)........................... N/A
Debt to Adjusted Total Assets
(5)(6)........................... N/A
Secured Debt to Adjusted Total
Assets (6)(7).................... N/A
Consolidated Income Available for
Debt Service to Annual Service
Charge (8)....................... N/A
WEIGHTED OWNERSHIP INTEREST:
General partner................... N/A
Limited partners.................. N/A
-------------
Weighted average units
outstanding...................... N/A
OTHER DATA:
EBITDA (4)........................ $ 20,081
Funds from operations (9)......... $ 8,880
Cash flows from:
Operating activities............ $ 9,487
Investing activities............ $ (14,118)
Financing activities............ $ 6,341
GLA at end of period.............. 1,444
Weighted average GLA.............. 1,401
Centers at end of period.......... 12
New center(s) opened.............. 2
Centers expanded.................. 1
Center sold....................... --
Center acquired................... --
Occupancy at end of period........ 98%
Operating expense recovery ratio
(10)............................. N/A
</TABLE>
- ------------------------------
(1) The selected financial data includes the combined financial statements of
Chelsea GCA Properties for the periods prior to November 2, 1993 and the
consolidated financial results of the Operating Partnership for the periods
after November 1, 1993.
(2) Prior to the formation of the Operating Partnership, Chelsea GCA Properties
maintained a different capital structure than at present, and therefore
ratios for this period (other than earnings to fixed charges) would not be
meaningful.
(3) For purposes of this calculation, earnings consists of income (loss) before
minority interest and fixed charges before interest capitalized and
amortization of loan costs capitalized. Fixed charges consists of total
interest costs (expensed and capitalized), the portion of rent expense
representative of interest and total amortization of deferred financing
costs (expensed and capitalized).
(4) For purposes of this calculation, EBITDA is defined as earnings before
interest, taxes, depreciation and amortization.
(5) As specified in the Indenture, Debt consists of indebtedness in respect of
borrowed money, secured indebtedness, reimbursement obligations in
connection with letters of credit and capitalized leases.
(6) As specified in the Indenture, Adjusted Total Assets consists of the
Undepreciated Real Estate Assets and all other assets (excluding intangibles
and accounts receivable) of the Operating Partnership and its subsidiaries
on a consolidated basis. Undepreciated Real Estate Assets means the cost
(including capital improvements) of real estate assets of the Operating
Partnership and its subsidiaries, before depreciation and amortization,
determined on a consolidated basis.
(7) As specified in the Indenture, Secured Debt consists of debt secured by any
mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon any property of the Operating Partnership or any of its subsidiaries.
(8) As specified in the Indenture, Consolidated Income Available for Debt
Service consists of consolidated income of the Operating Partnership and its
consolidated subsidiaries plus amounts deducted for interest, provisions for
income taxes, amortization of debt discount, provisions for gains and losses
on properties, depreciation and amortization, non-cash charges and
amortization of deferred charges. As specified in the Indenture, Annual
Service Charge as of any date means the amount which is expensed and
capitalized in such period for interest on debt.
S-16
<PAGE>
(9) Management believes that funds from operations ("FFO") should be considered
in conjunction with net income as presented in the selected financial data
above to facilitate a clear understanding of the operating results of the
Operating Partnership. Management considers FFO an appropriate measure of
performance of an equity real estate investment trust. FFO, as defined by
the National Association of Real Estate Investment Trusts ("NAREIT"), is net
income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, exclusive of outparcel sales, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures are calculated to reflect FFO on the same basis. FFO does
not represent net income or cash flow from operations as defined by
generally accepted accounting principles and should not be considered an
alternative to net income as an indicator of operating performance or to
cash from operations, and is not necessarily indicative of cash flow
available to fund cash needs. See "-- Funds From Operations."
(10) The operating expense recovery ratio is computed by dividing expense
reimbursements by operating and maintenance expenses.
FUNDS FROM OPERATIONS
The following table presents the Operating Partnership's FFO calculation for
illustrative purposes:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------- YEAR ENDED
1997 1996 DECEMBER 31, 1996
--------- --------- -------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Net income before extraordinary item(1)....................... $ 13,422 $ 15,111 $ 31,103
Add back depreciation and amortization (1).................... 11,856 7,065 18,747
Less amortization of deferred financing costs and depreciation
of non-real estate assets.................................... (736) (656) (1,234)
--------- --------- -------
Funds from operations......................................... $ 24,542 $ 21,520 $ 48,616
--------- --------- -------
--------- --------- -------
Weighted average units outstanding............................ 17,354 17,048 17,118
Distributions declared per unit............................... $ 1.26 $ 1.15 $ 2.355
</TABLE>
- ------------------------
(1) Excludes minority interest in net income and depreciation attributed to the
limited partner's interest in Solvang Designer Outlets during the six
months ended June 30, 1997 and 1996 and the year ended December 31, 1996.
S-17
<PAGE>
BUSINESS AND PROPERTIES
The Properties are upscale, fashion-oriented manufacturers' outlet centers
located near large metropolitan areas, including New York, Los Angeles, San
Francisco, Atlanta, Sacramento, Portland (Oregon), Kansas City and Cleveland, or
at or near tourist destinations, including Honolulu, the Napa Valley, Palm
Springs and the Monterey Peninsula. The Properties were 98% leased as of June
30, 1997 and contained approximately 1,100 stores with approximately 350
different tenants. During 1996, the Properties generated weighted average tenant
sales of $345 per square foot. During 1996 and the first six months of 1997, the
Operating Partnership's same-center sales (excluding sales attributable to
increased GLA) increased 11% and 9% compared to 1995 and the first six months of
1996, respectively.
As of June 30, 1997, the Operating Partnership operated 19 manufacturers'
outlet centers. Of the 19 operating centers, 17 are owned 100% in fee and two,
American Tin Cannery Premium Outlets and Lawrence Riverfront Factory Outlets,
are held under long-term leases. The Operating Partnership manages all of its
Properties.
Two of the Operating Partnership's outlet centers provided 38% and 34% of
the Operating Partnership's total revenue for 1996 and the six months ended June
30, 1997, respectively. These included Woodbury Common (24% and 21%) and Desert
Hills (14% and 13%). The loss of either center or a material decrease in
revenues from either center for any reason may have a material adverse effect on
the Operating Partnership. In addition, approximately 44% and 40% of the
Operating Partnership's revenues for 1996 and the six months ended June 30,
1997, respectively, were derived from the Operating Partnership's centers in
California.
The Operating Partnership does not consider any of the lessees at its
centers to be anchor tenants and no individual tenant accounts for more than 7%
of the Operating Partnership's gross revenues or total GLA. Only one tenant,
combining all of its store concepts, occupies more than 4.1% of the Operating
Partnership's total GLA. In view of these statistics and the Operating
Partnership's past success in re-leasing available space, the Operating
Partnership believes the loss of any individual tenant would not have a
significant effect on future operations.
Set forth in the table below is certain information regarding the Properties
as of June 30, 1997:
<TABLE>
<CAPTION>
YEAR GLA NO. OF
PROPERTY/LOCATION OPENED (SQ. FT.) STORES CERTAIN TENANTS
- -------------------------------------------- --------- --------- --------- ---------------------------------------
<S> <C> <C> <C> <C>
Woodbury Common ............................ 1985 573,000 151 Brooks Brothers, Calvin Klein, Coach
Central Valley, NY (New York City metro Leather, Donna Karan, Polo/Ralph
area) Lauren, Van Heusen
Desert Hills ............................... 1990 442,000 110 Bose, Coach Leather, Donna Karan, Eddie
Cabazon, CA (Palm Springs -- Los Angeles Bauer, Nautica, Polo/Ralph Lauren,
area) Tommy Hilfiger
North Georgia .............................. 1996 403,000 108 Bose, Brooks Brothers, Donna Karan, Off
Dawsonville, GA (Atlanta metro area) 5th-Saks Fifth Avenue, Van Heusen,
Williams Sonoma
Aurora Premium Outlets ..................... 1987 294,000 66 Ann Taylor, Brooks Brothers, Carters,
Aurora, OH (Cleveland metro area) Liz Claiborne, Off 5th-Saks Fifth
Avenue, Reebok
Camarillo Premium Outlets .................. 1995 280,000 85 Barneys New York, Donna Karan, Jones
Camarillo, CA (Los Angeles metro area) New York, Levi's, Nine West, Off
5th-Saks Fifth Avenue
Clinton Crossing ........................... 1996 272,000 67 Bose, Coach Leather, Donna Karan, Off
Clinton, CT (I-95/New York-New England 5th-Saks Fifth Avenue, Polo/Ralph
corridor) Lauren
Folsom Premium Outlets ..................... 1990 226,000 67 Bass, Jones New York, Levi's, Nike,
Folsom, CA (Sacramento metro area) Nine West, Off 5th-Saks Fifth Avenue
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
YEAR GLA NO. OF
PROPERTY/LOCATION OPENED (SQ. FT.) STORES CERTAIN TENANTS
- -------------------------------------------- --------- --------- --------- ---------------------------------------
Waikele .................................... 1997(1) 214,000 51 Bose, Donna Karan, Guess, Levi's, Nine
Waipahu, HI (Honolulu area) West, Off 5th-Saks Fifth Avenue
<S> <C> <C> <C> <C>
Petaluma Village ........................... 1994 196,000 52 Ann Taylor, Brooks Brothers, Levi's,
Petaluma, CA (San Francisco metro area) Off 5th-Saks Fifth Avenue, Reebok
Napa Premium Outlets ....................... 1994 171,000 49 Cole-Haan, Dansk, Ellen Tracy, Esprit,
Napa, CA (Napa Valley) J. Crew, Nautica, Timberland
Columbia Gorge ............................. 1991 148,000 42 Carters, Harry & David, Levi's, Mikasa,
Troutdale, OR (Portland metro area) Norm Thompson
Lawrence Riverfront ........................ 1990 146,000 39 Bass, J. Crew, Jones New York Country,
Lawrence, KS (Kansas City metro area) Mikasa
Liberty Village ............................ 1981 144,000 57 Calvin Klein, Donna Karan, Ellen Tracy,
Flemington, NJ (New York -- Phila. metro Tommy Hilfiger, Waterford
area)
American Tin Cannery ....................... 1987 137,000 49 Anne Klein, Carole Little, Joan &
Pacific Grove, CA (Monterey Peninsula) David, London Fog, Reebok, Rockport
Santa Fe Factory Stores .................... 1993 125,000 44 Brooks Brothers, Cole-Haan, Dansk,
Santa Fe, NM Donna Karan, Joan & David, Mondi
Patriot Plaza .............................. 1986 76,000 11 Lenox, Polo/Ralph Lauren, Westpoint
Williamsburg, VA (Norfolk -- Richmond area) Stevens
Solvang Designer Outlets ................... 1994 52,000 15 Bass, Donna Karan, Ellen Tracy, Nautica
Solvang, CA (Southern California area)
Mammoth Premium Outlets .................... 1990 35,000 11 Bass, Polo/Ralph Lauren
Mammoth Lakes, CA (Yosemite National Park)
St. Helena Premium Outlets ................. 1992 23,000 9 Brooks Brothers, Coach Leather, Donna
St. Helena, CA (Napa Valley) Karan, Joan & David
--------- ---------
Total................................... 3,957,000 1,083
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Acquired in March 1997.
S-19
<PAGE>
LEASE EXPIRATIONS
The following table sets forth, as of June 30, 1997, scheduled lease
expirations, assuming none of the tenants exercise renewal options:
<TABLE>
<CAPTION>
AVG. BASE
RENT PER % OF TOTAL
NUMBER SQ. FT. TOTAL BASE GLA
OF APPROX. UNDER RENT UNDER REPRESENTED
LEASES GLA EXPIRING EXPIRING BY EXPIRING
YEAR EXPIRING (SQ. FT.) LEASES(1) LEASES(1) LEASES
- --------------------------------------- ----------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1997................................... 105 366,000 $ 12.02 $ 4,399,000 9.5%
1998................................... 125 412,000 18.87 7,776,000 10.7
1999................................... 99 339,000 18.17 6,161,000 8.8
2000................................... 165 553,000 19.48 10,770,000 14.4
2001................................... 185 616,000 19.83 12,215,000 16.1
2002................................... 125 410,000 19.92 8,169,000 10.7
2003................................... 77 363,000 18.91 6,863,000 9.5
2004................................... 42 226,000 16.80 3,797,000 5.9
2005................................... 49 187,000 18.64 3,486,000 4.9
2006................................... 42 179,000 20.30 3,633,000 4.7
2007................................... 11 43,000 26.53 1,141,000 1.1
Thereafter............................. 10 143,000 1.71 244,000 3.7
----- ---------- ----------- ------------- -----
Total.............................. 1,035 3,837,000 $ 17.89 $ 68,654,000 100.0%
----- ---------- ----------- ------------- -----
----- ---------- ----------- ------------- -----
</TABLE>
- ------------------------------
(1) Base rent is defined as the minimum payments due as of June 30, 1997
excluding periodic fixed contractual increases.
RENTAL AND OCCUPANCY RATES
The following table sets forth the average base rental rate increases per
square foot upon re-leasing stores that were turned over or renewed during each
of the last five calendar years and the first six months of 1997:
<TABLE>
<CAPTION>
STORES RE-LEASED TO NEW TENANTS RENEWALS OF EXISTING LEASES
----------------------------------------- -----------------------------------------
AVERAGE BASE RENTS ($ AVERAGE BASE RENTS ($
PER SQUARE FOOT) PER SQUARE FOOT)
NUMBER OF ------------------------ NUMBER OF ------------------------
STORES EXPIRING NEW (FIRST STORES EXPIRING NEW
YEAR TURNED OVER (LAST YR.) YR.) RENEWED (LAST YR.) (FIRST YR.)
- ---------------------------------- --------------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997 (through June 30)............ 27 $ 18.86 $ 20.99 40 $ 18.48 $ 19.22
1996.............................. 30 18.45 23.82 50 16.43 18.78
1995.............................. 57 18.07 20.09 70 16.23 17.03
1994.............................. 35 15.90 17.10 46 15.39 16.33
1993.............................. 60 15.52 18.33 60 15.21 16.10
1992.............................. 30 15.82 18.97 39 16.00 16.80
</TABLE>
The following table shows certain information on rents and occupancy rates
for the Operating Partnership over the last five years:
<TABLE>
<CAPTION>
AVERAGE NUMBER OF AGGREGATE
BASE RENT OPERATING PERCENTAGE
YEAR OCCUPANCY PER SQ. FT. GLA PROPERTIES RENTS
- ---------------------------------------- --------------- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
1996.................................... 98% $ 17.32 3,610,000 18 $ 7,402,000
1995.................................... 98 17.17 2,934,000 16 4,603,000
1994.................................... 99 17.20 2,342,000 16 3,595,000
1993.................................... 99 16.09 1,879,000 13 2,335,000
1992.................................... 98 15.25 1,444,000 12 2,049,000
</TABLE>
S-20
<PAGE>
OCCUPANCY COSTS
The Operating Partnership believes that its average occupancy cost (which
includes base rent, common area maintenance, real estate taxes, insurance and
promotions) to average sales per square foot ratio is low relative to other
forms of retail distribution. The following table sets forth, for each of the
last five years, occupancy costs per square foot as a percentage of reported
tenant sales per square foot.
<TABLE>
<CAPTION>
YEAR OCCUPANCY COSTS
- ----------------------------------------------------------------------------- -------------------
<S> <C>
1996......................................................................... 7.9%
1995......................................................................... 8.5
1994......................................................................... 8.4
1993......................................................................... 8.1
1992......................................................................... 8.3
</TABLE>
SALES
Management believes that increasing tenant sales is an important element in
its ability to maintain occupancy levels and to obtain higher average base
rents. The Operating Partnership's same-center sales increased 11% during 1996
compared to 1995. During the first six months of 1997, same-center sales
increased 9% compared to the same period in the previous year. Same-center sales
includes weighted average sales per square foot reported in space open for the
full duration of both comparison periods.
The following table compares weighted average sales per square foot, during
each of the last five years, for tenants that report sales:
<TABLE>
<CAPTION>
REPORTED TENANT WEIGHTED AVERAGE
YEAR SALES (000'S) SALES PER SQ. FT.
- ----------------------------------------------------------- --------------- -------------------
<S> <C> <C>
1996....................................................... $ 1,005,390 $ 345
1995....................................................... 748,256 313
1994....................................................... 534,427 309
1993....................................................... 391,388 298
1992....................................................... 301,058 274
</TABLE>
TENANTS
The Operating Partnership has a diversified mix of tenants, with no single
tenant accounting for more than 7% of the Operating Partnership's revenue or
total GLA. Only one tenant, combining all of its store concepts, occupies more
than 4.1% of the Operating Partnership's GLA. In addition, only five individual
store concepts each account for more than 2% of the Operating Partnership's
revenue or total GLA.
The following table sets forth certain information with respect to the
Operating Partnership's ten largest tenants and their store concepts as of June
30, 1997.
<TABLE>
<CAPTION>
NUMBER OF GLA % OF TOTAL
TENANT STORES (SQ. FT.) GLA
- --------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
PHILLIPS-VAN HEUSEN CORPORATION:
Bass Company Store..................................... 12 90,178 2.3%
Van Heusen............................................. 16 70,982 1.8
Geoffrey Beene Co. Store............................... 7 33,875 0.9
Geoffrey Beene Men's................................... 7 22,104 0.5
Izod................................................... 10 21,618 0.5
Gant................................................... 5 14,957 0.4
Bass Apparel........................................... 3 12,168 0.3
Bass Shoes............................................. 2 8,255 0.2
--- ---------- ---
Tenant total......................................... 62 274,137 6.9%
SAKS FIFTH AVENUE........................................ 8 163,452 4.1%
WESTPOINT STEVENS........................................ 6 96,124 2.4%
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF GLA % OF TOTAL
TENANT STORES (SQ. FT.) GLA
- --------------------------------------------------------- ------------- ---------- -------------
MELRU CORPORATION:
<S> <C> <C> <C>
Jones New York......................................... 9 29,708 0.8%
Jones NY Country....................................... 9 23,606 0.6
Jones NY Sport......................................... 6 15,431 0.4
Jones NY Factory Finale................................ 2 6,464 0.2
Jones NY/Woman......................................... 1 5,499 0.1
Saville/Saville Woman.................................. 2 4,746 0.1
Jones NY Exec. Suite................................... 2 3,096 0.1
Evan Picone............................................ 1 2,660 0.1
Jones & Co............................................. 1 1,857 --
Bristol Cafe........................................... 2 1,466 --
--- ---------- ---
Tenant total......................................... 35 94,533 2.4 %
LCI HOLDINGS, INC.:......................................
Liz Claiborne.......................................... 6 80,188 2.0 %
Elisabeth.............................................. 1 3,527 0.1
Dana Buchman........................................... 1 2,012 0.1
--- ---------- ---
Tenant total......................................... 8 85,727 2.2 %
AMERICAN COMMERCIAL, INCORPORATED:
Mikasa Factory Store................................... 10 85,184 2.2 %
SARA LEE CORPORATION:
L'Eggs, Hanes Bali..................................... 11 50,326 1.3 %
Coach Leather.......................................... 5 13,127 0.3
Champion Hanes......................................... 4 10.923 0.3
Socks Galore........................................... 5 6,215 0.1
Mark Cross............................................. 2 4,078 0.1
--- ---------- ---
Tenant total......................................... 27 84,669 2.1 %
NINE WEST GROUP:
Banister Shoe.......................................... 7 33,160 0.8 %
Nine West.............................................. 12 30,240 0.8
Capezio................................................ 2 6,069 0.2
--- ---------- ---
Tenant total......................................... 21 69,469 1.8 %
DRESS BARN, INC.:
Dress Barn............................................. 10 51,065 1.3 %
Westport, Ltd.......................................... 3 13,381 0.3
Westport Woman......................................... 1 4,005 0.1
--- ---------- ---
Tenant total......................................... 14 68,451 1.7 %
CORNING/REVERE........................................... 14 65,331 1.7 %
TOTAL.................................................... 213 1,087,077 27.5 %
--- ---------- ---
--- ---------- ---
</TABLE>
S-22
<PAGE>
DESCRIPTION OF THE NOTES
The Notes constitute a separate series of securities (which are more fully
described in the accompanying Prospectus) to be issued pursuant to an indenture,
dated as of January 23, 1996 (as modified, amended or supplemented, the
"Indenture") among the Operating Partnership, the Company and State Street Bank
and Trust Company, as trustee (the "Trustee"). The terms of the Notes include
those provisions contained in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The following description of the particular terms of the Notes
offered hereby (referred to herein as the "Notes" and in the Prospectus as the
"Debt Securities") supplements, and to the extent inconsistent therewith,
replaces, the description of the general terms and provisions of the Debt
Securities set forth in the Prospectus, to which description reference is hereby
made. The following summary of the Notes is qualified in its entirety by
reference to the Indenture referred to in the Prospectus and the Notes to be
issued thereunder. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Prospectus or the Indenture, as the case may
be.
GENERAL
The Notes will be limited to $100,000,000 in aggregate principal amount. The
Notes will be issued in denominations of $1,000 and integral multiples of $1,000
in excess thereof. The Notes will mature on October , 2007 (the "Maturity
Date"). Interest on the Notes will accrue at the rate of % per annum and will
be payable semi-annually in arrears on April and October , commencing April
, 1998 (each, an "Interest Payment Date"), to the persons in whose names the
Notes are registered at the close of business on the preceding April or
October , respectively, regardless of whether such day is a business day.
Interest on the Notes will accrue from October , 1997 or from the most recent
Interest Payment Date to which interest has been paid. If any Interest Payment
Date or the Maturity Date or date of earlier redemption, as the case may be,
falls on a day that is not a business day, the required payment shall be made on
the next business day as if it were made on the date such payment was due and no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date or the Maturity Date or date of earlier redemption,
as the case may be. Interest on the Notes will be computed on the basis of a
360-day year of twelve 30-day months.
The Notes will constitute unsecured and unsubordinated indebtedness of the
Operating Partnership and will rank on a parity with all existing and future
unsecured and unsubordinated indebtedness of the Operating Partnership from time
to time outstanding. Subject to certain limitations set forth in the Indenture,
and as described under "Description of Debt Securities--Certain
Covenants--Limitations on Incurrence of Debt" in the accompanying Prospectus,
the Indenture will permit the Operating Partnership to incur secured and
additional unsecured indebtedness. The Operating Partnership does not presently
have outstanding any secured indebtedness. The Notes will be effectively
subordinated to the prior claims of creditors under any of the Operating
Partnership's secured indebtedness incurred in the future.
The Notes will be issued only in fully-registered, book-entry form. See
"--Book-Entry, Delivery and Form" below.
Reference is made to the section entitled "--Certain Covenants" below for a
description of the covenants applicable to the Notes. Compliance with such
covenants with respect to the Notes generally may not be waived by the Trustee
unless the Holders of at least a majority in principal amount of all outstanding
Notes consent to such waiver.
Except as described under "--Merger, Consolidation or Sale" and "--Certain
Covenants" below and under "Description of Debt Securities--Merger,
Consolidation or Sale" and "--Certain Covenants" in the accompanying Prospectus,
the Indenture does not contain any other provisions that would limit the ability
of the Operating Partnership to incur indebtedness or that would afford holders
of the Notes protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the Company
S-23
<PAGE>
as general partner of the Operating Partnership, or any Affiliate of either such
party, (ii) a change of control, or (iii) a reorganization, restructuring,
merger or similar transaction involving the Operating Partnership that may
adversely affect the holders of the Notes. In addition, subject to the
limitations set forth under "--Merger, Consolidation or Sale" and "--Certain
Covenants" below or under "Description of Debt Securities--Merger, Consolidation
or Sale" and "--Certain Covenants" in the accompanying Prospectus, the Operating
Partnership may, in the future, enter into certain transactions such as the sale
of all or substantially all of its assets or the merger or consolidation of the
Operating Partnership that would increase the amount of the Operating
Partnership's indebtedness or substantially reduce or eliminate the Operating
Partnership's assets, which may have an adverse effect on the Operating
Partnership's ability to service its indebtedness, including the Notes. The
Operating Partnership and its management have no present intention of engaging
in a highly leveraged or similar transaction involving the Operating
Partnership.
MATURITY AND OPTIONAL REDEMPTION
The Notes will mature on October , 2007, but are subject to redemption at
the option of the Operating Partnership, in whole or in part, at any time, at a
redemption price equal to the sum of (i) the principal amount of the Notes being
redeemed, plus accrued and unpaid interest thereon to the redemption date, and
(ii) the Make-Whole Amount (as defined below), if any, with respect to such
Notes (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been irrevocably set
aside on the redemption date referred to in such notice, such Notes will cease
to bear interest on the date fixed for such redemption specified in such notice
and the only right of the Holders from and after the redemption date will be to
receive payment of the Redemption Price upon surrender of such Notes in
accordance with such notice.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the security register for the Notes, not less than
30 nor more than 60 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes to be redeemed. If less than all of the Notes are
to be redeemed, the particular Notes to be redeemed shall be selected by such
method as the Trustee deems fair and appropriate.
As used herein:
"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption of
any Notes, the excess, if any, of (i) the aggregate present value as of the
date of such redemption of each dollar of principal being redeemed and the
amount of any interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar if
such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the applicable
Reinvestment Rate (determined on the third Business Day preceding the date
such notice of redemption is given) from the respective dates on which such
principal and interest would have been payable if such redemption had not
been made, over (ii) the aggregate principal amount of the Notes being
redeemed.
"REINVESTMENT RATE" means 0.25% plus the yield on treasury securities at
a constant maturity under the heading "Week Ending" published in the most
recent Statistical Release under the caption "Treasury Constant Maturities"
for the maturity (rounded to the nearest month) corresponding to the
remaining life to maturity, as of the payment date of the principal being
redeemed. If no maturity exactly corresponds to such maturity, yields for
the two published maturities most closely corresponding to such maturity
shall be calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purpose of calculating the
S-24
<PAGE>
Reinvestment Rate, the most recent Statistical Release published prior to
the date of determination of the Make-Whole Amount shall be used.
"STATISTICAL RELEASE" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States government securities adjusted to
constant maturities, or, if such statistical release is not published at the
time of any determination of the Make-Whole Amount, then such other
reasonably comparable index which shall be designated by the Operating
Partnership.
The Notes are not subject to repayment at the option of the Holders thereof.
In addition, the Notes will not be entitled to the benefit of any sinking fund.
MERGER, CONSOLIDATION OR SALE
In addition to the restrictions on merger, consolidation or sale contained
in the accompanying Prospectus (see "Description of Debt Securities -- Merger,
Consolidation or Sale"), the Operating Partnership will not consolidate with or
merge with or into any Person or sell, convey, transfer, lease or otherwise
dispose of all or substantially all of its assets to any other Person unless
after giving pro forma effect to the consolidation, merger, sale, conveyance,
transfer, lease or other disposition, the Operating Partnership or successor
entity could incur at least $1.00 of Debt (other than intercompany Debt) in
accordance with the Indenture covenants limiting the incurrence of Debt.
CERTAIN COVENANTS
LIMITATION ON INCURRENCE OF DEBT. In addition to the limitations on
incurrence of Debt contained in the accompanying Prospectus (see "Description of
Debt Securities -- Certain Covenants -- Limitations on Incurrence of Debt"), the
Operating Partnership will not allow any Restricted Subsidiary to incur any Debt
other than intercompany Debt.
LIMITATION ON DISTRIBUTIONS. In addition to the limitations on
distributions contained in the accompanying Prospectus (see "Description of Debt
Securities -- Certain Covenants -- Limitations on Distributions"), the Operating
Partnership will not make any distribution, by reduction of capital or otherwise
(other than distributions payable in securities evidencing interests in the
Operating Partnership's capital for the purpose of acquiring interests in real
property or otherwise) unless, immediately after giving pro forma effect to such
distribution, the Operating Partnership could incur at least $1.00 of Debt
(other than intercompany Debt) in accordance with the Indenture covenants
limiting the incurrence of Debt; PROVIDED, HOWEVER, that the foregoing
limitations shall not apply to any distribution which is necessary to maintain
the Company's status as a REIT if the aggregate principal amount of all
outstanding Debt of the Company and the Operating Partnership on a consolidated
basis at such time is less than 60% of Adjusted Total Assets.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Operating Partnership will
not, and will not permit any Subsidiary to, directly or indirectly, enter into
any transaction or series of related transactions with an Affiliate unless (i)
such transaction or series of transactions is on terms that are no less
favorable than those available in an arm's-length transaction with unrelated
third parties, (ii) with respect to any transaction, or series of transactions,
with total consideration equal to or greater than $5.0 million, the Operating
Partnership shall have delivered an officer's certificate certifying that such
transaction, or series of transactions, complies with clause (i) above and such
transaction or series of transactions has been approved by a majority of the
Disinterested Directors, or in the case of transactions included in this clause
(ii) for which there are no Disinterested Directors, the Operating Partnership
shall have obtained a written opinion from a nationally recognized investment
banking firm to the effect that such transaction, or series of transactions, is
fair to the Operating Partnership or Subsidiary from a financial point of view
and (iii) with respect to any transaction, or series of transactions, with total
consideration in excess of
S-25
<PAGE>
$15.0 million, the Operating Partnership shall obtain a written opinion from a
nationally recognized investment banking firm as described above.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Operating Partnership will not, and will not permit any
Restricted Subsidiary to, create or allow to exist any encumbrance that would
restrict the ability of a Restricted Subsidiary to (i) pay dividends on Capital
Stock, (ii) pay Debt owed to the Operating Partnership or any Subsidiary, (iii)
make loans or advances to the Operating Partnership or any Subsidiary, (iv)
transfer any property or assets to the Operating Partnership or any other
Subsidiary, or (v) guarantee any Debt of the Operating Partnership or any
Subsidiary.
LIMITATION ON THE SALE OF CAPITAL STOCK. The Operating Partnership will not
permit any Restricted Subsidiary to issue any Capital Stock (other than to the
Operating Partnership or a Restricted Subsidiary) and shall not permit any
person (other than the Operating Partnership or a Subsidiary) to own any Capital
Stock of any Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing shall
not prohibit the issuance and sale of all, but not less than all, of the issued
and outstanding Capital Stock of any Subsidiary owned by the Operating
Partnership or any Subsidiary in accordance with the provisions of the
Indenture.
As used herein:
"AFFILIATE" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (ii) any other person that
owns, directly or indirectly, 10% or more of such specified person's Voting
Stock or any executive officer or director of any such specified person or other
person or, with respect to any natural person, any person having a relationship
with such person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control", when used with respect
to any specified person, means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of Voting
Stock, by contract or otherwise; and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series of
transactions which a majority of the Disinterested Directors of the Company are
required to approve under the Indenture or a supplemental indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Operating Partnership
unless such Subsidiary of the Operating Partnership is an Unrestricted
Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms
of the Indenture or a supplemental indenture.
"UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors, as provided below) and (b) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so
long as (i) neither the Operating Partnership nor any other Subsidiary is
directly or indirectly liable for any Debt of such Subsidiary, (ii) no default
with respect to any Debt of such Subsidiary would permit (upon notice, lapse of
time or otherwise) any holder of any other Debt of the Operating Partnership or
any other Subsidiary to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its stated maturity, (iii)
neither the Operating Partnership nor any other Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Operating Partnership and (iv)
neither the Operating Partnership nor any other Subsidiary has any obligation
(1) to subscribe for additional shares of Capital Stock or other equity interest
in such Subsidiary or (2) to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results. Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a copy of the board resolution giving
effect to such designation. The
S-26
<PAGE>
Board of Directors may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if immediately after giving effect to such designation, there would
be no event of default under the Indenture, or any event that after notice or
passage of time would be an event of default, and the Operating Partnership
could incur $1.00 of additional Debt (other than intercompany Debt) in
accordance with the Indenture covenants limiting the incurrence of Debt.
Reference is made to the section entitled "Description of Debt Securities --
Certain Covenants" in the accompanying Prospectus for a description of
additional covenants applicable to the Notes. Compliance with the covenants
described herein and such additional covenants with respect to the Notes
generally may not be waived by the Board of Directors of the Company, as general
partner of the Operating Partnership, or by the Trustee unless the Holders of at
least a majority in principal amount of all outstanding Notes consent to such
waiver; PROVIDED, HOWEVER, that the defeasance and covenant defeasance
provisions of the Indenture described under "Description of Debt Securities --
Discharge, Defeasance and Covenant Defeasance" in the accompanying Prospectus
will apply to the Notes, including with respect to the covenants described in
this Prospectus Supplement.
BOOK-ENTRY, DELIVERY AND FORM
Upon issuance, the Notes will be represented by a single Global Note, which
will be deposited with, or on behalf of, the Depositary and will be registered
in the name of the Depositary or a nominee of the Depositary. The Global Note
may not be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor depositary or a nominee of such successor depositary.
So long as the Depositary or its nominee is the registered owner of the
Global Note, the Depositary or its nominee, as the case may be, will be the sole
owner of the Notes represented thereby for all purposes under the Indenture and
may be treated by the Operating Partnership or the Trustee as the owner of the
Global Note for all purposes whatsoever. Except as otherwise provided in this
section, owners of beneficial interests in the Global Note will not be entitled
to receive physical delivery of certificated Notes and will not be considered
the owners thereof for any purpose under the Indenture, and the Global Note
shall not be exchangeable or transferable. Accordingly, each beneficial owner
must rely on the procedures of the Depositary and, if such beneficial owner is
not a Participant (as defined herein), on the procedures of the Participant
through which such beneficial owner owns its interest in order to exercise any
rights of an owner under the Global Note or the Indenture. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. Such limits and such laws may
impair the ability to transfer beneficial interests in the Global Note.
None of the Operating Partnership, the Company, the Trustee, any Paying
Agent or the Registrar will have responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership in
the Global Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Global Note will be exchangeable for certificated Notes of like tenor
and terms and of differing authorized denominations aggregating a like principal
amount, only if the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Operating Partnership within 90 days of the Operating Partnership's receipt of
notice to such effect or if the Operating Partnership, in its sole discretion,
at any time determines that the Notes shall no longer be represented by such
Global Note, then in either event the Global Note shall be exchanged for Notes
in definitive form pursuant to the Indenture.
S-27
<PAGE>
The following is based on information furnished by the Depositary:
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended. The Depositary holds
securities that its participants ("Participants") deposit with the
Depositary. The Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. Direct Participants of the Depositary ("Direct
Participants") include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain
other organizations. The Depositary is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the Depositary's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Securities and
Exchange Commission.
Purchasers of Notes under the Depositary's system must be made by or
through Direct Participants, which will receive a credit for such Notes on
the Depositary's records. The ownership interest of each actual purchaser of
each Note represented by the Global Note ("Beneficial Owner") is in turn to
be recorded on the Direct and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Depositary of their
purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants
through which such Beneficial Owner entered into the transaction. Transfers
of beneficial ownership interests in the Global Note are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificated Notes representing
their beneficial ownership interests in the Global Note, except in the event
that use of the book-entry system for the Global Note is discontinued.
To facilitate subsequent transfers, the Global Note deposited with, or
on behalf of, the Depositary will be registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of the Global Note
with the Depositary and the registration thereof in the name of Cede & Co.
effect no change in beneficial ownership. The Depositary has no knowledge of
the actual Beneficial Owners of the Notes represented by the Global Note;
the Depositary's records reflect only the identity of the Direct
Participants to whose accounts such Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Notes. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the Operating Partnership as soon as possible after the applicable
record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Direct Participants to whose account interests in the Notes
represented by the Global Note are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
S-28
<PAGE>
Principal and interest payments on the Notes will be made in immediately
available funds to the Depositary. The Depositary's practice is to credit
Direct Participants' accounts on the applicable payment date in accordance
with their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payment on such
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities, held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such Participant and not
of the Depositary, the Trustee, the Operating Partnership or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to the Depositary is the
responsibility of the Operating Partnership or the Trustee, disbursement of
such payments to Direct Participants shall be the responsibility of the
Depositary, and disbursement of such payments to the Beneficial Owners shall
be the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depository with respect to the Notes at any time by giving reasonable notice
to the Operating Partnership or the Trustee. Under such circumstances, in
the event that a successor securities depository is not obtained,
certificated Notes are required to be printed and delivered.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through the Depositary (or a successor securities
depository). In that event, certificated Notes will be printed and
delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry has been obtained from sources that the Operating
Partnership believes to be reliable, but the Operating Partnership takes no
responsibility for the accuracy thereof.
INFORMATION REGARDING THE TRUSTEES
The Trustee under the Indenture will be State Street Bank and Trust Company.
The Trustee is the trustee with respect to the Operating Partnership's publicly
issued debt securities.
S-29
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. The following discussion deals only with Notes held as capital
assets and does not purport to deal with persons in special tax situations, such
as financial institutions, banks, insurance companies, regulated investment
companies, dealers in securities or currencies, persons holding Notes as a hedge
against currency risks or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the United States dollar. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation or partnership (including an entity
treated as a corporation or a partnership for U.S. Federal income tax purposes)
created or organized in or under the laws of the United States or any state
thereof or the District of Columbia (except in the case of a partnership as
otherwise provided by Treasury Regulations), (iii) an estate the income of which
is subject to United States Federal income taxation regardless of its source,
(iv) a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust or
(v) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business. Notwithstanding
the preceding sentence, to the extent provided in regulations, certain trusts in
existence on August 20, 1996 and treated as United States persons prior to such
date that elect to continue to be so treated also shall be considered United
States persons. As used herein, the term "non-U.S. Holder" means a beneficial
owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Under general principles of current United States
Federal income tax law, payments of interest on a debt instrument generally will
be taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or are received (in accordance with the U.S. Holder's
regular method of tax accounting).
DISPOSITION OF A NOTE. Under general principles of current United States
Federal income tax law, upon the sale, exchange or retirement of a Note, a U.S.
Holder generally would recognize taxable gain or loss in an amount equal to the
difference, if any, between the amount realized upon the sale, exchange or
retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in its Note. A U.S. Holder's adjusted tax
basis in a Note generally would equal such U.S. Holder's initial investment in
such Note. Any gain or loss realized by a U.S. Holder upon the sale, exchange or
retirement of a Note generally would be long-term or short-term capital gain or
loss, depending upon whether the U.S. Holder had held the Note for more than one
year. The Taxpayer Relief Act of 1997 reduces the maximum rates on gains
recognized upon the taxable disposition of capital assets held by individual
taxpayers for more than 18 months as of the date of disposition (and would
further reduce the maximum rates on such gains in the year 2001 and thereafter
for certain individual taxpayers who meet specified conditions). Prospective
investors should consult their own tax advisors concerning these tax law
changes.
GAIN OR INCOME RECEIVED BY A FOREIGN CORPORATION. A foreign corporation
whose income or gain in respect of a Note is effectively connected with the
conduct of a United States trade or business, in addition to being subject to
regular U.S. income tax, may be subject to a branch profits tax equal to 30% of
its
S-30
<PAGE>
"effectively connected earnings and profits" within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable tax treaty (as modified by the branch profits tax
rules).
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium, if any, or interest on a Note, if (i) such
non-U.S. Holder does not hold a direct or indirect 10% or greater interest in
the Operating Partnership or a controlled foreign corporation related to the
Company and (ii) the last United States payor in the chain of payment (the
"Withholding Agent") has received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
signed by the beneficial owner of the Note under penalties of perjury certifying
that such owner is not a U.S. Holder and providing the name and address of the
beneficial owner. The statement may be made on a Form W-8 or a substantially
similar form, and the beneficial owner must inform the Withholding Agent of any
change in the information on the statement within 30 days of such change. If a
Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the Withholding Agent. However, in such case, the signed statement
must be be accompanied by a copy of the Form W-8 or the substitute form provided
by the beneficial owner to the organization or institution. Interest received by
a non-U.S. Holder which does not qualify for exemption from taxation will be
subject to United States Federal income tax and withholding tax at a rate of 30%
unless reduced or eliminated by applicable tax treaty. The Treasury Department
is considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Treasury Department has issued regulations regarding the backup
withholding rules as applied to non-U.S. Holders that unify current
certification procedures and forms and unify reliance standards but generally do
not substantially alter the current system of backup withholding compliance with
respect to interest payment. The regulations will be generally effective with
respect to distributions made after December 31, 1998, subject to compliance
with certain transition rules. A non-U.S. Holder should consult its tax advisor
regarding the effect these regulations will have on its reporting and
certification requirements.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual holds a direct or indirect 10% or greater interest in the
Operating Partnership or, at the time of such individual's death, payments in
respect of the Notes would have been effectively connected with the conduct by
such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the Internal Revenue
Service ("IRS"), unless the U.S. Holder is an exempt recipient or establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding for those
non-U.S. Holders who are not exempt recipients.
S-31
<PAGE>
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on a Form W-8 under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Operating Partnership has agreed to sell to each of the Underwriters named
below (the "Underwriters"), and each of the Underwriters has severally agreed to
purchase, the respective principal amount of Notes set forth opposite their
names below. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
- ---------------------------------------------------------------------------------- ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................ $
Goldman, Sachs & Co...............................................................
J.P. Morgan Securities Inc........................................................
---------------
Total................................................................... $ 100,000,000
<CAPTION>
---------------
---------------
</TABLE>
The Operating Partnership has been advised by the Underwriters that they
propose to offer the Notes to the public at the offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of % of the principal amount thereof, and
that the Underwriters may allow, and such dealers may reallow, a discount not in
excess of % of the principal amount to other dealers. The public offering
price, concession and discount may be changed after the initial public offering.
The Notes are a new issue of securities with no established trading market.
The Operating Partnership does not intend to apply for listing of the Notes on a
national securities exchange or The Nasdaq Stock Market. The Operating
Partnership has been advised by the Underwriters that they intend to make a
market in the Notes, but are not obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
development or liquidity of the trading market for the Notes.
Until the distribution of the Notes is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriters to bid for and
purchase the Notes. As an exception to these rules, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), as representative, will be
permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
S-32
<PAGE>
If the Underwriters create a short position in the Notes in connection with
the Offering, i.e., if they sell more of the Notes than are set forth on the
cover page of this Prospectus Supplement, Merrill Lynch may reduce that short
position by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Operating Partnership nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the prices of the Notes. In
addition, neither the Operating Partnership nor the Underwriters makes any
representation that Merrill Lynch will engage in such transactions or that such
transactions, once commenced, will be discontinued without notice.
The Operating Partnership and the Company have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof.
In the ordinary course of their respective business, certain of the
Underwriters and their affiliates have provided, and may in the future provide,
investment banking, financial advisory and other services to the Operating
Partnership and the Company.
LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Operating Partnership by Stroock & Stroock & Lavan LLP, New
York, New York. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Brown & Wood LLP, New York, New York.
S-33
<PAGE>
PROSPECTUS
$500,000,000
CHELSEA GCA REALTY, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
CHELSEA GCA REALTY
PARTNERSHIP, L.P.
DEBT SECURITIES
--------------
Chelsea GCA Realty, Inc. (the "Company") may offer and issue from time to
time (i) shares of its common stock, $.01 par value per share (the "Common
Stock"), (ii) shares of its preferred stock, $.01 par value per share (the
"Preferred Stock") and (iii) shares of Preferred Stock represented by depositary
shares (the "Depositary Shares"), with an aggregate public offering price of up
to $200,000,000, in amounts, at prices and on terms to be determined at the time
of offering. Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership")
may offer and issue from time to time in one or more series unsecured non-
convertible debt securities (the "Debt Securities"), with an aggregate public
offering price of up to $300,000,000, in amounts, at prices and on terms to be
determined at the time of offering. The Common Stock, Preferred Stock,
Depositary Shares and Debt Securities (collectively, the "Securities") may be
offered, separately or together, at prices and on terms to be set forth in one
or more supplements to this Prospectus (each a "Prospectus Supplement"). If any
Debt Securities issued by the Operating Partnership are rated below investment
grade at the time of issuance, such Debt Securities will be fully and
unconditionally guaranteed by the Company (the "Guarantees") as to payment of
principal, premium, if any, and interest.
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Common Stock, any initial
public offering price, (ii) in the case of Preferred Stock, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price, (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
Depositary Share and (iv) in the case of Debt Securities, the specific title,
aggregate principal amount, currency, form (which may be registered or bearer,
or certificated or global), authorized denominations, maturity, rate (or manner
of calculation thereof) and time of payment of interest, terms for redemption at
the option of the Operating Partnership or repayment at the option of the
holder, terms for sinking fund payments, covenants and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING AT PAGE 3 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
The Securities may be offered directly or through agents designated from
time to time by the Company or the Operating Partnership or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. No Securities may be sold by the Company or the Operating
Partnership through agents, underwriters or dealers without delivery of a
Prospectus Supplement describing the method and terms of the offering of such
Securities. See "Plan of Distribution."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 8, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, the Company files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission") and the Operating Partnership files reports with the Commission.
Such reports, proxy statements and other information may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as the regional offices
of the Commission at 7 World Trade Center (13th Floor), New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Such reports and other information filed with the
Commission may also be available at the Commission's site on the World Wide Web
located at http://www.sec.gov. Copies of such information can be obtained by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Such materials can also be
inspected at the office of the New York Stock Exchange, Inc. ("NYSE"), 20 Broad
Street, New York, New York 10005.
The Company and the Operating Partnership have filed with the Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company, the
Operating Partnership and the Securities, reference is made to the Registration
Statement, including the exhibits filed as a part thereof and otherwise
incorporated therein. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. Copies of the
Registration Statement and the exhibits may be inspected, without charge, at the
offices of the Commission, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (Commission File No.
1-12328) and the Operating Partnership (Commission File No. 33-98136) with the
Commission pursuant to the Exchange Act or the Securities Act are incorporated
by reference in this Prospectus:
1. Annual Reports on Form 10-K for the year ended December 31, 1996.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997.
3. The description of the Company's Common Stock which is contained in Item
1 of the Company's registration statement on Form 8-A, as amended, filed
September 8, 1993 pursuant to Section 12 of the Exchange Act.
4. Current Report on Form 8-K dated April 11, 1997.
5. The information contained in the section "Policies With Respect to
Certain Activities" contained in the Registration Statement on Form S-11
(File No. 33-67870) filed on August 25, 1993, as amended.
All documents filed by the Company or the Operating Partnership pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Securities
hereunder shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of the filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
2
<PAGE>
The Company and the Operating Partnership will provide a copy of any or all
of such documents (exclusive of exhibits unless such exhibits are specifically
incorporated by reference therein), without charge, to each person to whom this
Prospectus is delivered, upon written or oral request to Investor Relations,
Chelsea GCA Realty, Inc., 103 Eisenhower Parkway, Roseland, New Jersey 07068,
telephone (973) 228-6111.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed REIT which is the
managing general partner of the Operating Partnership, a partnership that owns
and provides development, leasing, marketing and management for upscale and
fashion-oriented manufacturers' outlet centers (the "Properties"). The Company
also has several properties under development. The Properties are located near
large metropolitan areas or at proven tourist destinations.
All of the Company's interests in the Properties are held by, and all of its
operations relating to the Properties are conducted through, the Operating
Partnership. The description of business, property information, policies with
respect to certain activities and management information for the Operating
Partnership are virtually identical to that of the Company. Such information may
be found in the Company's Annual Report on Form 10-K for the year ended December
31, 1996 and in the Company's definitive prospectus dated October 26, 1993
contained in its Registration Statement on Form S-11 (File No. 33-67870). The
Company controls the Operating Partnership as the sole general partner and owner
of approximately 82% of the outstanding units of partnership interests in the
Operating Partnership (the "Units"). Each Unit, other than those held by the
Company, may be exchanged by the holder thereof for one share (subject to
certain adjustments) of Common Stock. With each such exchange, the number of
Units owned by the Company, and its percentage interest in the Operating
Partnership, will increase.
The Company is organized under the laws of the State of Maryland. The
Operating Partnership is a Delaware limited partnership. Their principal
executive office is located at 103 Eisenhower Parkway, Roseland, New Jersey
07068, telephone (973) 228-6111.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing Securities in the Offering.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company intends to limit the extent of its borrowing to less than 40% of
its total market capitalization (i.e., the market value of issued and
outstanding shares of Common Stock and Units plus total debt), but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company might incur. The Indenture,
however, will contain limits on the Company's ability to incur indebtedness. If
the Company's policy limiting borrowing were changed, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's funds from operations and ability to make
expected distributions to stockholders and in an increased risk of default on
its obligations.
CONCENTRATION OF COMPANY'S REVENUE
Approximately 38% and 34% of the Company's revenues for the year ended
December 31, 1996 and the six-month period ended June 30, 1997, respectively,
were derived from the Company's two centers with the highest revenues, Woodbury
Common Factory Outlets and Desert Hills Factory Stores. The loss of either of
these centers or a material decrease in the revenues received from either of
such centers for any reason could have a material adverse effect on the Company.
In addition, approximately 44% and 40% of the Company's revenues for the year
ended December 31, 1996 and the six-month period ended June 30, 1997,
respectively, were derived from the Company's nine centers in California.
3
<PAGE>
ABILITY OF THE COMPANY TO PAY ON GUARANTEES
All operations of the Company are conducted by the Operating Partnership,
and the only asset of the Company is its approximate 82% interest in the
Operating Partnership. As a result, the Company is dependent upon the receipt of
distributions or other payments from the Operating Partnership in order to meet
its financial obligations, including its obligations under any Guarantees. Any
Guarantees will be effectively subordinated to existing and future liabilities
of the Operating Partnership. At June 30, 1997, the Operating Partnership had
approximately $255 million of indebtedness outstanding, all of which was
unsecured. The Operating Partnership is a party to a loan agreement with various
bank lenders which requires the Operating Partnership to comply with various
financial and other covenants before it may make distributions to the Company.
Although the Operating Partnership presently is in compliance with such
covenants, there is no assurance that it will continue to be in compliance and
that it will be able to continue to make distributions to the Company.
RISKS IN THE EVENT OF CERTAIN TRANSACTIONS BY THE OPERATING PARTNERSHIP OR THE
COMPANY
The Indenture does not contain any provisions that would afford holders of
Debt Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the management of the Operating
Partnership or the Company, or any affiliate of any such party, (ii) a change of
control, or (iii) certain reorganizations, restructurings, mergers or similar
transactions involving the Operating Partnership or the Company.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
OWNERSHIP LIMIT. The Company's Articles of Incorporation prohibit ownership
of more than 7% of the outstanding Common Stock by any person. Such restriction
is likely to have the effect of precluding acquisition of control of the Company
by a third party without consent of the Board of Directors even if a change in
control were in the interest of stockholders.
REQUIRED CONSENT OF THE OPERATING PARTNERSHIP FOR MERGER OR OTHER
SIGNIFICANT CORPORATE ACTION. So long as the limited partners own at least 10%
of the capital of the Operating Partnership, the Operating Partnership may not
merge, consolidate or engage in any combination with another person or sell all
or substantially all of its assets unless approved by the holders of a majority
of the limited partnership Units.
STAGGERED BOARD. The Board of Directors of the Company has three classes of
directors, the terms of which will expire in 1998, 1999 and 2000. Directors for
each class will be chosen for a three-year term. The staggered terms for
directors may affect the stockholders' ability to change control of the Company
even if a change in control were in the stockholders' interest.
DISTRIBUTIONS TO STOCKHOLDERS
To obtain the favorable tax treatment associated with REITs, the Company
generally will be required each year to distribute to its stockholders at least
95% of its net taxable income. The ability of the Company to make such
distributions is dependent upon the receipt of distributions or other payments
from the Operating Partnership.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
The Company and the Operating Partnership intend to operate in a manner so
as to permit the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). Although the Company believes that it will
operate in such a manner, no assurance can be given that the Company will
qualify or remain qualified as a REIT. If in any taxable year the Company were
to fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
RISKS RELATED TO THE MANUFACTURERS' OUTLET CENTER INDUSTRY
COMPETITION FROM OTHER MANUFACTURERS' OUTLET CENTERS. Numerous developers
and real estate companies are engaged in the development or ownership of
manufacturers' outlet centers and other commercial
4
<PAGE>
properties and compete with the Company in seeking tenants for outlet centers.
This results in competition for the acquisition of prime properties and for
tenants who will lease space in the manufacturers' outlet centers that the
Company and its competitors own or operate.
THE RELATIVELY SHORT HISTORY OF MANUFACTURERS' OUTLET CENTERS MAY NOT BE
INDICATIVE OF FUTURE PERIODS. Although the manufacturers' outlet center industry
has grown over the last several years, the industry represents a relatively new
and rapidly growing segment of the retailing industry and, therefore, the long-
term performance of these centers may not be comparable to, and cash flows may
not be as predictable as, traditional retail malls.
GENERAL REAL ESTATE INVESTMENT RISKS
ECONOMIC PERFORMANCE AND VALUE OF CENTERS DEPENDENT ON MANY FACTORS. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climate, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
RISKS OF DEVELOPMENT ACTIVITIES. The Company intends to actively pursue
manufacturers' outlet center development projects, including the expansion of
existing centers. Such projects generally require expenditure of capital as well
as various forms of government and other approvals, the receipt of which cannot
be assured.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company were unable to lease a significant
amount of space in its Properties on economically favorable lease terms. In
addition, the terms of manufacturers' outlet store tenant leases traditionally
have been significantly shorter than in traditional segments of retailing. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to re-lease space on economically
advantageous terms.
ENVIRONMENTAL RISKS. Under various federal, state and local laws,
ordinances and regulations, each of the Company and the Operating Partnership
may be considered an owner or operator of real property or may have arranged for
the disposal or treatment of hazardous or toxic substances and, therefore, may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property or disposed of by it, as well as
certain other potential costs which could relate to hazardous or toxic
substances (including governmental fines and injuries to persons and property).
Such liability may be imposed whether or not the Company knew of, or was
responsible for, the presence of such hazardous or toxic substances.
USE OF PROCEEDS
The net proceeds to the Company and the Operating Partnership from the sale
of the Securities offered hereby (the "Offering") will be used for general
corporate purposes, which may include the repayment of existing indebtedness,
the development or acquisition of additional properties as suitable
opportunities arise and the renovation, expansion and improvement of the
Operating Partnership's existing properties. Any proceeds from the sale of
Common Stock, Preferred Stock or Depositary Shares by the Company must be
invested in the Operating Partnership, which will use such proceeds for the
above-described purposes. Further details relating to the use of the net
proceeds will be set forth in the applicable Prospectus Supplement.
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RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's and the Operating Partnership's
consolidated ratios of earnings to combined fixed charges and preferred stock
dividends for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------------------------------------
JUNE 30, 1997 1996 1995 1994 1993 1992
- ----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2.13x 2.84x 3.59x 10.40x 1.45x 1.20x
</TABLE>
The ratios of earnings to combined fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income from
continuing operations before minority interest and fixed charges, exclusive of
interest capitalized and amortization of loan costs capitalized. Fixed charges
consist of interest expense (including interest costs capitalized), the portion
of rent expense representative of interest and total amortization of debt
issuance costs (expensed and capitalized). To date, the Company has not issued
any Preferred Stock.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
among the Operating Partnership, the Company and State Street Bank and Trust
Company, as trustee. The Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available for
inspection at the corporate trust office of the trustee at Two International
Place, 5th Floor, Boston, Massachusetts or as described above under "Available
Information." The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended (the "TIA"). The statements made hereunder relating to
the Indenture and the Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indenture and such Debt Securities. All section references appearing herein are
to sections of the Indenture, and capitalized terms used but not defined herein
shall have the respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At June 30, 1997, the total
outstanding debt of the Operating Partnership was approximately $255 million,
all of which was unsecured debt. The Debt Securities may be issued without limit
as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company as sole general partner of
the Operating Partnership or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
If any Debt Securities issued by the Operating Partnership are rated below
investment grade at the time of issuance, such Debt Securities will be fully and
unconditionally guaranteed by the Company as to payment of principal, premium,
if any, and interest.
The Indenture provides that there may be more than one trustee (the
"Trustee") thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608). In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture separate and apart from the trust administered by any other Trustee
(Section 609), and, except as otherwise indicated herein, any action described
herein to be taken by a Trustee may be taken by each such Trustee with respect
to, and only with respect to, the one or more series of Debt Securities for
which it is Trustee under the Indenture.
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Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1)the title of such Debt Securities;
(2)the aggregate principal amount of such Debt Securities and any limit on such
aggregate principal amount;
(3)the percentage of the principal amount at which such Debt Securities will be
issued and, if other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of the
maturity thereof;
(4)the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(5)the rate or rates (which may be fixed or variable), or the method by which
such rate or rates shall be determined, at which such Debt Securities will
bear interest, if any;
(6)the date or dates, or the method for determining such date or dates, from
which any interest will accrue, the dates on which any such interest will be
payable, the record dates for such interest payment dates, or the method by
which any such date shall be determined, the person to whom such interest
shall be payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months;
(7)the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange and
notices or demands to or upon the Operating Partnership in respect of such
Debt Securities and the Indenture may be served;
(8)the period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities may be redeemed, as a
whole or in part, at the option of the Operating Partnership, if the
Operating Partnership is to have such an option;
(9)the obligation, if any, of the Operating Partnership to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the terms and conditions upon
which such Debt Securities will be redeemed, repaid or purchased, as a whole
or in part, pursuant to such obligation;
(10)if other than U.S. dollars, the currency or currencies in which such Debt
Securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(11)whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with reference
to an index, formula or other method (which index, formula or method may,
but need not be, based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts shall
be determined;
(12)the events of default or covenants of such Debt Securities, to the extent
different from or in addition to those described herein;
(13)whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14)whether such Debt Securities will be in registered or bearer form and, if in
registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof
if other than $5,000 and terms and conditions relating thereto;
(15)with respect to any series of Debt Securities rated below investment grade
at the time of issuance, the Guarantees (the "Guaranteed Securities");
(16)if the defeasance and covenant defeasance provisions described herein are to
be inapplicable or any modification of such provisions;
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<PAGE>
(17)if such Debt Securities are to be issued upon the exercise of debt warrants,
the time, manner and place for such Debt Securities to be authenticated and
delivered;
(18)whether and under what circumstances the Operating Partnership will pay
additional amounts on such Debt Securities in respect of any tax, assessment
or governmental charge and, if so, whether the Operating Partnership will
have the option to redeem such Debt Securities in lieu of making such
payment;
(19)with respect to any Debt Securities that provide for optional redemption or
prepayment upon the occurrence of certain events (such as a change of
control of the Operating Partnership), (i) the possible effects of such
provisions on the market price of the Operating Partnership's or the
Company's securities or in deterring certain mergers, tender offers or other
takeover attempts, and the intention of the Operating Partnership to comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws in connection with such provisions; (ii) whether
the occurrence of the specified events may give rise to cross-defaults on
other indebtedness such that payment on such Debt Securities may be
effectively subordinated; and (iii) the existence of any limitation on the
Operating Partnership's financial or legal ability to repurchase such Debt
Securities upon the occurrence of such an event (including, if true, the
lack of assurance that such a repurchase can be effected) and the impact, if
any, under the Indenture of such a failure, including whether and under what
circumstances such a failure may constitute an Event of Default;
(20)if other than the Trustee, the identity of each security registrar and/or
paying agent; and
(21)any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in any Prospectus Supplement, the Indenture does not contain any other
provisions that would limit the ability of the Operating Partnership or the
Company to incur indebtedness or that would afford holders of the Debt
Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the management of the Operating
Partnership or the Company, or any affiliate of any such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar transaction
involving the Operating Partnership or the Company that may adversely affect the
holders of the Debt Securities. In addition, subject to the limitations set
forth under "Merger, Consolidation or Sale," the Operating Partnership or the
Company may, in the future, enter into certain transactions, such as the sale of
all or substantially all of its assets or the merger or consolidation of the
Operating Partnership or the Company, that would increase the amount of the
Operating Partnership's indebtedness or substantially reduce or eliminate the
Operating Partnership's assets, which may have an adverse effect on the
Operating Partnership's ability to service its indebtedness, including the Debt
Securities. In addition, restrictions on ownership and transfers of the
Company's common stock and preferred stock which are designed to preserve its
status as a REIT may act to prevent or hinder a change of control. See
"Description of Common Stock -- Restrictions on Ownership" and "Description of
Preferred Stock -- Restrictions on Ownership." Reference is made to the
applicable Prospectus Supplement for information with respect to any deletions
from, modifications of or additions to the events of default or covenants that
are described below, including any addition of a covenant or other provision
providing event risk or similar protection.
Reference is made to "-- Certain Covenants" below and to the description of
any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the Board of
Directors of the Company as sole general partner of the Operating Partnership or
by the Trustee unless the Holders of at least a majority in principal amount of
all outstanding Debt Securities of such series consent to such waiver, except to
the extent that the
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<PAGE>
defeasance and covenant defeasance provisions of the Indenture described under
"-- Discharge, Defeasance and Covenant Defeasance" below apply to such series of
Debt Securities. See "-- Modification of the Indenture."
GUARANTEES
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal of, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series which are registered securities, other than registered
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $1,000 and any integral multiple thereof and the
Debt Securities which are bearer securities, other than bearer securities issued
in global form (which may be of any denomination), shall be issuable in
denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, initially located
at Two International Place, 5th Floor, Boston, Massachusetts, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each place of
payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on the day of such selection, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
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Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of that series
and like tenor, PROVIDED that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Debt Security not to be so
repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or the Company may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Company, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Company, as the case may
be,) formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
intercompany debt (representing Debt to which the only parties are the Company,
the Operating Partnership and any of their Subsidiaries (but only so long as
such Debt is held solely by any of the Company, the Operating Partnership and
any Subsidiary) that is subordinate in right of payment to the Debt Securities)
if, immediately after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 60% of
the sum of (i) the Operating Partnership's Total Assets (as defined below) as of
the end of the calendar quarter covered in the Operating Partnership's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the Trustee) prior to the incurrence of such additional
Debt and (ii) the increase in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets resulting from the
incurrence of such additional Debt (such increase together with the Operating
Partnership's Total Assets shall be referred to as the "Adjusted Total Assets")
(Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership and its Subsidiaries on a consolidated
basis is greater than 40% of the Operating Partnership's Adjusted Total Assets.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 2.0 to 1, on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Operating Partnership or its Subsidiaries since the
first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning of
such period, (ii) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period
had been incurred, repaid or retired at the
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beginning of such period (except that, in making such computation, the amount of
Debt under any revolving credit facility shall be computed based upon the
average daily balance of such Debt during such period), (iii) the income earned
on any increase in Adjusted Total Assets since the end of such four-quarter
period had been earned, on an annualized basis, during such period, and (iv) in
the case of any acquisition or disposition by the Operating Partnership or any
Subsidiary of any asset or group of assets since the first day of such
four-quarter period, including, without limitation, by merger, stock purchase or
sale, or asset purchase or sale, such acquisition or disposition or any related
repayment of Debt had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition being
included in such pro forma calculation.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
LIMITATIONS ON DISTRIBUTIONS. The Operating Partnership will not make any
distribution, by reduction of capital or otherwise (other than distributions
payable in securities evidencing interests in the Operating Partnership's
capital for the purpose of acquiring interests in real property or otherwise)
unless, immediately after giving pro forma effect to such distribution (a) no
default under the Indenture or event of default under any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any Debt of the Operating Partnership, the Company or any Subsidiary
shall have occurred or be continuing, and (b) the aggregate sum of all
distributions made after the date of the Indenture shall not exceed the sum of
(i) 95% of the aggregate cumulative Funds From Operations of the Operating
Partnership accrued on a cumulative basis from the date of the Indenture until
the end of the last fiscal quarter prior to the contemplated payment, and (ii)
the aggregate Net Cash Proceeds received by the Operating Partnership after the
date of the Indenture from the issuance and sale of Capital Stock of the
Operating Partnership or the Company; provided, however, that the foregoing
limitation shall not apply to any distribution or other action which is
necessary to maintain the Company's status as a REIT, under the Code, if the
aggregate principal amount of all outstanding Debt of the Company and the
Operating Partnership on a consolidated basis at such time is less than 60% of
Adjusted Total Assets (Section 1012).
Notwithstanding the foregoing, the Operating Partnership will not be
prohibited from making the payment of any distribution within 30 days of the
declaration thereof if at such date of declaration such payment would have
complied with the provisions of the immediately preceding paragraph.
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership and the Company are required to do or cause to be done all
things necessary to preserve and keep in full force and effect their existence,
rights and franchises; PROVIDED, HOWEVER, that the Operating Partnership or the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities (Section 1007).
MAINTENANCE OF PROPERTIES. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business (Section 1005).
INSURANCE. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1006).
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<PAGE>
PAYMENT OF TAXES AND OTHER CLAIMS. The Operating Partnership and the
Company are required to pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon them or any Subsidiary or upon their
income, profits or property or that of any Subsidiary, and (ii) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Operating Partnership, the Company or any
Subsidiary; PROVIDED, HOWEVER, that the Operating Partnership and the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings (Section 1013).
PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1014).
As used herein and in the Prospectus Supplement:
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed
and capitalized in any 12-month period for interest on Debt.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of this Prospectus.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c) amortization
of debt discount, (d) depreciation and amortization, (e) the effect of any
noncash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period, (f) amortization of deferred charges
and (g) provisions for or realized losses on properties and (ii) less amounts
which have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
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"DEBT" means any indebtedness, whether or not contingent, in respect of (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the purchase
price of any property except any such balance that constitutes an accrued
expense or trade payable or (iv) any lease of property which would be reflected
on a consolidated balance sheet as a capitalized lease in accordance with
generally accepted accounting principles, in the case of items of indebtedness
under (i) through (iii) above to the extent that any such items (other than
letters of credit) would appear as a liability on a consolidated balance sheet
in accordance with generally accepted accounting principles, and also includes,
to the extent not otherwise included, any obligation to be liable for, or to
pay, as obligor, guarantor or otherwise (other than for purposes of collection
in the ordinary course of business), indebtedness of another person.
"FUNDS FROM OPERATIONS" ("FFO") for any period means the Consolidated Net
Income of the Operating Partnership and its Subsidiaries for such period without
giving effect to depreciation and amortization, gains or losses from
extraordinary items, gains or losses on sales of real estate (exclusive of
out-parcel sales), gains or losses on investments in marketable securities and
any provision/benefit for income taxes for such period, plus the allocable
portion, based on the Operating Partnership's ownership interest, of funds from
operations of unconsolidated joint ventures, all determined on a consistent
basis. Management considers FFO an appropriate measure of performance of an
equity REIT. FFO does not represent net income or cash flows as defined by
generally accepted accounting principles ("GAAP") and should not be considered
an alternative to net income as an indicator of operating performance or to cash
from operations under GAAP, and is not necessarily indicative of cash available
to fund cash needs.
"NET CASH PROCEEDS" means the proceeds of any issuance or sale of Capital
Stock or options, warrants or rights to purchase Capital Stock, in the form of
cash or Cash Equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Operating Partnership or any Subsidiary),
net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"SUBSIDIARY" means any entity of which the Operating Partnership or one or
more other Subsidiaries owns or controls, directly or indirectly, more than 50%
of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (i) the Operating
Partnership's and its Subsidiaries' Undepreciated Real Estate Assets and (ii)
all other assets of the Operating Partnership and its Subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles (but excluding intangibles and accounts receivable).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees, provided that stock that carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock.
ADDITIONAL COVENANTS. Any additional or different covenants of the
Operating Partnership or the Company with respect to any series of Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on
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any Debt Security of such series; (b) default in the payment of the principal of
(or premium, if any, on) any Debt Security of such series at its maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance of any other covenant of the
Operating Partnership or the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), such default having
continued for 60 days after written notice as provided in the Indenture; (e)
default in the payment of an aggregate principal amount exceeding $5,000,000 of
any evidence of recourse indebtedness of the Operating Partnership or the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (f) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Operating
Partnership, the Company or any Significant Subsidiary or any of their
respective property; and (g) any other Event of Default provided with respect to
a particular series of Debt Securities. The term "Significant Subsidiary" means
each significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act) of the Operating Partnership or the Company (Section 501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Operating
Partnership and the Company (and to the Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
the Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the
Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (a) the Operating Partnership or the Company shall have
deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be), plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the non-payment of accelerated principal of (or
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) have been cured or waived as provided in the
Indenture (Section 502). The Indenture also provides that the Holders of not
less than a majority in principal amount of the Outstanding Debt Securities of
any series (or of all Debt Securities then Outstanding under the Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; PROVIDED, HOWEVER, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 602).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in
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respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of reasonable indemnity (Section 507). This provision will not prevent,
however, any holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 601). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, or which may be
unduly prejudicial to the holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership or the Company must deliver to the Trustee a certificate, signed by
one of several specified officers of the Company, stating whether or not such
officer has knowledge of any default under the Indenture and, if so, specifying
each such default and the nature and status thereof (Sections 1009 and 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities which are affected by such modification or amendment; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security, reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any such Debt Security, change the place of
payment, or the coin or currency, for payment of principal of, premium, if any,
or interest on any such Debt Security or impair the right to institute suit for
the enforcement of any payment on or with respect to any such Debt Security; (b)
reduce the above-stated percentage of outstanding Debt Securities of any series
necessary to modify or amend the Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the Indenture; (c) modify or
affect in any manner adverse to the Holders the terms and conditions of the
obligations of the Company in respect of the payment of principal (and premium,
if any) and interest on any Guaranteed Securities; or (d) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership and/or the Company with certain
covenants relating to such series of Debt Securities in the Indenture (Section
1008).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, the Company and the Trustee without the consent of
any Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another Person to the Operating Partnership as obligor or the
Company as guarantor under the Indenture; (ii) to add to the covenants of the
Operating Partnership or the Company for the benefit of the Holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Operating Partnership or the Company in the Indenture; (iii) to add Events
of Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add
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or change any provisions of the Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, PROVIDED that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to amend or supplement any
provisions of the Indenture, PROVIDED that no such amendment or supplement shall
materially adversely affect the interests of the Holders of any Debt Securities
then Outstanding; (vi) to secure the Debt Securities; (vii) to establish the
form or terms of Debt Securities of any series; (viii) to provide for the
acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under the Indenture by more than one Trustee; (ix)
to cure any ambiguity, defect or inconsistency in the Indenture, PROVIDED that
such action shall not adversely affect the interests of Holders of Debt
Securities of any series in any material respect; or (x) to supplement any of
the provisions of the Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, PROVIDED that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901). In addition,
with respect to Guaranteed Securities, without the consent of any Holder of Debt
Securities the Company, or a subsidiary thereof, may directly assume the due and
punctual payment of the principal of, any premium and interest on all the
Guaranteed Securities and the performance of every covenant of the Indenture on
the part of the Operating Partnership to be performed or observed. Upon any such
assumption, the Company or such subsidiary shall succeed to, and be substituted
for and may exercise every right and power of, the Operating Partnership under
the Indenture with the same effect as if the Company or such subsidiary had been
the issuer of the Guaranteed Securities and the Operating Partnership shall be
released from all obligations and covenants with respect to the Guaranteed
Securities. No such assumption shall be permitted unless the Company has
delivered to the Trustee (i) an officers' certificate and an opinion of counsel,
stating, among other things, that the Guarantee and all other covenants of the
Company in the Indenture remain in full force and effect and (ii) an opinion of
independent counsel that the Holders of Guaranteed Securities shall have no
United States federal tax consequences as a result of such assumption, and that,
if any Debt Securities are then listed on the New York Stock Exchange, that such
Debt Securities shall not be delisted as a result of such assumption.
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture, and (iv) Debt Securities owned by the Operating Partnership or any
other obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of such other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership, the Company (in respect of a series of Guaranteed Securities) or
the holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
the Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present will be permitted to be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; PROVIDED, HOWEVER, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in
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principal amount of the Outstanding Debt Securities of a series may be adopted
at a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the Holders of such specified percentage in principal
amount of the Outstanding Debt Securities of that series. Any resolution passed
or decision taken at any meeting of Holders of Debt Securities of any series
duly held in accordance with the Indenture will be binding on all Holders of
Debt Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; PROVIDED, HOWEVER, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of such series (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Section 401).
The Indenture provides that, unless the provisions of Section 402 are made
inapplicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership may elect either (a) to defease
and discharge itself and the Company (if such Debt Securities are Guaranteed
Securities) from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 402) or (b) to release itself and the Company (if such
Debt Securities are Guaranteed Securities) from their obligations with respect
to such Debt Securities under certain sections of the Indenture (including the
restrictions described under "Certain Covenants") and, if provided pursuant to
Section 301 of the Indenture, their obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities ("covenant
defeasance") (Section 402), in either case upon the irrevocable deposit by the
Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) with the Trustee, in trust, of an amount, in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable at Stated Maturity, or Government Obligations
(as defined below), or both, applicable to such Debt Securities which through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and premium,
if any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Company (if such Debt Securities are
Guaranteed Securities) has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not
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recognize income, gain or loss for U.S. federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture (Section 402).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the Indenture or the terms of such Debt Security to receive payment
in a currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such Debt Security, or (b) a Conversion
Event (as defined below) occurs in respect of the currency, currency unit or
composite currency in which such deposit has been made, the indebtedness
represented by such Debt Security shall be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest on such Debt Security as they become due out of
the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Community or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Event of Default, Notice and Waiver"
with respect to sections no longer applicable to such Debt Securities or
described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
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such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership and the Company (if such Debt
Securities are Guaranteed Securities) would remain liable to make payment of
such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 5,000,000 shares of preferred stock, $.01
par value per share, of which no Preferred Stock was outstanding at the date
hereof.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (the "Articles
of Incorporation") and Bylaws and any applicable articles supplementary to the
Articles of Incorporation designating terms of a series of Preferred Stock (a
"Designating Amendment").
The issuance of Preferred Stock could adversely affect the voting power,
dividend rights and other rights of holders of Common Stock. Issuance of
Preferred Stock also could, depending on the terms of such issue, either impede,
delay, prevent or facilitate a merger, tender offer or change in control of the
Company. Although the Board of Directors is required to make a determination as
to the best interests of the stockholders of the Company when issuing Preferred
Stock, the Board could act in a manner that would discourage an acquisition
attempt or other transaction that some, or a majority, of the stockholders might
believe to be in the best interests of the Company or in which stockholders
might receive a premium for their shares over the then prevailing market price.
Management believes that the availability of Preferred Stock will provide the
Company with increased flexibility in structuring possible future financing and
acquisitions and in meeting other needs that might arise.
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of the Board of Directors. The Preferred Stock will, when
issued, be fully paid and nonassessable by the Company and will have no
preemptive rights.
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Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1)
The title and stated value of such Preferred Stock;
(2)
The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3)
The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4)
The date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5)
The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6)
The provision for a sinking fund, if any, for such Preferred Stock;
(7)
The provision for redemption, if applicable, of such Preferred Stock;
(8)
Any listing of such Preferred Stock on any securities exchange;
(9)
The terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10)
Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11)
Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12)
A discussion of federal income tax considerations applicable to such
Preferred Stock;
(13)
The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(14)
Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15)
Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are
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non-cumulative, then the holders of such series of the Preferred Stock will have
no right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and the Company will have no obligation to pay the
dividend accrued for such period, whether or not dividends on such series are
declared payable on any future dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in
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cash or other property, as specified in the applicable Prospectus Supplement. If
the redemption price for Preferred Stock of any series is payable only from the
net proceeds of the issuance of capital shares of the Company, the terms of such
Preferred Stock may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends on
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
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LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
shares of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of capital shares of the Company ranking on a parity
with the Preferred Stock in the distribution of assets, then the holders of the
Preferred Stock and all other such classes or series of capital shares shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board of Directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such Preferred Stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any authorized capital stock of the
Company into such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares;
or (ii) amend, alter or repeal the provisions of the Company's Articles of
Incorporation or the Designating Amendment for
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such series of Preferred Stock, whether by merger, consolidation or otherwise
(an "Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; PROVIDED, HOWEVER, with respect to the occurrence of any of the Events
set forth in (ii) above so long as the Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Stock and provided further that (x) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions on
Ownership," for the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year. Therefore, the Designating Amendment for each series of
Preferred Stock may contain provisions restricting the ownership and transfer of
the Preferred Stock. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by the
Depositary Shares will be deposited under a separate Deposit Agreement (each, a
"Deposit Agreement") among the Company, the depositary named therein (the
"Preferred Stock Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary
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Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at such office, to or upon such holders' order, of the number of whole
or fractional shares of the Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Stock on the basis of the proportion of
Preferred Stock represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such shares of Preferred Stock
will not thereafter be entitled to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
shares of Preferred Stock to be withdrawn, the Preferred Stock Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of Depositary Shares representing shares of the
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary
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Shares so called for redemption will cease, except the right to receive any
moneys payable upon such redemption and any money or other property to which the
holders of such Depositary Receipts were entitled upon such redemption upon
surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Stock Depositary in order to enable the Preferred Stock Depositary to
do so. The Preferred Stock Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Stock Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or wilful misconduct of the
Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, are not convertible into Common Stock or any
other securities or property of the Company, except in connection with certain
conversions in connection with the preservation of the Company's status as a
REIT. See "Description of Preferred Stock -- Restrictions on Ownership."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the Preferred Stock Depositary with written instructions
to the Preferred Stock Depositary to instruct the Company to cause conversion of
the Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of capital stock, and the Company has
agreed that upon receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same procedures as
those provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least two-thirds of the Depositary Shares evidenced
by the Depositary Receipts then outstanding. No amendment shall impair the
right, subject to certain exceptions in the Deposit Agreement, of any holder of
Depositary Receipts to surrender any Depositary Receipt with
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instructions to deliver to the holder the related Preferred Stock and all money
and other property, if any, represented thereby, except in order to comply with
law. Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such Receipt,
to consent and agree to such amendment and to be bound by the Deposit Agreement
as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series of Preferred Stock affected by such termination consents
to such termination, whereupon the Preferred Stock Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
shares of Preferred Stock as are represented by the Depositary Shares evidenced
by such Depositary Receipts together with any other property held by the
Preferred Stock Depositary with respect to such Depositary Receipt. The Company
has agreed that if the Deposit Agreement is terminated to preserve the Company's
status as a REIT, then the Company will use its best efforts to list the
Preferred Stock issued upon surrender of the related Depositary Shares on a
national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of the
related Preferred Stock in connection with any liquidation, dissolution or
winding up of the Company and such distribution shall have been distributed to
the holders of Depositary Receipts evidencing the Depositary Shares representing
such Preferred Stock or (iii) each share of the related Preferred Stock shall
have been converted into capital stock of the company not so represented by
Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Stock Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or shares of Preferred Stock represented
thereby unless satisfactory indemnity is furnished. The Company and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting shares of Preferred Stock
represented thereby for deposit, holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
27
<PAGE>
In the event the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company includes 50 million shares of
Common Stock, $.01 par value per share. Each outstanding share of Common Stock
will entitle the holder to one vote on all matters presented to stockholders for
a vote and cumulative voting is not permitted. Holders of the Common Stock do
not have preemptive rights. At August 8, 1997, there were 15,264,086 shares of
Common Stock outstanding.
All shares of Common Stock issued and sold will be duly authorized, fully
paid, and non-assessable. Distributions may be paid to the holders of Common
Stock if and when declared by the Board of Directors of the Company out of funds
legally available therefor. The Company has paid quarterly dividends, beginning
with a dividend for the portion of the quarter from the closing of the Company's
initial public offering in November 1993 (the "IPO").
Under Maryland law, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's Board of Directors is divided into three classes of directors,
each class constituting approximately one-third of the total number of
directors, with the classes serving staggered terms. At each annual meeting of
stockholders, the class of directors to be elected at such meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. The Company believes that classified directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board. The use of a
staggered board may render more difficult a change in control of the Company or
removal of incumbent management.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding Common Stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code) during the last half of a
taxable year and the Common Stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (or during a
proportionate part of a shorter taxable year). To satisfy the above ownership
requirements and certain other requirements for qualification as a REIT, the
Board of Directors has adopted, and the stockholders prior to the IPO approved,
a provision in the Articles of Incorporation restricting the ownership or
acquisition of shares of Common Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is Boston EquiServe,
L.P., Boston, Massachusetts.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company and the
28
<PAGE>
Operating Partnership also may, from time to time, authorize underwriters acting
as their agents to offer and sell the Securities upon the terms and conditions
as are set forth in the applicable Prospectus Supplement. In connection with the
sale of Securities, underwriters may be deemed to have received compensation
from the Company or the Operating Partnership in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Securities for whom they may act as agent. Underwriters may sell Securities to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933 (the "Securities Act").
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company and the Operating Partnership, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company and the
Operating Partnership will authorize dealers acting as their agents to solicit
offers by certain institutions to purchase Securities from them at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Securities sold
pursuant to Contracts shall be not less nor more than, the respective amounts
stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company and the Operating Partnership. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the
Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company and the Operating Partnership shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and the Operating
Partnership in the ordinary course of business.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be passed
upon for the Company and the Operating Partnership by Stroock & Stroock & Lavan
LLP of New York, New York. Certain legal matters in connection with the
Securities offered hereby will be passed upon for any underwriters, dealers or
agents by Brown & Wood LLP of New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of the Operating
Partnership at December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996, incorporated herein by reference from the
Operating Partnership's Annual Report on Form 10-K for the year ended December
31, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The statement of revenues and certain expenses of Waikele Factory Outlet
Stores for the year ended December 31, 1996, incorporated herein by reference
from the Company's Current Report on Form 8-K dated April 11, 1997, has been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statement is incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
30
<PAGE>
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING
PARTNERSHIP OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.................. S-3
The Operating Partnership...................... S-7
Recent Developments............................ S-11
Use of Proceeds................................ S-13
Capitalization................................. S-13
Selected Consolidated Financial Data........... S-14
Business and Properties........................ S-18
Description of the Notes....................... S-23
Certain United States Federal Income Tax
Considerations............................... S-30
Underwriting................................... S-32
Legal Matters.................................. S-33
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company and the Operating Partnership...... 3
Risk Factors................................... 3
Use of Proceeds................................ 5
Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividends................ 6
Description of Debt Securities................. 6
Description of Preferred Stock................. 19
Description of Depositary Shares............... 24
Description of Common Stock.................... 28
Plan of Distribution........................... 28
Legal Matters.................................. 30
Experts........................................ 30
</TABLE>
$100,000,000
CHELSEA GCA REALTY
PARTNERSHIP, L.P.
% NOTES DUE 2007
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PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
OCTOBER , 1997
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