As filed with the Securities and Exchange Commission on August 5, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12 (b) or 12 (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
____________________
GABLES REALTY LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
____________________
Delaware 58-2077966
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Paces Ferry Road, Suite 1450
Atlanta, Georgia 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 436-4600
____________________
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
Not Applicable Not Applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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TABLE OF CONTENTS
Page No.
--------
Item 1. Business........................................................... 3
Item 2. Financial Information.............................................. 9
Item 3. Properties......................................................... 30
Item 4. Security Ownership of Certain Beneficial Owners and Management..... 38
Item 5. Trustees and Executive Officers.................................... 38
Item 6. Executive Compensation............................................. 40
Item 7. Certain Relationships and Related Transactions..................... 44
Item 8. Legal Proceedings.................................................. 44
Item 9. Market Price and Distributions and Related Security Holder Matters. 44
Item 10. Recent Sales of Unregistered Securities............................ 45
Item 11. Description of Registrant's Securities to be Registered............ 46
Item 12. Indemnification of Directors, Trustees and Officers................ 48
Item 13. Financial Statements and Supplementary Data........................ 49
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 49
Item 15. Financial Statements and Exhibits.................................. 49
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PAGE-3
ITEM 1. BUSINESS
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General
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Gables Realty Limited Partnership (the "Operating Partnership") is the
entity through which Gables Residential Trust (the "Company"), a self-
administered and self-managed real estate investment trust ("REIT"), conducts
substantially all of its business and owns (either directly or through
subsidiaries) substantially all of its assets. The Operating Partnership is one
of the largest owners and operators of multifamily communities in the
Southeastern and Southwestern United States. In 1993, the Company was formed
under Maryland law and the Operating Partnership was organized as a Delaware
limited partnership to continue and to expand the multifamily apartment
community management, development, construction and acquisition operations of
its privately owned predecessor organization (the "Company's Predecessor"). The
term "Gables Residential Group" or "Group" as used herein refers to the
Company's Predecessor prior to the Company's initial public offering in January,
1994 (the "Initial Offering" or "IPO") and the concurrent completion of the
various transactions that occurred simultaneously therewith (the "Formation
Transactions"). The term "Company" as used herein means Gables Residential Trust
and its subsidiaries on a consolidated basis (including Gables Realty Limited
Partnership and its subsidiaries) or, where the context so requires, Gables
Residential Trust only, and, as the context may require, their predecessors. The
term "Operating Partnership" or "Gables" as used herein means Gables Realty
Limited Partnership and its subsidiaries on a consolidated basis, or, where the
context so requires, Gables Realty Limited Partnership only, and, as the context
may require, their predecessors.
The Company is currently an 84.6% economic owner of the Operating
Partnership (excluding the Company's direct or indirect ownership of 100% of the
Series A Preferred Units (as defined herein))and controls it through Gables GP,
Inc. ("GGPI"), a wholly-owned subsidiary of the Company and the sole general
partner of the Operating Partnership (this structure is commonly referred to as
an umbrella partnership REIT or "UPREIT"). The board of directors of GGPI, the
members of which are the same as the members of the Board of Trustees of the
Company, manages the affairs of the Operating Partnership by directing the
affairs of GGPI. The Company's limited partner and indirect general partner
interests in the Operating Partnership entitle it to share in cash distributions
from, and in the profits and losses of, the Operating Partnership in proportion
to its ownership interest therein and entitle the Company to vote on all matters
requiring a vote of the limited partners.
The other limited partners of the Operating Partnership are persons who
contributed their direct or indirect interests in certain properties to the
Operating Partnership primarily in connection with the Formation Transactions.
The Operating Partnership is obligated to redeem each unit of limited
partnership ("Unit") at the request of the holder thereof for cash equal to the
fair market value of a share of the Company's common shares of beneficial
interest, par value $.01 per share ("Common Shares"), at the time of such
redemption, provided that the Company at its option may elect to acquire any
such Unit presented for redemption for one Common Share or cash. The Company
presently anticipates that it will elect to issue Common Shares to acquire Units
presented for redemption, rather than paying cash. With each such redemption the
Company's percentage ownership interest in the Operating Partnership will
increase. In addition, whenever the Company issues Common Shares or preferred
shares of beneficial interest, par value $.01 per share ("Preferred Shares"),
the Company is obligated to contribute any net proceeds therefrom to the
Operating Partnership and the Operating Partnership is obligated to issue an
equivalent number of Units to the Company. Units issued to the Company in
connection with the issuance and sale by the Company of a series of Preferred
Shares (and the subsequent contribution to the Operating Partnership of the net
proceeds therefrom) will, in general, have, with respect to other Units, rights
and preferences that the series of Preferred Shares have with respect to the
Common Shares.
The Operating Partnership may issue additional Units to acquire land
parcels for the development of apartment communities or operating apartment
communities in transactions that in certain circumstances defer some or all of
the sellers' tax consequences. The Operating Partnership believes that many
potential sellers of multifamily residential properties have a low tax basis in
their properties and would be more willing to sell the properties in
transactions that defer Federal income taxes. Offering Units instead of cash for
properties may provide potential sellers partial Federal income tax deferral.
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At March 31, 1997, the Operating Partnership owned 48 completed multifamily
communities and had an indirect 25% interest in two multifamily communities
(collectively, the "Current Communities") containing apartment homes located in
the following cities in Georgia, Texas and Tennessee: Atlanta, Houston, Dallas,
San Antonio, Austin, Nashville and Memphis. The Current Communities total 15,480
apartment homes and had a weighted average physical occupancy rate of
approximately 96% as of March 31, 1997, excluding four communities in the final
stages of lease-up. The Operating Partnership also had seven multifamily
communities under development at March 31, 1997 (collectively, the "Development
Communities" and, with the Current Communities, the "Communities"). The
Development Communities are expected to comprise 2,025 apartment homes and are
expected to be completed in 1997 and 1998. In addition to the Communities, the
Operating Partnership owns four sites (the "Undeveloped Sites") on which it
intends to develop apartment communities and has rights (the "Development
Rights") to acquire six additional sites. Although there is no assurance that
the Operating Partnership will develop multifamily communities at any of the
Undeveloped Sites or pursuant to any of the Development Rights, an estimated
2,771 apartment homes could be added to its portfolio from the successful
development of all such locations. The Operating Partnership also has rights
(the "Acquisition Rights") to acquire two existing multifamily apartment
communities comprising 520 apartment homes. There can be no assurance that the
Operating Partnership will acquire these communities. Gables is also pursuing
other acquisition and development opportunities in the ordinary course of
business, which have not yet been, or may never be, put under contract.
The Operating Partnership's executive offices are located at 2859 Paces
Ferry Road, in Atlanta, Georgia 30339 and its telephone number is (770)
436-4600.
MANAGEMENT STRUCTURE. The Operating Partnership has been responsible for
the development or acquisition of approximately 40,000 apartment homes since
1982 and its senior management team has, on average, approximately fifteen years
experience in the multifamily industry. The Operating Partnership provides a
full range of integrated real estate services through a staff of approximately
900 employees who have experience in property operations, development,
acquisition and construction. The Operating Partnership maintains offices in
Atlanta, Houston and Dallas, each with its own fully integrated organization,
including experienced in-house management, development and acquisition staffs
with specific knowledge of the particular markets served. In addition, the
Operating Partnership maintains offices in San Antonio and Memphis. The
Operating Partnership believes that its competitive strength and growth
potential lie in management's in-depth knowledge of the changing opportunities
available in each local market and in its locally focused management structure,
which enables highly experienced development and acquisition personnel to pursue
new opportunities in each market and highly experienced on-site managers to make
the day-to-day decisions needed to maximize the performance of existing
properties. The finance, accounting and administrative functions for the
Operating Partnership are controlled by a central staff located in Atlanta.
COMPETITIVE ADVANTAGES. The Operating Partnership believes that it has
several competitive advantages. These advantages include:
. Service-Oriented Philosophy: a service-oriented philosophy which focuses
on offering extensive resident amenities and services in quality apartment homes
to increase occupancy and rental rates and reduce resident turnover;
. Geographic Diversification: an established market presence in multiple
major markets in the Southeastern and Southwestern United States which are
geographically independent, rely on diverse economic foundations, and during the
past several years have shown job growth substantially above national averages;
. Product Focus: a portfolio concentration of Class A properties located
primarily in in-fill locations and master-planned communities, which includes
garden, townhome and higher density apartment communities that were developed,
acquired, rehabilitated or repositioned by the Operating Partnership, targeted
toward a lifestyle renter segment;
. Local Presence in Multiple Markets: a local presence for over ten years
in each of the seven cities served by the Operating Partnership through an
experienced staff with superior knowledge of local markets and a culture which
provides incentives for outstanding performance at all levels;
. Fully Integrated Organization: a fully integrated organization with a
track record in excess of ten years in all phases of real estate property
property management, development, acquisition, construction, rehabilitation
financing (including tax-exempt bond financing) and marketing.
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Management Companies
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The Operating Partnership's management operations with respect to
properties in which the Operating Partnership does not have an interest are
conducted through subsidiaries of the Operating Partnership (the "Management
Companies"). The Management Companies also provide other services to third
parties, including construction and brokerage services and the provision of
corporate rental housing. Certain of these are, or may also be, provided by the
Operating Partnership directly, to the extent consistent with the gross income
requirements for REIT's under the Code. To maintain the Company's qualifications
as a REIT while realizing income from its fee management and related service
business, the Operating Partnership owns 100% of the nonvoting common stock
(representing 98.99% of the total equity) of each Management Company and 1% of
the voting common stock (representing .01% of the total equity) of each
Management Company. The nonvoting common stock and voting common stock owned by
the Operating Partnership together represent 99% of the the equity interests in
each Management Company. Executive officers of the Company hold, in the
aggregate, the remaining 1% of the equity in each Management Company,
representing 99% of the voting interest therein. The voting common stock held by
such executive officers is subject to a provision of the bylaws of each
Management Company that is designed to ensure that the stock will be held by
officers of the Management Companies at all times. This bylaw provision of each
Management Company cannot be amended without the vote of 100% of the outstanding
voting common stock of such company.
Brand Name Strategy
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The Operating Partnership is continuing to pursue a strategy of brand name
development by linking the "Gables" name to its properties. This strategy is
intended to reinforce the Operating Partnership's reputation and to build
recognition of the Operating Partnership's multifamily communities as a high
quality, recognizable brand. The Operating Partnership believes that increased
consumer recognition of the "Gables" brand name in each of its markets will
enhance its ability to attract new residents, increase the markets' perception
of the Communities as high quality residential developments, and enhance the
Operating Partnership's relationships with local authorities.
Business Objectives and Strategy of the Operating Partnership
- -------------------------------------------------------------
The Operating Partnership intends to grow by improving cash flow from
existing multifamily communities through innovative, proactive property
management that focuses on resident satisfaction and retention, increases in
rents and occupancy levels, and the control of operating expenses. The Operating
Partnership also intends to grow through development and acquisition of Class A
multifamily communities in the Southeastern and Southwestern United States which
provide both favorable initial returns and long-term growth prospects. The
Operating Partnership believes that it is well positioned to achieve these
objectives as a result of its long-established presence as a fully integrated
real estate management, development, construction and acquisition company in
seven metropolitan markets in the Southeastern and Southwestern United States.
The Operating Partnership has had a significant presence in each of its core
markets of Atlanta, Houston, Dallas, Nashville, Memphis, San Antonio and Austin
(the "Core Markets") for the past fifteen years. The Operating Partnership
believes that this long-term, local market presence gives it a competitive
advantage with regard to site selection and market information and aids in its
requests for entitlements and zoning petitions. The Core Markets are
geographically independent, rely on diverse economic foundations and have
experienced job growth substantially above national averages. The Operating
Partnership recently entered the Orlando market which has the common growth
characteristics of the Core Markets.
PROPERTY OPERATIONS. The property management group operates the Communities
to maximize cash flow and create long-term value. This is achieved by aggressive
marketing and leasing of apartment homes, providing the best possible resident
service and maintaining the Communities to the highest standards. Management
believes that excellent service will distinguish Gables from the competitor as
well as retain current residents and attract new prospects. The Operating
Partnership has a service oriented philosophy which is reinforced through its
"College of Career Development" which the Company calls Gables University. This
comprehensive training system for the Operating Partnership's employees is
overseen by full-time training coordinators and offers classes in a variety of
different schools, such as the School of Leasing, the School of People Resources
and the School of Maintenance Development. Additionally, there are "degree"
programs which are completed with graduation ceremonies. Service is also
reinforced with quarterly "I Made a Difference" recognition ceremonies, where
personal achievement by associates is acknowledged by senior management in each
of the markets where the Operating Partnership operates.
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Financial and marketing information is collected and distributed through
on-site computer systems at all Communities and effectively summarizes operating
and marketing data critical for making accurate daily decisions. The system also
compiles demographic profile information on prospective and current residents,
allowing the Operating Partnership to effectively target its customer base.
The property management group is strategically focused on the following
areas:
EMPLOYEES. Hiring the highest quality associates possible through
extensive screening and proactive recruiting, and encouraging loyalty and
reducing employee turnover by providing outstanding training, career
opportunities and benefit programs. The average tenure for vice presidents
and regional managers of the group is over eight years and the average
tenure of property managers is approximately six years.
RESIDENTS. Providing exceptional services to the Operating
Partnership's relatively high-income residents, who expect a service level
commensurate with the high level rents.
FINANCIAL PERFORMANCE. Maximizing revenues from the Communities by
empowering and motivating property managers to make decisions regarding
rental rates and implementation of marketing programs to attract and retain
residents; reducing property operating expenses by continuously evaluating
vendors and service contracts, utilizing volume discount purchasing
programs and analyzing tax and utility expenses; and monitoring overall
appearance and appeal of the Communities by ensuring cleanliness, investing
wisely in major capital expenses and ensuring the quality of the
landscaping.
DEVELOPMENT. The development team has extensive experience in the
identification of sites, land planning, product development and construction in
the Southeastern and Southwestern United Sates. In evaluating whether to develop
an apartment community, the development team analyzes current demographics and
economic data such as household formation rates, income levels, rental rates and
occupancies. The Operating Partnership relies both on internal and external
market research to determine the current position of the real estate cycle.
Successful development has been instrumental to the growth of Gables and,
since 1982, it has developed approximately 27,000 apartment homes. The Operating
Partnership seeks to develop properties in markets where it discerns a strong
demand, which the Operating Partnership anticipates will enable it to achieve
its targeted initial yields. The Operating Partnership expects to continue to
focus on the Southeastern and Southwestern United States which, as a result of
job growth and household formation, have generally experienced high occupancy
levels and rising rents in recent years. The typical submarket where the
Operating Partnership develops its communities is one where resident profiles,
including relatively high income households, justify the development of Class A
multifamily communities offering extensive resident amenities and services.
Fundamental to the Operating Partnership's development is its in-house
construction group, which allows the Operating Partnership to act as its own
general contractor, which in turn helps control quality, scheduling and cost. In
addition, the Operating Partnership's development and construction expertise has
enabled it to develop a variety of multifamily communities, including Class A
garden apartments, townhomes and higher density apartments in a variety of
geographic areas.
ACQUISITION. The Operating Partnership also focuses its efforts on the
acquisition of existing multifamily communities which management believes
present opportunities for creating value, including properties requiring
extensive renovations and market repositioning. Since 1982, Gables has acquired
and repositioned communities comprising a total of approximately 13,000
apartment homes, of which 3,000 apartment homes were value-added acquisitions
which required substantial redevelopment, repositioning, and strong management
skills. The Operating Partnership intends to continue its acquisition strategy,
which utilizes a value-added approach to real estate investment. The Operating
Partnership will seek to invest in those properties that management believes are
available at prices below estimated replacement cost, are located in submarkets
with a relatively high income population with close proximity to major
employment centers, and are capable of growth in investment value through
application of the Operating Partnership's management ability and strategic
capital improvements.
FEE MANAGEMENT BUSINESS AND RELATED SERVICES. As of March 31, 1997, the
Operating Partnership managed, for third parties, 33 multifamily communities
comprising approximately 11,400 apartment homes. These fee management contracts
are maintained with a total of approximately 20 owners. The Operating
Partnership intends to pursue new fee management opportunities on a selective
basis only, primarily through existing customer contacts.
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In addition to contributing modestly to funds from operations, engaging in
fee management allows the Operating Partnership to leverage its management
operations costs, provides access to development and acquisition opportunities,
and provides the Operating Partnership with additional market knowledge. In
addition to its fee management business, the Operating Partnership provides
other services through the Management Companies, including construction and
brokerage services and the provision of corporate rental housing to selected
multifamily real estate clients.
Competition
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All of the Communities are located in developed areas that include other
apartment communities. The number of competitive multifamily communities in a
particular area could have a material effect on the Operating Partnership's
ability to lease apartment homes at the Communities or at any newly developed or
acquired community, as well as on the rents charged. The Operating Partnership
may be competing for development and acquisition opportunities with others that
have greater resources than the Operating Partnership (including other REITs).
In addition, the Communities must compete for residents with new and existing
homes and condominiums. The home affordability index in all of the Operating
Partnership's markets is above the national average. This competitive
environment is partially offset by the propensity to rent for households in the
Operating Partnership's markets which in all cases exceeds the national average.
The fee management business is highly competitive, and the Operating
Partnership faces competition from a variety of local, regional and national
firms. The Operating Partnership competes against these firms by stressing the
quality and experience of its employees, the services provided by the Operating
Partnership and the market presence and experience it has developed over the
past fifteen years. The Operating Partnership may, nevertheless, lose some of
its third party management business, particularly when such properties are sold.
Environmental Matters
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Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws, ordinances and regulations typically impose clean-up responsibility
and liability without regard to whether the owner knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The cost of investigation, remediation
or removal of such substances may be substantial, and the presence of such
substances, or the failure to properly remediate the contamination on such
property, may adversely affect the owner's ability to sell or rent such property
or to borrow using such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner or operator of a site may be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with the
ownership, operation, management and development of the Communities and other
real properties, the Operating Partnership may be potentially liable for such
damages and costs. Certain Federal, state and local laws, ordinances and
regulations govern the removal, encapsulation and disturbance of
asbestos-containing materials ("ACMs") when such materials are in poor condition
or in the event of construction, remodeling, renovation or demolition of a
building. Such laws, ordinances and regulations may impose liability for release
of ACMs and may provide for third parties to seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with its ownership, operation, management and development of the
Communities and other real properties, the Operating Partnership may be
potentially liable for such costs.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or Federal requirements regarding the monitoring for, presence of, or exposure
to, radon in indoor air, the U.S. Environmental Protection Agency ("EPA") and
the Surgeon General recommend testing residences for the presence of radon in
indoor air, and the EPA further recommends that concentrations of radon in
indoor air be limited to less than 4 picocuries per liter of air (pCi/L) (the
"Recommended Action Level"). The presence of radon in concentrations equal to or
greater than the Recommended Action Level in a Community may adversely affect
the Operating Partnership's ability to rent apartment homes in that Community
and the market value of the Community.
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Finally, recently-enacted Federal legislation will eventually require
owners and landlords of residential housing constructed prior to 1978 to
disclose to potential tenants or purchasers of the Communities any known
lead-paint hazards and will impose treble damages for failure to so notify. In
addition, lead-based paint in any of the Communities may result in lead
poisoning in children residing in that Community if chips or particles of such
lead-based paint are ingested, and the Operating Partnership may be held liable
under state laws for any such injuries caused by ingestion of lead-based paint
by children living at the Communities.
The Operating Partnership's assessments of the Communities have not
revealed any environmental liability that the Operating Partnership believes
would have a material adverse effect on the Operating Partnership's business,
assets or results of operations, nor is the Operating Partnership aware of any
such material environmental liability. Nevertheless, it is possible that the
Operating Partnership's assessments do not reveal all environmental liabilities
or that there are material environmental liabilities of which the Operating
Partnership is unaware. Moreover, there can be no assurance that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Communities will
not be affected by tenants, by the condition of land or operations in the
vicinity of the properties (such as the presence of underground storage tanks),
or by third parties unrelated to the Operating Partnership.
The Operating Partnership believes that no ACMs were used in connection
with the construction of the communities or will be used in connection with
future construction by the Operating Partnership. The Operating Partnership's
environmental assessments have revealed the presence of "potentially friable"
ACMs at one Current Community and non-friable ACMs at six Current Communities.
The Operating Partnership has programs in place to maintain and monitor ACMs.
The Operating Partnership believes that the Communities are in compliance in all
material respects with all Federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances or petroleum products. The
Operating Partnership has not been notified by any governmental authority, and
is not otherwise aware, of any material noncompliance, liability or claim
relating to hazardous or toxic substances or petroleum products in connection
with any of its present properties that would involve substantial expenditure,
and the Operating Partnership does not believe that compliance with applicable
environmental laws or regulations will have a material adverse effect on the
Operating Partnership or its financial condition or results of operations.
Costs of Compliance with Americans with Disabilities Act and Similar Laws
- -------------------------------------------------------------------------
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain Federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. Management of the Operating Partnership believes that the
Communities are substantially in compliance with present requirements of the
ADA, as they apply to multifamily dwellings. A number of additional Federal,
state and local laws exist which also may require modifications to the
Communities, or regulate certain further renovations thereof, with respect to
access thereto by disabled persons. For example, the Fair Housing Amendments Act
of 1988 (the "FHAA") requires apartment communities first occupied after March
13, 1990 to be accessible to the handicapped. Noncompliance with the FHAA could
result in the imposition of fines or an award of damages to private litigants.
The Operating Partnership believes that the Communities that are subject to the
FHAA are in compliance with such law.
Additional legislation may impose further burdens or restrictions on owners
with respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, and,
while such costs are not expected to have a material effect on the Operating
Partnership, such costs could be substantial. Limitations or restrictions on the
completion of certain renovations may limit application of the Operating
Partnership's investment strategy in certain instances or reduce overall returns
on the Operating Partnership's investments.
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PAGE-9
Insurance
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The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance with respect to all of the Current
Communities, with policy specifications, insured limits and deductibles
customarily carried for similar properties. The Operating Partnership carries
similar insurance with respect to its other properties, but with such exceptions
as are appropriate given the undeveloped nature of certain of these properties.
There are, however, certain types of losses (such as losses arising from acts of
war) that are not generally insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, the Operating Partnership could lose its capital invested in a
property, as well as the anticipated future revenues from such property and
would continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss would adversely affect the Operating
Partnership.
ITEM 2. FINANCIAL INFORMATION
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Selected Financial and Operating Information
- --------------------------------------------
The following table sets forth selected financial and operating information
on a historical basis for the Operating Partnership and on a combined historical
and pro forma basis for the Operating Partnership's predecessors as applicable.
The following information should be read in conjunction with all of the
financial statements and notes thereto included elsewhere herein. The
consolidated operating information for the three months ended March 31, 1997 and
1996 has been derived from the unaudited consolidated financial statements of
the Operating Partnership. In the opinion of management, the operating
information for the three months ended March 31, 1997 and 1996 includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The results of operations for
the interim period ended March 31, 1997 are not necessarily indicative of the
results to be obtained for the full fiscal year. The consolidated operating
information of the Operating Partnership for the years ended December 31, 1996
and 1995 and for the period from January 26, 1994 to December 31, 1994 and the
combined operating information of the Group for the period from January 1, 1994
to January 25, 1994 have been derived from the financial statements audited by
Arthur Andersen LLP, independent public accountants, whose report with respect
thereto is included elsewhere herein. The combined operating information for the
years ended December 31, 1993 and 1992 has been derived from audited combined
financial statements of the Group not included in such report.
The unaudited selected pro forma financial and operating information is
presented as if the Initial Offering and Formation Transactions occurred as of
the beginning of the period presented. The pro forma financial information is
not necessarily indicative of what the actual financial position and results of
operations of the Operating Partnership would have been as of the date or for
the period indicated, nor does it purport to represent the Operating
Partnership's future financial position and results of operations.
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<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING INFORMATION
--------------------------------------------
(in thousands, except property and per Unit information)
Gables Realty Limited Partnership and its Predecessors
Qtrs. ended Mar. 31 Years ended Dec. 31 Pro Forma Years ended Dec. 31
1997 1996 1996 1995 1994 (1) 1994 (2) 1993 1992
---- ---- ---- ---- -------- -------- ---- ----
(Unaudited)(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Information:
- ----------------------
Rental revenues .............................. $29,483 $22,139 $104,543 $72,703 $57,291 $57,201 $41,330 $33,616
Other property revenues ...................... 1,338 1,061 4,928 3,268 2,228 2,225 1,462 1,172
------- ------- ------- ------- ------- ------- ------- -------
Total property revenues ................. 30,821 23,200 109,471 75,971 59,519 59,426 42,792 34,788
Other revenues ............................... 1,411 1,242 6,710 5,789 7,350 7,396 8,373 8,946
------- ------- ------- ------- ------- ------- ------- -------
Total revenues .......................... 32,232 24,442 116,181 81,760 66,869 66,822 51,165 43,734
------- ------- ------- ------- ------- ------- ------- -------
Property operating and maintenance
(exclusive of items shown separately below). 11,058 8,070 38,693 28,228 22,868 22,847 18,295 14,584
Depreciation and amortization ................ 5,337 3,732 18,892 12,669 9,974 9,906 7,635 6,884
Property management (owned & third party) .... 1,468 1,426 5,617 5,348 5,603 5,774 6,175 5,574
General and administrative ................... 881 714 3,045 2,869 1,779 1,742 1,078 1,694
Interest and credit enhancement fees ......... 5,943 3,972 21,688 13,798 9,584 10,084 12,844 11,942
Amortization of deferred financing costs ..... 281 350 1,348 932 1,057 1,127 1,132 1,112
------- ------- ------- ------- ------- ------- ------- -------
Total expenses ........................... 24,968 18,264 89,283 63,844 50,865 51,480 47,159 41,790
------- ------- ------- ------- ------- ------- ------- -------
Equity in income of joint ventures ........... 66 49 280 64 270 270 251 187
Interest income .............................. 122 99 363 389 268 268 263 302
------- ------- ------- ------- ------- ------- ------- -------
Income before gain on sale and extraordinary
loss .................................... 7,452 6,326 27,541 18,369 16,542 15,880 4,520 2,433
Gain on sale of real estate assets ........... 4,858 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Income before extraordinary loss ............. 12,310 6,326 27,541 18,369 16,542 15,880 4,520 2,433
Extraordinary loss ........................... (712) (631) (631) (955) (148) (148) -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income ................................... $11,598 $5,695 $26,910 $17,414 $16,394 $15,732 $4,520 $2,433
======= ======= ======= ======= ======= ======= ======= =======
Weighted average Units outstanding ........... 22,856 18,603 20,194 14,644 13,435 13,442
======= ======= ======= ======= ======= =======
Per Unit information:
- ---------------------
Income before extraordinary loss ............. $ 0.54 $ 0.34 $ 1.36 $ 1.25 $ 1.23 $ 1.190
Net income.................................... 0.51 0.31 1.33 1.19 1.22 1.180
Distributions paid (3) ....................... 0.49 0.48 1.93 1.83 N/A 1.225
Distributions declared (3) ................... 0.49 0.48 1.94 1.86 N/A 1.675
Other Information:
- ------------------
Cash flows provided by (used in):
Operating activities ..................... $ 8,682 $ 7,263 $51,629 $29,088 $28,868 $28,868 $13,407 $10,057
Investing activities ..................... (11,352) (18,298) (213,596) (148,234) (150,534) (150,534) (67,043) (22,696)
Financing activities ..................... 1,167 11,015 157,823 123,619 114,245 114,245 54,054 17,330
Funds from operations (4) .................... 12,740 10,011 46,238 30,927 26,313 25,561 11,749 9,355
Gross operating margin (5) ................... 64.1% 65.2% 64.7% 62.8% 61.6% 61.6% 57.3% 58.1%
Total completed communities (period-end) ..... 50 41 48 38 29 29 24 17
Total apartment homes in completed
communities (period-end) ................. 15,480 12,622 15,244 11,946 9,785 9,785 8,666 5,751
Average monthly revenue per apartment home ... $ 709 $ 677 $ 700 $ 620 $ 574 $ 574 $ 560 $ 545
Balance Sheet Information:
- -------------------------
Real estate, before accd. depreciation (6) ...$821,748 $606,456 $784,600 $591,233 $437,782 $437,782 $290,903 $221,386
Total Assets (6).............................. 766,035 573,804 759,660 562,827 416,847 416,847 277,420 212,649
Total Debt ................................... 402,613 286,050 390,321 286,259 229,305 229,305 261,294 200,451
Limited partners' capital interest at
redemption value/predecessor's equity.... 93,278 79,825 98,482 75,314 67,188 67,188 1,236 1,946
Partners' capital ............................ 240,997 184,243 234,426 171,107 92,966 92,966 0 0
Funds From Operations Reconciliation:
- ------------------------------------
Income before extraordinary loss*& gain on sale $7,452 $6,326 $27,541 $18,417 $16,542 $15,880 $4,450 $2,433
Real estate depreciation * ................... 5,288 3,685 18,697 12,510 9,771 9,681 7,229 6,922
------- ------- ------- ------- ------- ------- ------- -------
Funds from operations ........................ $12,740 $10,011 $46,238 $30,927 $26,313 $25,561 $11,749 $9,355
======= ======= ======= ======= ======= ======= ======= =======
<FN>
* Reflects extraordinary loss and real estate depreciation for both
wholly-owned communities and joint ventures, as applicable.
</FN>
</TABLE>
<PAGE>
PAGE-11
NOTES TO SELECTED FINANCIAL AND OPERATING INFORMATION
(In Thousands, except Property and Per Unit Information)
(1) The pro forma information reflects adjustments to the historical
information of the Operating Partnership's predecessors from January 1, 1994 to
January 25, 1994 related to the IPO and Formation Transactions principally for
the acquisition of certain properties and additional expenses associated with
reporting as a public company (due to the UPREIT structure), reduction of
interest expense due to debt repayment and increased depreciation.
(2) The historical information for the year ended December 31, 1994
represents the combined historical information of the Operating Partnership's
predecessors from January 1, 1994 to January 25, 1994 and the consolidated
historical information of the Operating Partnership from January 26, 1994 to
December 31, 1994. The weighted average number of Units outstanding and the per
Unit information pertains only to the period from January 26, 1994 to December
31, 1994.
(3) The Operating Partnership's distributions paid and declared include the
Operating Partnership's first quarterly distribution of $0.325 per Unit for the
period January 26, 1994 to March 31, 1994. These distributions were the
equivalent of a $1.80 per Unit distribution for the year.
(4) The Operating Partnership considers funds from operations ("FFO") to be
a useful performance measure of the operating performance of an equity REIT
because, together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. The Operating Partnership
believes that in order to facilitate a clear understanding of its operating
results, FFO should be examined in conjunction with net income (loss) as
presented in the financial statements and data included elsewhere in this
report.
The Operating Partnership computes FFO in accordance with standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"). FFO as defined by NAREIT represented net income (loss) determined in
accordance with generally accepted accounting principles (GAAP), excluding gains
or losses from sales of assets or debt restructuring, plus certain non-cash
items, primarily real estate depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. FFO presented herein is not
necessarily comparable to FFO presented by other real estate companies due to
the fact that not all real estate companies use the same definition. However,
the Operating Partnership's FFO is comparable to the FFO of real estate
companies that use the NAREIT definition.
FFO should not be considered as an alternative to net income as an
indicator of Gables' operating performance or as an alternative to cash flows as
a measure of liquidity. FFO does not measure whether cash flow is sufficient to
fund all of the Operating Partnership's cash needs including principal
amortization, capital expenditures and distributions to unitholders.
Additionally, FFO does not represent cash flows from operating, investing or
financing activities as defined by GAAP. Reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" for a discussion of the Operating Partnership's
cash needs and cash flows.
(5) Gross operating margin represents (i) total property revenues less
property operating and maintenance expenses (exclusive of depreciation expense)
as a percentage of (ii) total property revenues.
(6) In an UPREIT structure, the value attributed to Units issued to
controlling, continuing investors is not reflected because such accounting is
not allowed under GAAP. On a pro forma basis, the real estate assets before
accumulated depreciation and total assets as of March 31, 1997 would be $934,242
and $878,529, respectively, if such value (exclusive of the effect of
depreciation) were reflected.
<PAGE>
PAGE-12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Managements Discussion and Analysis of Financial Condition and
Results of Operations
- ---------------------
Overview
- --------
Gables is focused within the multifamily industry in the Southeastern and
Southwestern United States and its operating performance relies predominantly on
net operating income from its apartment communities. Gables' net operating
income is influenced by operating expenses and rental revenues, which are
affected by the supply and demand dynamics within Gables' markets. Gables'
performance is also affected by the general availability and cost of capital and
by its ability to develop and to acquire additional apartment communities with
returns in excess of its blended cost of equity and debt capital.
Gables owns apartment communities in seven core cities in Georgia, Texas
and Tennessee. The Operating Partnership recently entered an eighth market,
Orlando, Florida, through an association with a subsidiary of the Walt Disney
Company and, in connection therewith, currently has two communities under
development in Orlando. Within each city, Gables targets specific submarkets for
investment. These submarkets are generally characterized by their proximity to
local employment centers, retail and entertainment venues and traffic arteries.
Gables believes demographic trends (including job, population and household
growth) in its markets in recent years have generally led to favorable demand
and supply dynamics for multifamily communities. However, during any given time
period these demand and supply dynamics may be less favorable in certain of the
Operating Partnership's markets depending on conditions influencing the specific
market. Portfolio wide occupancy levels have remained high and portfolio wide
rental rates have continued to increase during each of the last several years.
Gables expects portfolio wide rental expenses to increase at a rate slightly
ahead of inflation, and to approximate the increase in property revenues, for
the coming twelve months.
As a result of the aforementioned generally favorable market conditions,
management has been successful in growing the stabilized properties' income as
well as growing earnings via a combination of new development and acquisition.
Management's extensive experience in new development (including site selection,
zoning, construction and lease-up) and in-depth local presence affords Gables
the opportunity to acquire land and develop new Class A multifamily communities.
In select markets and in certain real estate cycles, management believes better
returns can be generated from new development than from acquisitions of
comparable properties. During other real estate cycles or in select markets,
management will pursue the acquisition of existing apartment communities,
specifically when the returns on investment and the potential for growth in net
operating income are attractive. Additionally, Gables has been able to acquire
distressed or under-managed apartment communities which, through strategic
renovation and repositioning, have generally resulted in superior returns to
traditional acquisitions and new developments. Management believes Gables'
ability to compete with other companies is significantly enhanced by its
in-depth local presence and the strength of its management, development,
acquisition, and construction personnel. In certain situations, management's
evaluation of the growth prospects for a specific asset may result in a
determination to dispose of the asset. In this event, management would intend to
sell the asset and utilize the net proceeds from any such sale to invest in new
assets which are expected to have better growth prospects or to reduce
indebtedness. The Operating Partnership maintains staffing levels sufficient to
meet the existing construction, acquisition, and leasing activities. If market
conditions warrant, management would anticipate adjusting staffing levels to
mitigate a negative impact on results of operations.
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the accompanying
consolidated and combined financial statements and the notes thereto.
This Form 10 contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results or developments
could differ materially from those projected in such statements as a result of
the risk factors set forth in the relevant paragraphs of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10.
<PAGE>
PAGE-13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Gables Realty Limited Partnership and Initial Public Offering of
- ----------------------------------------------------------------------
Gables Residential Trust
- ------------------------
Gables Realty Limited Partnership (the "Operating Partnership"), a Delaware
limited partnership, was formed in 1993 to conduct the multifamily apartment
community management, development, construction and acquisition operations for
Gables Residential Trust (the "Company"). On January 26, 1994, the Company
completed its initial public offering (the"IPO") and, in connection therewith,
sold 9,430,000 Common Shares at a price to the public of $22.50 per Common
Share. The net proceeds from such sale totaled approximately $190 million, a
portion of which was used by the Company to acquire an economic and voting
interest in the Operating Partnership, which was formed to succeed to
substantially all of the interests of its privately owned predecessor
organization. The Company, a self-administered and self-managed real estate
investment trust ("REIT"), became the majority owner of the Operating
Partnership upon the completion of the IPO. The term "Gables Residential Group"
or "Group" as used herein refers to the privately owned predecessor organization
prior to the completion of the Company's IPO and the concurrent completion of
the various transactions that occurred simultaneously therewith (the "Formation
Transactions"). The term "Operating Partnership" or "Gables" as used herein
means Gables Realty Limited Partnership and its subsidiaries on a consolidated
basis or, where the context so requires, Gables Realty Limited Partnership only,
and, as the context may require, their predecessors.
Secondary Offerings and Issuances of Operating Partnership Units
- ----------------------------------------------------------------
Secondary Offerings -
- ---------------------
Since the IPO, the Company has had the following Common Share offerings:
Number of Net
Closing Date Shares Issued Proceeds
------------ ------------- --------
October 7, 1994 444,500 $ 9,876
======= =======
October 31, 1995 4,600,000 $94,364
========= =======
March 25, 1996 879,068 $20,630
September 17, 1996 1,725,000 $38,600
September 27, 1996 1,435,000 $34,254
--------- -------
1996 Totals 4,039,068 $93,484
========= =======
The net proceeds from these offerings were contributed to the Operating
Partnership in exchange for units of limited partnership interest in the
Operating Partnership ("Units"), and the Operating Partnership used the proceeds
(i) to reduce outstanding indebtedness under interim financing vehicles utilized
to fund the Operating Partnership's development and acquisition activities and
(ii) for general working capital purposes including funding of future
development and acquisition activities.
The Company issued the Common Shares in its 1995 and 1996 offerings under a
$200 million shelf registration statement which is now exhausted. In October,
1996, the Company filed a new shelf registration statement, covering the
registration of up to $300 million of debt securities, common shares, preferred
shares and warrants or other rights to purchase common shares or preferred
shares (the "$300 Million Shelf").
On July 24, 1997, the Company issued 4,600,000 shares of 8.30% Series A
Cumulative Redeemable Preferred Shares (liquidation preference $25.00 per share)
(the "Series A Preferred Shares") in a public offering under the $300 Million
Shelf. The net proceeds from this offering of approximately $111.2 million were
contributed to the Operating Partnership in exchange for an equal number of
preferred Units ("Series A Preferred Units") which, in general, have, with
respect to other Units, rights and preferences that are analogous to the rights
and preferences that the Series A Preferred Shares have with respect to the
Common Shares. The Operating Partnership used the proceeds from this offering to
reduce outstanding indebtedness under the interim financing vehicles discussed
above.
<PAGE>
PAGE-14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Additional Issuances of Operating Partnership Units -
- -----------------------------------------------------
On December 5, 1995, Gables acquired a parcel of land for the development
of an apartment community, financed in part through the issuance of 111,074
Units.
On July 26, 1996, Gables acquired an apartment community comprising 500
apartment homes, financed in part through the issuance of 243,787 Units.
Results of Operations
- ---------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE THREE MONTHS ENDED MARCH 31,
1997 (THE "1997 PERIOD") TO THE THREE MONTHS ENDED MARCH 31, 1996 (THE "1996
PERIOD").
Gables' net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, Gables categorizes its operating communities based on the period
each community reaches stabilized occupancy. A community is considered by Gables
to have achieved stabilized occupancy on the earlier to occur of (i) attainment
of 93% physical occupancy or (ii) one year after completion of construction.
The operating performance for all of Gables' apartment communities combined
for the three months ended March 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------- ---------- ---------- ------------
$ %
1997 1996 Change Change
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Rental and other revenue:
Same store communities (1) $18,060 $17,749 $311 1.8%
Communities stabilized during the 1997 Period, but not during the 1996 Period (2) 5,122 4,136 986 23.8%
Development and lease-up communities (3) 1,864 347 1,517 437.2%
Acquired communities (4) 5,600 0 5,600 ---
Sold communities (5) 175 968 (793) (81.9)%
--------- ---------- --------- ---------
Total property revenues $30,821 $23,200 $7,621 32.8%
--------- ---------- --------- ---------
Property operating and maintenance expense (exclusive of depreciation and
amortization):
Same store communities (1) $6,578 $6,323 $255 4.0%
Communities stabilized during the 1997 Period, but not during the 1996 Period (2) 1,594 1,196 398 33.3%
Development and lease-up communities (3) 827 108 719 665.7%
Acquired communities (4) 1,944 0 1,944 ---
Sold communities (5) 115 443 (328) (74.0)%
-------- ---------- -------- ----------
Total specified expenses $11,058 $8,070 $2,988 37.0%
-------- ---------- -------- ----------
Revenues in excess of specified expenses $19,763 $15,130 $4,633 30.6%
======== ========== ======== ==========
Revenues in excess of specified expenses as a percentage of total property revenues 64.1% 65.2% --- (1.1)%
======== ========== ======== ==========
<FN>
(1) Communities which were owned and fully stabilized throughout both the 1997 Period and 1996 Period.
(2) Communities which were completed and fully stabilized during all of the 1997 Period, but were not completed and fully
stabilized during all of the 1996 Period.
(3) Communities in the development and/or lease-up phase which were not fully stabilized during all or any of the
1997 Period.
(4) Communities which were acquired subsequent to January 1, 1996.
(5) Communities which were sold subsequent to January 1, 1996.
</FN>
</TABLE>
<PAGE>
PAGE-15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ----------------------------------------------------------------------
Total property revenues increased $7,621, or 32.8%, from $23,200 to $30,821
due primarily to increases in the number of apartment homes resulting from the
development and acquisition of additional communities and to increases in rental
rates on communities stabilized throughout both periods ("same store"). Below is
additional information regarding the increases in total property revenues for
three of the five community categories presented in the preceding table:
Same store communities:
- -----------------------
<TABLE>
<CAPTION>
Increase Percent
(Decrease) Increase
Number of in Total (Decrease) in Occupancy Increase
Number of Apartment Percent Property Total Property During the (Decrease) in
Market Communities Homes of Total Revenues Revenues 1997 Period Occupancy
- ------ ----------- ----- -------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Houston 10 3,512 37% $176 2.7% 94.5% 0.4%
Atlanta 11 3,159 33% 166 2.7% 93.3% (1.0)%
Dallas 4 1,089 12% 7 0.3% 92.8% (0.1)%
Nashville 3 912 10% 32 2.0% 96.4% (0.4)%
Memphis 1 464 5% (39) (4.8)% 91.7% (5.2)%
Austin 1 276 3% (31) (5.4)% 87.2% (4.3)%
------- ------- ------- ------- ------- ------- -------
30 9,412 100% $311 1.8% 93.7% (0.6)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
Communities stabilized during the 1997 Period but not during the 1996 Period:
Increase
(Decrease)
Number of in Total Occupancy
Number of Apartment Percent Property During the
Market Communities Homes of Total Revenues 1997 Period
------ ----------- ----- -------- -------- -----------
Atlanta 2 695 32% $ (17) 92.4%
San Antonio 2 544 25% 222 92.5%
Austin 1 256 12% 223 97.5%
Nashville 1 254 12% 295 95.5%
Houston 1 246 11% 77 96.9%
Dallas 1 188 8% 186 92.4%
------- ------- ------- ------- -------
8 2,183 100% $986 94.0%
======= ======= ======= ======= =======
Development and lease-up communities:
Increase
Number of In Total Occupancy
Number of Apartment Percent Property During the
Market Communities Homes of Total Revenues 1997 Period
------ ----------- ----- -------- -------- -----------
Atlanta 2 578 35% $ 207 32.0%
Memphis 2 490 30% 748 78.2%
Dallas 1 300 18% 508 63.2%
Austin 1 273 17% 54 7.4%
------- ------- ------- ------- -------
6 1,641 100% $1,517 45.7%
======= ======= ======= ======= =======
Other revenues increased $169, or 13.6%, from $1,242 to $1,411 due to an
increase in revenues in the 1997 Period related to the provision of certain
ancillary services, offset in part by a decrease in property management revenues
of $181, or 18.5%, from $980 to $799 resulting from a net decrease of properties
managed by Gables for third parties primarily due to these properties being sold
by the owners.
<PAGE>
PAGE-16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $2,988, or 37.0%, from $8,070 to $11,058 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities and an increase in property operating and maintenance
expense for same store communities of 4.0%. The same store increase in operating
expenses represents inflationary increases in expenses and increased marketing
and redecorating expenses in certain of the Operating Partnership's markets.
Gables anticipates that property operating and maintenance expense for same
store communities will generally increase at a rate slightly ahead of inflation.
Depreciation and amortization expense increased $1,605, or 43.0%, from
$3,732 to $5,337 due primarily to the completion of newly developed communities
and acquisition of other communities.
Property management expense for owned communities and third party
properties on a combined basis increased $42, or 2.9%, from $1,426 to $1,468 due
primarily to inflationary increases in expenses. Gables allocates property
management expenses to both owned communities and third party properties based
on the proportionate share of total apartment homes and units managed.
General and administrative expense increased $167, or 23.4%, from $714 to
$881 due primarily to the timing of the recordation of certain expenses.
Interest expense increased $2,007, or 52.7%, from $3,808 to $5,815 due to
an increase in operating debt associated with newly developed or acquired
communities in addition to communities currently in the lease-up phase.
Additionally, interest costs have increased due to the refinancing of certain
variable rate debt to a higher fixed rate cost structure. These increases in
interest expense have been offset in part as a result of the offerings the
Company has consummated between periods, the proceeds of which have been
contributed to the Operating Partnership and used primarily to reduce
indebtedness.
Gain on sale of real estate assets of $4,858 in the 1997 Period represents
the gain generated in connection with the January, 1997 sale of Club Candlewood,
a community comprised of 486 apartment homes.
Extraordinary loss of $712 in the 1997 Period represents (i) the write-off
of unamortized deferred financing costs and prepaid credit enhancement fees
associated with the defeasance of the tax-exempt bond financing encumbering the
Club Candlewood property that was sold in January, 1997 and (ii) the write-off
of unamortized deferred financing costs associated with the February 28, 1997
retirement of a conventional mortgage note payable that was scheduled to mature
on September 1, 1997.
Net income increased $5,903, or 103.7%, from $5,695 to $11,598 primarily
due to the reasons discussed above.
<PAGE>
PAGE-17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE YEAR ENDED DECEMBER 31, 1996
(THE "1996 PERIOD") TO THE YEAR ENDED DECEMBER 31, 1995 (THE "1995 PERIOD").
Gables' net income is generated primarily from the operation of its
apartment communities. For purposes of evaluating comparative operating
performance, Gables categorizes its operating communities based on the period
each community reaches stabilized occupancy. A community is considered by Gables
to have achieved stabilized occupancy on the earlier to occur of (i) attainment
of 93% physical occupancy or (ii) one year after completion of construction.
The operating performance for all of Gables' apartment communities combined
for the years ended December 31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
Years Ended
December 31, 1996 and 1995
---------- --------- ----------- ----------
$ %
1996 1995 Change Change
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Rental and other revenue:
Same store communities (1) $ 68,610 $66,755 $1,855 2.8%
Communities stabilized during the 1996 Period, but not during the 1995 Period (2) 6,495 2,626 3,869 147.3%
Development and lease-up communities (3) 23,141 5,699 17,442 306.1%
Acquired communities (4) 11,007 0 11,007 --
Sold community (5) 218 891 (673) (75.5%)
-------- -------- -------- --------
Total property revenues $109,471 $75,971 $33,500 44.1%
-------- -------- -------- --------
Property operating and maintenance expense
(exclusive of depreciation and amortization):
Same store communities (1) $25,088 $25,108 $ (20) ( 0.1%)
Communities stabilized during the 1996 Period, but not during the 1995 Period (2) 1,966 869 1,097 126.2%
Development and lease-up communities (3) 7,624 1,815 5,809 320.1%
Acquired communities (4) 3,887 0 3,887 --
Sold community (5) 128 436 (308) (70.6%)
-------- -------- -------- --------
Total specified expenses $38,693 $28,228 $10,465 37.1%
-------- -------- -------- --------
Revenues in excess of specified expenses $70,778 $47,743 $23,035 48.2%
======== ======== ======== ========
Revenues in excess of specified expenses as a percentage of total 64.7% 62.8% -- 1.9%
property revenues ======== ======== ======== ========
<FN>
(1) Communities which were owned and fully stabilized throughout both the 1996 Period and 1995 Period.
(2) Communities which were owned and fully stabilized during all of the 1996 Period, but were not owned and fully stabilized
during all of the 1995 Period.
(3) Communities in the development and/or lease-up phase which were not fully stabilized during all or any of the 1996 Period.
(4) Communities which were acquired during the 1996 Period.
(5) Community which was sold during the 1996 Period.
</FN>
</TABLE>
<PAGE>
PAGE-18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Total property revenues increased $33,500, or 44.1%, from $75,971 to
$109,471 due primarily to increases in the number of apartment homes resulting
from the development and acquisition of additional communities and to increases
in rental rates on communities stabilized throughout both periods ("same
store"). Below is additional information regarding the increases in total
property revenues for three of the five community categories presented in the
preceding table:
Same store communities:
<TABLE>
<CAPTION>
Percent
Increase Increase
(Decrease) (Decrease) Occupancy
Number of in Total in Total During the Increase
Apartment Percent Property Property 1996 (Decrease) in
Market Homes of Total Revenues Revenues Period Occupancy
- ------ ----- -------- -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Houston 3,512 38% $ 444 1.7% 95.2% 0.6%
Atlanta 3,289 35% 1,040 4.4% 94.3% (0.3%)
Nashville 912 10% 198 3.1% 95.9% 0.1%
Dallas 855 9% 107 1.9% 92.9% (1.3%)
Memphis 464 5% 106 3.4% 94.6% 0.6%
Austin 276 3% (40) (1.7%) 91.6% (1.2%)
------- ------- ------- ------- -------- -------
9,308 100% $1,855 2.8% 94.6% 0.0%
======= ======= ======= ======= ======== =======
</TABLE>
Communities stabilized during the 1996 Period but not during the 1995 Period:
Increase
Number of in Total Occupancy
Apartment Percent Property During the
Market Homes of Total Revenues 1996 Period
- ------ ----- -------- -------- -----------
Atlanta 356 60% $2,218 96.0%
Dallas 234 40% 1,651 94.9%
------- -------- -------- --------
590 100% $3,869 95.5%
======= ======== ======== ========
Development and lease-up communities:
Increase
Number of In Total Occupancy
Apartment Percent Property During the
Market Homes of Total Revenues 1996 Period
- ------ ----- -------- -------- -----------
Atlanta 958 30% $5,364 82.8%
San Antonio 544 17% 2,904 84.7%
Memphis 490 15% 759 22.6%
Dallas 488 15% 2,405 54.1%
Austin 256 8% 2,615 89.5%
Nashville 254 8% 2,092 83.0%
Houston 246 7% 1,303 89.9%
------- ------- ------- -------
3,236 100% $17,442 79.4%
======= ======= ======= =======
Other revenues increased $921, or 15.9%, from $5,789 to $6,710 due to (i)
$900 of non-recurring net revenues generated from certain corporate apartment
home leases entered into in connection with the 1996 Olympic games held in
Atlanta and (ii) $557 of interest earned on an investment Gables made in an
apartment community on October 1, 1996 via a mortgage note receivable. In
January, 1997, Gables acquired the apartment community from the borrower, and
the mortgage note receivable was repaid in full. Such increases in other
revenues were offset in part by a decrease in property management revenues of
$418, or 9.8%, from $4,289 to $3,871 due primarily to a net decrease of
properties managed by Gables for third parties primarily as a result of these
properties being sold by the owners.
<PAGE>
PAGE-19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $10,465, or 37.1%, from $28,228 to $38,693 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities partially offset by a decrease in property operating and
maintenance expense for same store communities of 0.1%. The same store decrease
in operating expenses represents reduced health and workers compensation
expenses, offset by inflationary increases in expenses. Gables anticipates that
property operating and maintenance expense for same store communities will
generally increase at a rate slightly ahead of inflation.
Depreciation and amortization expense increased $6,223, or 49.1%, from
$12,669 to $18,892 due primarily to the completion of newly developed
communities and acquisition of other communities.
Property management expense for owned communities and third party
properties on a combined basis increased $269, or 5.0%, from $5,348 to $5,617
due primarily to increased data processing costs. Gables allocates property
management expenses to both owned communities and third/related party properties
based on the proportionate share of total apartment homes and units managed.
General and administrative expense increased $176, or 6.1%, from $2,869 to
$3,045 due to increased personnel and administrative costs associated primarily
with the appointment of the new Chief Operating Officer and Vice President of
Portfolio Management positions effective January 1, 1996, offset in part by
certain non-recurring costs incurred during the 1995 Period that were not
incurred during the 1996 Period.
Interest expense increased $8,024, or 61.3%, from $13,088 to $21,112 due to
an increase in operating debt associated with newly developed or acquired
communities in addition to communities currently in the lease-up phase.
Additionally, interest costs increased due to the refinancing of certain
variable rate debt to a higher fixed rate cost structure. These increases in
interest expense have been offset in part as a result of the offerings the
Company has consummated between periods, the proceeds of which have been
contributed to the Operating Partnership and used primarily to reduce
indebtedness.
Extraordinary loss of $631 for the year ended December 31, 1996 represents
the write-off of unamortized deferred financing costs associated with the early
retirement of the Company's Original Credit Facility. The Original Credit
Facility that was scheduled to mature in January, 1997, was refinanced in March,
1996 with a new $175 million unsecured revolving credit facility (the "New
Credit Facility").
Net income increased $9,496, or 54.5%, from $17,414 to $26,910 primarily
due to the reasons discussed above.
<PAGE>
PAGE-20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE YEAR ENDED DECEMBER 31, 1995
(THE "1995 PERIOD") TO THE PRO FORMA OPERATING RESULTS FOR THE YEAR ENDED
DECEMBER 31, 1994 (THE "1994 PERIOD").
The following is a comparison of the operating results of Gables for the
year ended December 31, 1995 to the pro forma operating results of the Group for
the period from January 1, 1994 to January 25, 1994 and the historical operating
results of Gables for the period from January 26, 1994 to December 31, 1994
(together, the pro forma operating results for the year ended December 31,
1994). Pro forma adjustments include adjustments related to the IPO and
Formation Transactions, principally for the acquisition of certain properties,
the payment of additional expenses associated with reporting as a public
company, the reduction of interest expense due to debt repayment, and an
increase in depreciation.
Rental income increased $15,412, or 26.9%, from $57,291 to $72,703 due to
increases in the number of apartment homes resulting from the development and
acquisition of additional communities and to increases in rental rates on
communities stabilized throughout both periods ("same store"). On a same store
basis, Gables' rental income increases and occupancy changes were as follows:
<TABLE>
<CAPTION>
Number of Percent Occupancy Increase
Apartment Percent Increase in Increase in During Year (Decrease) in
Market Homes of Total Rental Income Rental Income Ended 12/31/95 Occupancy
- ------ ----- -------- ------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Atlanta 2,324 31% $1,148 7.5% 95.2% 0.2%
Dallas 536 7% 125 5.3% 94.2% (1.2%)
Houston 3,266 44% 367 1.6% 95.0% 0.9%
Nashville 912 12% 387 6.8% 96.3% 0.2%
Memphis 464 6% 157 5.7% 94.9% (1.9%)
------- ------- ------- ------- ------- -------
7,502 100% $2,184 4.6% 95.1% 0.3%
======= ======= ======= ======= ======= =======
</TABLE>
During 1994, Gables stabilized the occupancy for communities which were in
lease-up during all or a portion of the year ended December 31, 1994 and
completed the development and acquisition of additional communities. These
communities were stabilized during all of the 1995 Period but were not
stabilized during all of the 1994 Period. These activities resulted in increases
in rental income from the 1994 Period to the 1995 Period. A summary of these
activities is as follows:
<TABLE>
<CAPTION>
Number of Apartment Homes
------------------------- Occupancy
During
Lease-up Developed Percent Increase in Year Ended
Market Completed or Acquired Total of Total Rental Income 12/31/95
- ------ --------- ----------- ----- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Atlanta 603 362 965 50% $2,357 95.7%
Austin 276 0 276 14% 122 94.2%
Dallas 132 319 451 23% 2,155 95.4%
Houston 0 246 246 13% 949 95.1%
------- ------- ------- ------- ------- -------
1,011 927 1,938 100% $5,583 95.3%
======= ======= ======= ======= ======= =======
</TABLE>
During the year ended December 31, 1995, certain wholly-owned development
communities commenced operations and lease-up which also resulted in increases
in rental income. A summary of these activities is as follows:
Occupancy
Number of During
Apartment Percent Increase in Year Ended
Market Homes of Total Rental Income 12/31/95
- ------ ----- -------- ------------- --------
Atlanta 1,314 43% $4,244 37.5%
Austin 256 9% 174 6.5%
Dallas 422 14% 1,304 26.8%
Houston 246 8% 697 34.8%
San Antonio 544 18% 1,120 26.2%
Nashville 254 8% 106 5.3%
------- ------- ------- -------
3,036 100% $7,645 28.4%
======= ======= ======= =======
<PAGE>
PAGE-21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Other property revenues increased $1,040, or 46.7%, from $2,228 to $3,268
due primarily to other income from newly developed and acquired apartment homes.
Other revenues decreased $1,561, or 21.2%, from $7,350 to $5,789 due
primarily to a decrease in property management revenues of $1,263, or 22.8%,
from $5,552 to $4,289 resulting from a net decrease of properties managed by
Gables for third/related parties primarily due to these properties being sold by
the owners throughout 1994 and 1995.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $5,360, or 23.4%, from $22,868 to $28,228 due to an
increase in apartment homes resulting from the development and acquisition of
additional communities and an increase in property operating and maintenance
expense for same store communities of 3.5%. Operating expenses associated with
communities stabilized during all of the 1995 Period that were not stabilized
during all of the 1994 Period increased $2,022. Operating expenses associated
with communities that commenced operations and lease-up during the 1995 period
were $2,685 during the year ended December 31, 1995. Property operating and
maintenance expense as a percent of total property revenues decreased from 38.4%
to 37.2%.
Depreciation and amortization expense increased $2,695, or 27.0%, from
$9,974 to $12,669 due to the completion of newly developed communities and
acquisition of other communities.
Property management expense for owned communities and third/related party
properties decreased $255, or 4.6%, from $5,603 to $5,348 due primarily to a
decrease in the number of third/related party units managed. Gables allocates
property management expenses to both owned communities and third/related party
properties based on the proportionate share of total apartment homes and units
managed.
General and administrative expense increased $1,090, or 61.3%, from $1,779
to $2,869 due to increased personnel and administrative costs associated with
annual increases in compensation and increased investor relations efforts,
additional costs associated with a public company organizational structure that
were not incurred during 1994, and certain other costs.
Interest expense and credit enhancement fees on a combined basis increased
$4,214, or 44.0%, from $9,584 to $13,798 due to an increase in interest expense
of $4,212, or 47.5%, from $8,876 to $13,088 resulting from an increase in
operating debt associated with the development and acquisition of additional
communities. Additionally, interest costs increased due to increases in variable
rates and the refinancing of certain variable rate debt to a higher fixed rate
cost structure. Such increases were offset by interest savings associated with
the repayment of debt with the $94 million net proceeds generated from the
Company's sale of 4,600,000 Common Shares that closed in October, 1995, which
proceeds were contributed to the Operating Partnership in exchange for Units.
Extraordinary loss of $955 for the year ended December 31, 1995 represents
the write-off of unamortized deferred financing costs associated with the early
retirement of the Operating Partnership's construction loans.
Net income increased $1,020, or 6.2%, from $16,394 to $17,414 for the
reasons discussed above.
<PAGE>
PAGE-22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
COMPARISON OF OPERATING RESULTS OF GABLES FOR THE YEAR ENDED DECEMBER 31, 1995
TO THE HISTORICAL OPERATING RESULTS OF THE GROUP FOR THE PERIOD FROM JANUARY 1,
1994 TO JANUARY 25, 1994 AND THE HISTORICAL OPERATING RESULTS OF GABLES FOR THE
PERIOD FROM JANUARY 26, 1994 TO DECEMBER 31, 1994.
Total property revenues increased $16,545, or 27.8%, from $59,426 to
$75,971 primarily due to increases in the number of apartment homes resulting
from the development and acquisition of additional communities. Substantially
all of the increase in rental income was attributable to newly completed and
occupied apartment homes, with the balance attributable to changes in occupancy
or increased rental rates for apartment homes in communities stabilized
throughout both periods.
Other revenues decreased $1,607, or 21.7%, from $7,396 to $5,789 due
primarily to a decrease in property management revenues of $1,267, or 22.8%,
from $5,556 to $4,289 resulting from a net decrease in the number of properties
managed by Gables for third/related parties. This decrease is primarily the
result of properties being sold by the third/related party owners throughout
1994 and 1995.
Property operating and maintenance expense (exclusive of depreciation and
amortization) increased $5,381, or 23.6%, from $22,847 to $28,228 due to
increases in the number of apartment homes resulting from the development and
acquisition of additional communities and an increase in property operating and
maintenance expense for communities stabilized throughout both periods. Property
operating and maintenance expense as a percent of total property revenues
decreased from 38.4% to 37.2%.
Depreciation and amortization expense increased $2,763, or 27.9%, from
$9,906 to $12,669 due to the completion of newly developed communities and
acquisition of other communities.
Property management expense for owned communities and third/related party
properties decreased $426, or 7.4%, from $5,774 to $5,348 due primarily to a
decrease in the number of third/related party units managed.
General and administrative expense increased $1,127, or 64.7%, from $1,742
to $2,869 due to the increased costs associated with a public company
organizational structure, increased personnel and administrative costs, and
certain other costs.
Interest expense increased $3,700, or 39.4%, from $9,388 to $13,088 due to
an increase in operating debt associated with the development and acquisition of
additional communities. Additionally, interest costs increased due to increases
in variable rates and the refinancing of certain variable rate debt to a higher
fixed rate cost structure. Such increases were offset by interest savings
associated with the repayment of debt with the $94 million net proceeds
generated from the Company's sale of 4,600,000 Common Shares that closed in
October, 1995, which proceeds were contributed to the Operating Partnership in
exchange for Units.
Extraordinary loss of $955 for the year ended December 31, 1995 represents
the write-off of unamortized deferred financing costs associated with the early
retirement of the Operating Partnership's construction loans.
Net income increased $1,682, or 10.7%, from $15,732 to $17,414 for the
reasons discussed above.
<PAGE>
PAGE-23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
Gables' net cash provided by operating activities increased from $7,263 for
the three months ended March 31, 1996 to $8,682 for the three months ended March
31, 1997 due to (i) an increase of $2,645 in income before certain non-cash
items including depreciation, amortization, equity in income of joint ventures,
gain on sale of real estate assets and extraordinary losses, (ii) the change in
other assets between periods of $818 and (iii) the change in restricted cash
between periods of $1,525. Such increases were offset in part by the change in
other liabilities between periods of $3,569.
Gables' net cash used in investing activities decreased from $18,298 for
the three months ended March 31, 1996 to $11,352 for the three months ended
March 31, 1997 primarily due to the $12.3 million of net proceeds from the
January, 1997 sale of Club Candlewood, offset in part by increased development
activities in 1997 when compared to 1996. During the three months ended March
31, 1997, Gables expended approximately $22.4 million related to development
expenditures, including related land acquisitions, approximately $0.9 million
related to capital expenditures for operating apartment communities and
approximately $0.4 million related to renovation expenditures.
Gables' net cash provided by financing activities decreased from $11,015
for the three months ended March 31, 1996 to $1,167 for the three months ended
March 31, 1997 due primarily to the $12.3 million of net sales proceeds
generated from the January, 1997 sale of Club Candlewood, a community comprised
of 486 apartment homes. During the three months ended March 31, 1997, Gables had
net borrowings of $12.3 million which were used in conjunction with the $12.3
million of net sales proceeds primarily to fund Gables' development activities
discussed previously. These proceeds from financing activities were offset in
part by the payment of the fourth quarter 1996 distributions totaling
approximately $11.2 million.
Gables' net cash provided by operating activities increased from $29,088
for the year ended December 31, 1995 to $51,629 for the year ended December 31,
1996 due to (i) an increase of $15,595 in income before certain non-cash items
including depreciation, amortization, equity in income of joint ventures and
extraordinary losses and (ii) the change in other liabilities between periods of
$7,639. Such increases were offset in part by the change in other assets between
periods of $22 and the change in restricted cash between periods of $671.
Gables' net cash used in investing activities increased from $148,234 for
the year ended December 31, 1995 to $213,596 for the year ended December 31,
1996 primarily due to 1996 acquisition activities, partially offset by the
January, 1995 acquisition of Gables Over Peachtree ($11 million) and decreased
development activities in 1996 when compared to 1995. During the year ended
December 31, 1996, Gables expended approximately $120.2 million for the
acquisition of five apartment communities totaling 1,937 apartment homes,
approximately $2.6 million in renovation expenditures related primarily to
Gables Over Peachtree, approximately $68.3 million related to development
expenditures, including related land acquisitions and approximately $3.8 million
related to capital expenditures for operating apartment communities.
Additionally, Gables invested $21.5 million in an apartment community comprising
232 apartment homes on October 1, 1996 via a mortgage note receivable. In
January, 1997, Gables acquired the apartment community from the borrower, and
the mortgage note receivable was repaid in full.
Gables' net cash provided by financing activities increased from $123,619
for the year ended December 31, 1995 to $157,823 for the year ended December 31,
1996 due primarily to increased acquisition cash needs. During the year ended
December 31, 1996, Gables received net proceeds of $93.5 million from the
Company's sales of 4,039,068 Common Shares, which proceeds were contributed to
the Operating Partnership in exchange for Units, and had net borrowings of
$104.1 million which were used primarily to fund Gables' acquisition and
development activities discussed previously. These proceeds from financing
activities were offset in part by the payment of distributions totaling $38.6
million.
As of March 31, 1997, Gables had total indebtedness of $402,613, cash and
cash equivalents of $2,882 and principal escrow deposits reflected in restricted
cash of $1,380. Gables' indebtedness includes $211,866 in conventional
fixed-rate mortgage notes payable secured by individual properties, a $40,000
term loan, $105,080 in tax-exempt bond indebtedness and $45,667 in borrowings
outstanding under its Credit Facilities. Gables' indebtedness has an average of
7.3 years to maturity at March 31, 1997. Excluding monthly principal
amortization payments, over the next five years Gables has the following
scheduled debt maturities for indebtedness outstanding at March 31, 1997:
<PAGE>
PAGE-24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
1997 $ 8,667
1998 0
1999 0
2000 81,930
2001 40,000
The debt maturities in 1997 of $8,667 relate to outstanding indebtedness
under the $20 Million Credit Facility which will be extended pursuant to the
Operating Partnership's unlimited one-year extension options. The debt
maturities in 2000 totaling $81,930 consist of $37,000 of outstanding
indebtedness under the $175 Million Credit Facility and $44,930 of four
variable-rate notes payables securing tax-exempt bonds. These tax-exempt bonds
are subject to mandatory redemption on the termination dates of letters of
credit securing the bonds, each of which is March, 2000. Three of the underlying
bond issues mature in December, 2007 and the fourth underlying bond issue
matures in August, 2024. Gables expects to be able to remarket such bonds on or
prior to March, 2000. The $175 Million Credit Facility has two remaining
one-year extension options.
Gables' distributions through the first quarter of 1997 have been paid from
cash provided by operating activities. Gables anticipates that distributions
will continue to be paid on a quarterly basis from cash provided by operating
activities.
In January, 1997, Gables sold one of its Current Communities, Club
Candlewood, comprising 486 apartment homes. The net sales proceeds were used to
(i) defease the related tax-exempt bond indebtedness which had a principal
balance of $6,975 at December 31, 1996 and (ii) paydown outstanding borrowings
under Gables' Credit Facilities.
Gables has met and expects to continue to meet its short-term liquidity
requirements generally through net cash provided by operations. Gables' net cash
provided by operations has been adequate and Gables believes that it will
continue to be adequate to meet both its operating requirements and the payment
of distributions in accordance with REIT requirements in both the short and the
long term. The budgeted expenditures for improvements and renovations to the
communities, in addition to monthly principal amortization payments, are also
expected to be funded from net cash provided by operations. Gables anticipates
construction and development activities and land purchases will be initially
funded primarily through borrowings under its Credit Facilities described below.
Gables expects to meet certain of its long-term liquidity requirements,
such as scheduled debt maturities, repayment of short-term financing of
construction and development activities and possible property acquisitions,
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities by the Company or through the
disposition of assets which, in management's evaluation, may no longer meet
Gables' investment requirements.
$175 Million Credit Facility
- ----------------------------
In conjunction with the IPO, Gables closed a $175 million three-year
revolving credit facility (the"Original Credit Facility") which had an initial
maturity of January, 1997. Borrowings under the Original Credit Facility were
recourse to the Operating Partnership and bore interest at LIBOR plus 1.90%
(reduced from 2.25% in December, 1994). Additionally, fees associated with
letters of credit issued thereunder for Gables' tax-exempt variable-rate bonds
were 1.25% per annum (reduced from 1.50% in July, 1995).
In March, 1996, Gables closed a new $175 million unsecured revolving credit
facility (the "New Credit Facility" or "$175 Million Credit Facility") that
replaced the Original Credit Facility. Although the New Credit Facility is
unsecured, there were certain designated real estate assets that had escrowed
mortgages that were released subsequent to March 31, 1997, promptly after the
attainment of implied senior unsecured debt ratings of BBB from Standard and
Poor's and Baa2 from Moody's Investors Service (the "Credit Ratings"). The New
Credit Facility has an initial term of three years and three one-year extension
options. Gables recently exercised the first of its one-year extension options
resulting in a maturity date for the facility of March, 2000. Borrowings bore
interest at LIBOR plus 1.50% (reduced from 1.65% in November, 1996) through
April, 1997 and letter of credit fees for Gables' tax-exempt variable-rate bonds
<PAGE>
PAGE-25
are 1.00% per annum. In April, 1997, Gables' borrowing costs under the facility
were reduced to LIBOR plus 1.10% in connection with the attainment of the Credit
Ratings. Under the facility, up to $50 million is available to provide credit
enhancements on outstanding tax-exempt bond issues and all remaining amounts are
available for borrowings. Gables' availability under the facility is limited to
the lesser of the total $175 million commitment or the borrowing base. At March
31, 1997, the borrowing base available under the facility was based on the
collateral value of the real estate assets with escrowed mortgages and the debt
service coverage ratio of communities pledged as collateral under other recourse
loans. As of March 31, 1997, Gables had approximately $45.8 million of letters
of credit issued under the facility and had $37.0 million in borrowings
outstanding thereunder and, therefore, had $88.4 million of remaining capacity
on its $171.2 million borrowing base.
$20 Million Credit Facility
- ---------------------------
In November, 1996, Gables closed an unsecured revolving credit facility
that currently provides for up to $20 million in borrowings. This facility has
an initial term of one year and has unlimited one-year extension options.
Borrowings bore interest under this facility at LIBOR plus 1.50% through April,
1997. In April, 1997, Gables' borrowing costs were reduced to LIBOR plus 1.10%
in connection with the attainment of the Credit Ratings. As of March 31, 1997,
the Operating Partnership had approximately $8.7 million in borrowings
outstanding under this facility.
Restrictive Covenants
- ---------------------
Certain of the Operating Partnership's debt agreements contain customary
representations, covenants and events of default, including covenants which
restrict the ability of the Operating Partnership to make distributions in
excess of stated amounts, which in turn restricts the discretion of the Company
to declare and pay dividends. In general, during any fiscal year the Operating
Partnership may only distribute up to 95% of the Operating Partnership's
consolidated income available for distribution (as defined in the related
agreement) exclusive of distributions of capital gains for such year. The
applicable debt agreements contain exceptions to these limitations to allow the
Operating Partnership to make any distributions necessary to allow the Company
to maintain its status as a REIT. The Operating Partnership does not anticipate
that this provision will adversely effect the ability of the Operating
Partnership to make distributions or the Company to declare dividends, as
currently anticipated.
<PAGE>
PAGE-26
MANAMGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
<TABLE>
Completed Communities in Lease-up and Development Communities at March 31, 1997
Gables' current developments and lease-up activities for communities that had
not reached stabilized occupancy as of March 31, 1997 are summarized below:
<CAPTION>
Actual / Actual / Actual / Actual /
Estimated Total Estimated Estimated Estimated Estimated
Number of Budgeted Percent Quarter Quarter of Quarter Quarter of
Apartment Cost Construction Percent Percent Construction Initial Construction Stabilized
Community Homes (millions) Complete Leased Occupied Commenced Occupancy Ended Occupancy
- --------- ----- ---------- -------- ------ -------- --------- --------- ----- ---------
(A) (B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Completed Communities In Lease-Up
- ---------------------------------
ATLANTA, GA
Gables Over Peachtree 263 $20.4 100% 84% 83% 1 Q 1995 N/A 2 Q 1996 2 Q 1997
DALLAS, TX
Gables Green Oaks I 300 16.5 100% 91% 86% 1 Q 1995 1 Q 1996 3 Q 1996 2 Q 1997
MEMPHIS, TN
Gables Quail Ridge 238 17.0 100% 82% 70% 1 Q 1995 2 Q 1996 1 Q 1997 3 Q 1997
Gables Germantown 252 19.6 100% 85% 80% 1 Q 1995 2 Q 1996 1 Q 1997 2 Q 1997
---------------------
Totals 1,053 $73.5
---------------------
Development Communities
- -----------------------
ATLANTA, GA
Gables Vinings 315 $24.7 78% 18% 5% 2 Q 1996 1 Q 1997 4 Q 1997 4 Q 1997
Roswell Gables II 284 21.7 53% --- --- 2 Q 1996 2 Q 1997 1 Q 1998 1 Q 1998
Gables at Sugarloaf 386 28.6 --- --- --- 2 Q 1997 1 Q 1998 1 Q 1999 2 Q 1999
AUSTIN, TX
Gables Central Park 273 20.6 88% 31% 13% 2 Q 1996 1 Q 1997 3 Q 1997 4 Q 1997
Gables Bluffstone 256 19.9 8% --- --- 1 Q 1997 4 Q 1997 3 Q 1998 4 Q 1998
ORLANDO, FL
Gables at Little Lake
Bryan I 280 21.7 --- --- --- 2 Q 1997 1 Q 1998 4 Q 1998 1 Q 1999
Gables Celebration 231 21.3 --- --- --- 3 Q 1997 1 Q 1998 4 Q 1998 4 Q 1998
---------------------
Totals 2,025 $158.5
---------------------
<FN>
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. The projections and estimates contained in the table above are
forward-looking statements. These forward-looking statements involve risks and
uncertainties and actual results may differ materially from those projected in
such statements. Risks associated with Gables' development, construction, and
lease-up activities, which could impact the forward-looking statements made,
include: development opportunities may be abandoned; construction costs of a
community may exceed original estimates, possibly making the community
uneconomical; and construction and lease-up may not be completed on schedule,
resulting in increased debt service and construction costs.
(A) Total Budgeted Cost includes all capitalized costs incurred and
projected to be incurred to develop the respective community presented
in accordance with generally accepted accounting principles, including
land acquisition costs, construction costs, real estate taxes,
interest and loan fees, permits, professional fees, allocated
development overhead, and other regulatory fees.
(B) Stabilized occupancy is defined as the earlier to occur of (i) 93%
physical occupancy or (ii) one year after completion of construction.
</FN>
</TABLE>
<PAGE>
PAGE-27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Portfolio Indebtedness Summary and Interest Rate Protection Agreement Summary
A summary of Gables' portfolio indebtedness and interest rate protection
agreements as of March 31, 1997 follows:
Portfolio Indebtedness Summary
- ------------------------------
Percentage Interest Total Years to
Type of Indebtedness Balance of Total Rate(A) Rate(B) Maturity
- -------------------- ------- -------- -------- -------- --------
Conventional fixed-rate (C) $251,866 62.6% 7.89% 7.89% 7.95
Tax-exempt fixed-rate 60,150 14.9% 6.50% 6.62% 11.42
-------- -------- -------- ------- -------
Total fixed-rate $312,016 77.5% 7.62% 7.65% 8.62
-------- -------- -------- ------- -------
Tax-exempt variable-rate $44,930 11.2% 3.50% 4.50% 3.00
-------- -------- -------- ------- -------
Credit facilities $45,667 11.3% 7.12% 7.12% 2.53
-------- -------- -------- ------- -------
Total portfolio debt(D),(E) $402,613 100.0% 7.11% 7.24% 7.30
======== ======== ======== ======= =======
(A) Interest Rate represents the weighted average interest rate incurred
on the indebtedness, exclusive of deferred financing cost amortization
and credit enhancement fees, as applicable.
(B) Total Rate represents the Interest Rate (A) plus credit enhancement
fees, as applicable.
(C) Conventional fixed-rate debt includes $40,000 of financing which bears
interest at LIBOR plus a spread of 1.25%. Such financing is
effectively fixed at an all-in rate of 6.60% after the application of
$40,000 of the $44,530 interest rate cap and swap arrangements
described below.
(D) Interest associated with construction activities is capitalized as a
cost of development and does not impact current earnings. The
qualifying construction expenditures at March 31, 1997 for purposes of
interest capitalization were $60,720.
(E) Excludes $16.4 million of tax-exempt bonds and $17.0 million of
outstanding conventional indebtedness related to joint ventures in
which Gables owns a 25% interest.
Interest Rate Protection Agreement Summary
- ------------------------------------------
Notional Strike/Swap Effective Termination
Description of Agreement Amount Price (F) Date Date
- ------------------------ ------ --------- ---- ----
LIBOR, 30-day - "Rate Cap" $44,530 6.25% 01/27/94 01/30/99
LIBOR, 30-day - "Rate Swap" $44,530 5.35% 08/30/96 08/30/99(G)
LIBOR, 30-day - "Rate Cap" $50,000 6.45% 01/30/97 12/31/97
(F) The 30-day LIBOR rate in effect at March 31, 1997 was 5.69%.
(G) This arrangement is a knock-out swap agreement which fixes Gables'
underlying 30-day LIBOR rate at 5.35%. The swap terminates upon the
earlier to occur of (i) the termination date or (ii) a rate reset date
on which the 30-day LIBOR rate is 6.26% or higher.
<PAGE>
PAGE-28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Book Value of Assets and Equity
- -------------------------------
The application of historical cost accounting in accordance with GAAP for
Gables' UPREIT structure results in an understatement of total assets and
partners' capital compared to the amounts that would be recorded via the
application of purchase accounting in accordance with GAAP had Gables not been
organized as an UPREIT. Management believes it is imperative to understand this
difference when evaluating the book value of assets and partners' capital. The
understatement of basis related to this difference in organizational structure
at March 31, 1997 is $112,494, exclusive of the effect of depreciation.
Accordingly, on a pro forma basis, the real estate assets before accumulated
depreciation, total assets, and partners' capital (including limited partners'
capital interest at redemption value) as of March 31, 1997 would be $934,242,
$878,529, and $446,769, respectively, if such $112,494 value were reflected.
Inflation
- ---------
Substantially all of the Operating Partnership's leases at the communities
are for a term of one year or less, which may enable Gables to seek increased
rents upon renewal of existing leases or commencement of new leases in times of
rising prices. The short-term nature of these leases generally serves to lessen
the impact of cost increases arising from inflation.
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
This Form 10 contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results or developments
could differ materially from those projected in such statements. Certain factors
that might cause such a difference include, but are not limited to, the
following: development opportunities may be abandoned; construction costs of a
community may exceed original estimates; construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs and reduced rental revenues; occupancy rates and rents may be
adversely affected by local economic and market conditions; financing may not be
available on favorable terms; Gables' cash flow may be insufficient to meet
required payments of principal and interest; and existing indebtedness may not
be able to be refinanced or the terms of such refinancing may not be as
favorable as the terms of existing indebtedness.
Funds From Operations and Adjusted Funds From Operations
- --------------------------------------------------------
The Operating Partnership considers funds from operations ("FFO") to be a
useful performance measure of the operating performance of an equity REIT
because, together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. The Operating Partnership
believes that in order to facilitate a clear understanding of its operating
results, funds from operations should be examined in conjunction with net income
(loss) as presented in the financial statements and data included elsewhere in
this report.
The Operating Partnership computes FFO in accordance with standards
established by the National Association of Real Estate Investment Trusts
("NAREIT"). FFO as defined by NAREIT represented net income (loss) determined in
accordance with GAAP, excluding gains or losses from sales of assets or debt
restructuring, plus certain non-cash items, primarily real estate depreciation,
and after adjustments for unconsolidated partnerships and joint ventures. FFO
presented herein is not necessarily comparable to FFO presented by other real
estate companies due to the fact that not all real estate companies use the same
definition. However, the Operating Partnership's FFO is comparable to the FFO of
real estate companies that use the NAREIT definition.
Adjusted funds from operations ("AFFO") is defined as FFO less capital
expenditures funded by operations. FFO and AFFO should not be considered as
alternatives to net income as indicators of Gables' operating performance or as
alternatives to cash flows as measures of liquidity. FFO does not measure
whether cash flow is sufficient to fund all of the Operating Partnership's cash
needs including principal amortization, capital expenditures, and distributions
to unitholders. Additionally, FFO does not represent cash flows from operating,
investing or financing activities as defined by GAAP. Reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for a discussion of Gables' cash
needs and cash flows.
<PAGE>
PAGE-29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in Thousands, Except Per Unit Amounts)
- ---------------------------------------------------------------------
Reconciliation of Funds From Operations and Adjusted Funds From Operations
- --------------------------------------------------------------------------
A reconciliation of funds from operations and adjusted funds from operations
follows:
<TABLE>
<CAPTION>
For the three months ended For the years ended
March 31 December 31
-------------------------- --------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
RECONCILIATION:
Net income $11,598 $5,695 $26,910 $17,414
Extraordinary loss (A) 712 631 631 1,003
Gain on sale of real estate assets (4,858) 0 0 0
Real estate asset depreciation:
Wholly-owned real estate assets 5,233 3,631 18,477 12,329
Joint venture real estate assets 55 54 220 181
------- -------- -------- -------
Total 5,288 3,685 18,697 12,510
------- -------- -------- -------
Funds from operations $12,740 $10,011 $46,238 $30,927
======= ======== ======== ========
Capital expenditures for operating
apartments:
Carpet 371 227 1,245 1,026
Roofing 24 13 297 23
Exterior painting 0 0 145 66
Appliances 47 25 179 129
Other additions/improvements 473 374 1,988 1,755
------- -------- -------- --------
Total 915 639 3,854 2,999
------- -------- -------- --------
Adjusted funds from operations $11,825 $9,372 $42,384 $27,928
======== ======= ======= =======
<FN>
(A) The extraordinary loss for the year ended December 31, 1995 includes
$48 incurred at the joint venture level.
</FN>
</TABLE>
<PAGE>
PAGE-30
ITEM 3. PROPERTIES
- ------- ----------
The Operating Partnership's real estate holdings or interests consist
exclusively of apartment communities and can currently be segregated into the
following five categories:
The "Current Communities" are the 50 apartment communities (including
two, Arbors of Harbortown and Metropolitan Uptown, in which the Operating
Partnership has an indirect 25% general partner interest) where construction was
complete at March 31, 1997. All but four of these Current Communities had
reached a stabilized occupancy level as of March 31, 1997. A community is
considered to have achieved stabilized occupancy on the earlier to occur of (i)
attainment of 93% physical occupancy or (ii) one year after the completion of
construction.
The "Development Communities" are the seven communities which were under
development at March 31, 1997. The term "Communities" is used herein to refer to
the Current Communities and the Development Communities collectively.
The "Undeveloped Sites" are the four sites which the Operating Partnership
purchased with an intention to develop an apartment community thereon.
The "Development Rights" are the six sites which the Operating Partnership
currently has an option to purchase.
The "Acquisition Rights" are the two existing apartment communities which
the Operating Partnership currently has an option to purchase.
The Communities
- ---------------
The Operating Partnership owns or has an interest in 50 Current Communities
consisting of 15,480 apartment homes and owns seven Development Communities,
which are expected to be completed in 1997 and 1998, consisting of 2,025
apartment homes. The Communities, comprising a total of 17,505 apartment homes,
are located in Georgia, Texas, Tennessee and Florida. The following table shows
the locations of the Communities and the number of apartment homes in each
metropolitan area:
<TABLE>
<CAPTION>
Number of Communities Number of Apartment Homes Percent of
--------------------- ------------------------- Total Apt.
Location Current Development Total Current Development Total Homes
- -------- ------- ----------- ----- ------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Houston, TX (1) 15 -- 15 5,363 -- 5,363 30.6%
Atlanta, GA 14 3 17 4,117 985 5,102 29.1%
Dallas, TX 8 -- 8 1,959 -- 1,959 11.2%
Memphis, TN (2) 5 -- 5 1,799 -- 1,799 10.3%
Nashville, TN 4 -- 4 1,166 -- 1,166 6.7%
Austin, TX 2 2 4 532 529 1,061 6.1%
San Antonio, TX 2 -- 2 544 -- 544 3.1%
Orlando, FL -- 2 2 -- 511 511 2.9%
------- ------- ------- ------- ------- ------- -------
50 7 57 15,480 2,025 17,505 100.0%
======= ======= ======= ======= ======= ======= =======
<FN>
(1) Includes a Current Community comprising 318 apartment homes in which Gables has a 25% general partner interest.
(2) Includes a Current Community comprising 345 apartment homes in which Gables has a 25% general partner interest.
</FN>
</TABLE>
CURRENT COMMUNITIES. The Operating Partnership developed 34 Current
Communities (consisting of 9,481 apartment homes), and acquired 16 Current
Communities (consisting of 5,999 apartment homes). All but one (Rivercrest) of
the Current Communities are managed and operated by the Operating Partnership.
The Current Communities typically are two and three story garden apartments,
townhomes and higher-density apartments. As of March 31, 1997, the Current
Communities had an average scheduled monthly rental rate per apartment home of
approximately $771 and, with the exception of four communities in the final
lease-up phase, had a physical occupancy rate of 96%. The average age of the
Current Communities is approximately 6.5 Years and upon completion of the
Development Communities will be approximately 6.0 Years.
<PAGE>
PAGE-31
Most of the Communities offer many attractive features designed to enhance
their market appeal, such as vaulted ceilings, fireplaces, dishwashers,
disposals, washer/dryer connections, ice-makers, patios and decks. Recreational
facilities include swimming pools, fitness facilities, playgrounds, picnic areas
and tennis and racquetball courts. In many Communities, the Operating
Partnership makes amenities and services available to residents, such as aerobic
classes, resident social events, dry cleaning pick up and delivery, and the use
of fax, computer and copy equipment. In-depth market research, including
periodic focus groups with residents and feedback from on-site management
personnel, is used to refine and enhance management services and community
design.
DEVELOPMENT COMMUNITIES. The Development Communities have been designed to
generally resemble the Current Communities developed by the Operating
Partnership and to offer similar amenities. The Development Communities and the
recently completed Current Communities reflect the Operating Partnership's
continuing research of consumer preferences for upscale multifamily rental
housing and incorporate and emphasize garage parking, increased privacy, high
quality interiors and private telephone and television systems.
UNDEVELOPED SITES. The Operating Partnership owns four Undeveloped Sites
and intends to develop multifamily communities at those sites in the future:
Metropolitan Estimated Number
Undeveloped Site Area of Apartment Homes
- ---------------- ---- ------------------
Gables Green Oaks II Dallas, TX 250
Gables Quail Ridge II Memphis, TN 148
Gables Colonnade II San Antonio, TX 250
Gables New Territory I Houston, TX 256
---
904
===
DEVELOPMENT RIGHTS. The Operating Partnership currently has six Development
Rights which are located in four cities:
Metropolitan Estimated Number
Development Right Area of Apartment Homes
- ----------- ----- ---- ------------------
Gables New Territory II Houston, TX 240 (a)
Gables at Little Lake Bryan II Orlando, FL 246 (a)
Gables at Little Lake Bryan III Orlando, FL 230 (a)
Gables at Little Lake Bryan IV Orlando, FL 207 (a)
Gables Sugarloaf II Atlanta, GA 719 (a)
Gables at the Galleria Dallas, TX 225
-----
1,867
=====
(a) The Operating Partnership has these land parcels under options with
various termination dates.
ACQUISITION RIGHTS. The Operating Partnership currently has Acquisition
Rights with respect to the following two existing multifamily apartment
communities:
Metropolitan Number
Acquisition Right Area of Apartment Homes
- ----------- ----- ---- ------------------
Briarcliff North Atlanta, GA 82
Gables Wood Mill Atlanta, GA 438 (a)
---
520
===
(a) The apartment community associated with this Acquisition Right was acquired
in May, 1997.
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. The projections contained in the tables above under the
captions "Undeveloped Sites", "Development Rights" and "Acquisition Rights" are
forward-looking statements. These forward-looking statements involve risks and
uncertainties and actual results may differ materially from those projected in
the forward-looking statements. Risks associated with the Operating
Partnership's development, construction and acquisition activities, which could
impact the forward-looking statements made, include: development and acquisition
opportunities may be abandoned; construction costs of a community may exceed
original estimates, possibly making the community uneconomical; construction may
not be completed on schedule, resulting in increased debt service and
construction costs.
<PAGE>
PAGE-32
Development of the Undeveloped Sites and the Development Rights is subject
to permits and other governmental approvals, as well as ongoing business review
by the Operating Partnership. There can be no assurance that the Operating
Partnership will decide or be able to develop the Undeveloped Sites, to complete
development of all or any of the communities subject to the Development Rights,
or to complete the number of apartment homes shown above.
<PAGE>
PAGE-33
<TABLE>
Completed Communities in Lease-up and Development Communities at March 31, 1997
- -------------------------------------------------------------------------------
Gables' current developments and lease-up activities for communities that had
not reached stabilized occupancy as of March 31, 1997 are summarized below:
<CAPTION>
Actual / Actual / Actual / Actual /
Estimated Total Estimated Estimated Estimated Estimated
Number of Budgeted Percent Quarter Quarter of Quarter Quarter of
Apartment Cost Construction Percent Percent Construction Initial Construction Stabilized
Community Homes (millions) Complete Leased Occupied Commenced Occupancy Ended Occupancy
- --------- ----- ---------- -------- ------ -------- --------- --------- ----- ---------
(A) (B)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Completed Communities In Lease-Up
- ---------------------------------
ATLANTA, GA
Gables Over Peachtree 263 $20.4 100% 84% 83% 1 Q 1995 N/A 2 Q 1996 2 Q 1997
DALLAS, TX
Gables Green Oaks I 300 16.5 100% 91% 86% 1 Q 1995 1 Q 1996 3 Q 1996 2 Q 1997
MEMPHIS, TN
Gables Quail Ridge 238 17.0 100% 82% 70% 1 Q 1995 2 Q 1996 1 Q 1997 3 Q 1997
Gables Germantown 252 19.6 100% 85% 80% 1 Q 1995 2 Q 1996 1 Q 1997 2 Q 1997
------------------
Totals 1,053 $ 73.5
------------------
Development Communities
- -----------------------
ATLANTA, GA
Gables Vinings 315 $24.7 78% 18% 5% 2 Q 1996 1 Q 1997 4 Q 1997 4 Q 1997
Roswell Gables II 284 21.7 53% --- --- 2 Q 1996 2 Q 1997 1 Q 1998 1 Q 1998
Gables at Sugarloaf 386 28.6 --- --- --- 2 Q 1997 1 Q 1998 1 Q 1999 2 Q 1999
AUSTIN, TX
Gables Central Park 273 20.6 88% 31% 13% 2 Q 1996 1 Q 1997 3 Q 1997 4 Q 1997
Gables Bluffstone 256 19.9 8% --- --- 1 Q 1997 4 Q 1997 3 Q 1998 4 Q 1998
ORLANDO, FL
Gables at Little Lake
Bryan I 280 21.7 --- --- --- 2 Q 1997 1 Q 1998 4 Q 1998 1 Q 1999
Gables Celebration 231 21.3 --- --- --- 3 Q 1997 1 Q 1998 4 Q 1998 4 Q 1998
--------------------
Totals 2,025 $158.5
--------------------
<FN>
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. The projections and estimates contained in the table above are
forward-looking statements. These forward-looking statements involve risks and
uncertainties and actual results may differ materially from those projected in
such statements. Risks associated with Gables' development, construction, and
lease-up activities, which could impact the forward-looking statements made,
include: development opportunities may be abandoned; construction costs of a
community may exceed original estimates, possibly making the community
uneconomical; and construction and lease-up may not be completed on schedule,
resulting in increased debt service and construction costs.
(A) Total Budgeted Cost includes all capitalized costs incurred and
projected to be incurred to develop the respective community presented
in accordance with generally accepted accounting principles, including
land acquisition costs, construction costs, real estate taxes,
interest and loan fees, permits, professional fees, allocated
development overhead, and other regulatory fees.
(B) Stabilized occupancy is defined as the earlier to occur of (i) 93%
physical occupancy or (ii) one year after completion of construction.
</FN>
</TABLE>
<PAGE>
PAGE-34
<TABLE>
<CAPTION>
COMMUNITY FEATURES AS OF 3/31/97
--------------------------------
Scheduled Rent
No. of Approximate Year Average @ 3/31/97 Per
Apartment Rentable Total Constructed/ Year Unit Size Occupancy ----------------
Current Communities (A) Homes Sq. Ft. (B) Acreage Renovated Acquired (Sq. Ft.) 3/31/97 Unit Sq. Ft.
- ----------------------- ----- ----------- ------- --------- -------- --------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOUSTON, TX
Baybrook Village 776 620,428 26.4 1981 1990 800 93% $543 $0.68
Gables Bradford Place 372 320,322 13.3 1991 -- 861 95% 680 0.79
Gables Bradford Pointe 360 276,417 13.5 1990 -- 768 93% 597 0.78
Gables CityPlaza 246 217,374 7.5 1995 -- 884 99% 834 0.94
Gables Cityscape 252 214,824 6.8 1991 -- 852 97% 842 0.99
Gables CityWalk/Waterford Square 317 255,823 8.7 1990/85 --/1992 807 98% 833 1.03
Gables Edgewater 292 257,339 12.2 1990 -- 881 96% 778 0.88
Gables Meyer Park 345 297,054 11.0 1993 -- 861 97% 833 0.97
Gables Piney Point 246 227,880 7.5 1994 -- 926 95% 869 0.94
Gables Pin Oak Green 582 593,478 14.4 1990 1996 1,020 96% 940 0.92
Gables Pin Oak Park 477 486,308 11.9 1992 1996 1,020 96% 945 0.93
Gables River Oaks 228 277,908 5.7 1993 1996 1,219 90% 1,293 1.06
Metropolitan Uptown (C) 318 290,141 8.9 1995 -- 912 97% 936 1.03
Rivercrest 140 118,020 5.1 1982 1987 843 97% 691 0.82
Westhollow Park 412 370,640 18.3 1978-79 1990 900 96% 576 0.64
------- --------- ------- ------- ------- ------- -------
Totals/ Weighted Averages 5,363 4,823,956 171.2 899 95% $787 $0.87
======= ========= ======= ======= ======= ======= =======
ATLANTA, GA
Briarcliff Gables 104 128,976 5.2 1995 -- 1,240 95% 1,060 0.85
Buckhead Gables 162 122,548 3.5 1994 (D) 1994 756 97% 773 1.02
Dunwoody Gables 311 290,396 10.4 1995 -- 934 95% 746 0.80
Gables Cinnamon Ridge 200 192,016 14.5 1980 1994 960 98% 624 0.65
Gables Cityscape 192 159,360 5.5 1989 1994 830 95% 806 0.97
Gables Over Peachtree 263 239,814 (E) 1.4 1996 (D) 1995 912 -- (F) 982 1.08
Gables Wood Arbor 140 127,540 9.9 1987 -- 911 95% 674 0.74
Gables Wood Crossing 268 257,012 22.3 1985-86 -- 959 98% 694 0.72
Gables Wood Glen 380 377,340 23.8 1983 -- 993 97% 645 0.65
Gables Wood Knoll 312 311,064 19.6 1984 -- 997 96% 678 0.68
Lakes at Indian Creek 603 552,384 49.8 1969-72 1993 916 95% 560 0.61
Roswell Gables I 384 417,288 28.3 1995 -- 1,087 97% 840 0.77
Spalding Gables 252 249,333 11.2 1995 -- 989 96% 839 0.85
Wildwood Gables 546 619,710 37.9 1992-93(D) 1991 1,135 97% 805 0.71
------- --------- ------- ------- ------- ------- -------
Totals/ Weighted Averages 4,117 4,044,781 243.3 982 96% $742 $0.76
======= ========= ======= ======= ======= ======= =======
DALLAS, TX
Arborstone 536 383,360 24.5 1985 1993 715 96% 465 0.65
Gables Green Oaks I 300 286,740 12.8 1996 -- 956 -- (F) 805 0.84
Gables at Pearl Street 108 117,688 3.6 1995 -- 1,090 97% 1,268 1.16
Gables CityPlace 232 244,056 7.1 1995 1997 1,052 99% 1,224 1.16
Gables Preston 126 138,107 10.6 1995 -- 1,096 94% 1,029 0.94
Gables Spring Park 188 198,178 12.3 1996 -- 1,054 98% 921 0.87
Gables Turtle Creek 150 150,930 3.1 1995 1996 1,006 98% 1,243 1.24
Gables Valley Ranch 319 325,534 14.8 1994 -- 1,020 98% 890 0.87
------- --------- ------- ------- ------- -------- -------
Totals/ Weighted Averages 1,959 1,844,593 88.8 942 97% $860 $0.91
======= ========= ======= ======= ======= ======== =======
MEMPHIS, TN
Arbors of Harbortown (C) 345 341,258 15.0 1991 -- 989 95% 737 0.75
Gables Cordova 464 434,461 32.2 1986 -- 936 95% 646 0.69
Gables Germantown 252 293,012 30.5 1997 -- 1,163 -- (F) 871 0.75
Gables Quail Ridge 238 283,848 20.3 1997 -- 1,193 -- (F) 758 0.64
Gables Stonebridge 500 439,646 34.0 1993-96 1996 879 94% 634 0.72
------- -------- ------- ------- ------- ------- -------
Totals/ Weighted Averages 1,799 1,792,225 132.0 996 95% $706 $0.71
======= ========= ======= ======= ======= ======= =======
NASHVILLE, TN
Brentwood Gables 254 287,594 14.5 1996 -- 1,132 98% 862 0.76
Gables Hendersonville 364 342,982 21.0 1991 -- 942 99% 628 0.67
Gables Hickory Hollow I 272 247,322 19.0 1988 -- 909 98% 632 0.70
Gables Hickory Hollow II 276 259,704 18.0 1987 -- 941 98% 632 0.67
------- -------- ------- ------- -------- -------- ---------
Totals/ Weighted Averages 1,166 1,137,602 72.5 976 98% $681 $0.70
======= ========= ======= ======= ======== ======== =========
SAN ANTONIO, TX
Gables Colonnade I 312 284,196 12.0 1995 -- 911 96% 786 0.86
Gables Wall Street 232 220,180 16.2 1996 -- 949 92% 789 0.83
------- ------- ------- ------- -------- -------- --------
Totals/ Weighted Averages 544 504,376 28.2 927 94% $787 $0.85
======= ======= ======= ======= ======== ======== ========
AUSTIN, TX
Gables Great Hills 276 228,930 23.7 1993 -- 829 95% 768 0.93
Gables Town Lake 256 239,264 12.0 1996 -- 935 99% 1,027 1.10
------- ------- ------- ------- ------- ------- --------
Totals/ Weighted Averages 532 468,194 35.7 880 97% $893 $1.01
======= ======= ======= ======= ======= ======= ========
Grand Totals/
Weighted Averages 15,480 14,615,727 771.7 944 96% $771 $0.82
======= ========== ======= ======= ======= ======= ========
</TABLE>
<PAGE>
PAGE-35
COMMUNITY FEATURES AS OF 3/31/97
<TABLE>
<CAPTION>
Number of Approximate Year Average
Apartment Rentable Total Constructed/ Unit Size
Development Communities (A) Homes Sq. Ft. (B) Acreage Renovated (Sq. Ft.)
- --------------------------- ----- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
ATLANTA, GA
Gables Vinings 315 336,735 15.2 1996-97 1,069
Roswell Gables II 284 334,268 28.3 1996-98 1,177
Gables at Sugarloaf 386 424,166 29.7 1997-99 1,099
--- --------- ------- -------
Totals/Weighted Averages 985 1,095,169 73.2 1,112
=== ========= ======= =======
AUSTIN, TX
Gables Central Park 273 257,043 6.9 1996-97 942
Gables Bluffstone 256 251,904 32.7 1997-98 984
--- ------- ---- -------
Totals/Weighted Averages 529 508,947 39.6 962
=== ======= ==== =======
ORLANDO, FL
Gables at Little Lake
Bryan I 280 289,436 19.3 1997-98 1,034
Gables Celebration 231 260,486 8.8 1997-98 1,128
--- ------- ---- -----
Totals/Weighted Averages 511 549,922 28.1 1,076
=== ======= ==== =====
Grand Totals/
Weighted Averages 2,025 2,154,038 140.9 1,064
===== ========= ===== =====
<FN>
(A) Except as noted in footnote (C) hereof, Gables holds fee simple title to
each of the Communities.
(B) In the Atlanta and Tennessee markets, rentable area is measured including
any patio or balcony. In the Texas markets, rentable area is measured using
only the heated area. In the Florida market, rentable area is measured
using only the air conditioned area.
(C) Gables holds an indirect 25% general partner interest in these communities.
(D) Year renovated; these communities were originally constructed as follows:
Buckhead Gables: 1964; Club Candlewood: 1969; Gables Over Peachtree:
1969-1970; and Wildwood Gables: 1972.
(E) This rentable area is exclusive of approximately 18,000 square feet of
rentable commercial space.
(F) These communities are in the lease-up stage. As of March 31, 1997,
occupancy was as follows: Gables Over Peachtree: 83%; Gables Green Oaks I:
86%; Gables Germantown: 80%; and Gables Quail Ridge: 70%.
</FN>
</TABLE>
<PAGE>
PAGE-36
Mortgage Debt Summary as of March 31, 1997 (Dollars in Thousands)
<TABLE>
<CAPTION>
Projected
Projected Annual
Principal Principal Interest Scheduled Principal Payments at Maturity
Interest Maturity Balance Amortization Payment There-
Property Collateral Rate Date (1) 3/31/97 (2) 1997 1997 1997 1998 1999 2000 2001 after
- ------------------- ---- -------- ----------- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conventional Fixed Rate
TIAA Properties (3):
Spalding Gables 8.10% 12/31/02 $14,054 $ --- (4) $1,138 $--- $--- $--- $--- $--- $13,387
Roswell Gables 8.10% 12/31/02 20,743 --- (4) 1,680 --- --- --- --- --- 19,759
Dunwoody Gables 8.10% 12/31/02 15,920 --- (4) 1,290 --- --- --- --- --- 15,164
Gables Great Hills 8.10% 12/31/02 12,830 --- (4) 1,039 --- --- --- --- --- 12,221
Gables Wall Street 8.10% 12/31/02 10,457 --- (4) 847 --- --- --- --- --- 9,961
Town Lake Gables 8.10% 12/31/02 12,342 --- (4) 1,000 --- --- --- --- --- 11,756
Gables Meyer Park 8.36% 12/31/07 16,200 --- (4) 1,354 --- --- --- --- --- 14,338
Brentwood Gables 8.49% 12/31/07 13,481 --- (4) 1,144 --- --- --- --- --- 11,978
--------- ------ ------- ----- ----- ----- ----- ----- -------
Total TIAA Properties 116,027 --- 9,492 0 0 0 0 0 108,564
Gables Cityscape 7.13% 02/10/04 9,187 115 653 --- --- --- --- --- 8,191
Gables Citywalk/
Waterford Sq. 7.13% 02/10/04 11,638 146 827 --- --- --- --- --- 10,377
Gables Stonebridge 7.50% 05/01/03 19,605 246 1,465 --- --- --- --- --- 17,746
Unencumbered Pool (5) 6.60% (5) 11/22/01 40,000 --- 2,640 --- --- --- --- 40,000 ---
NWML Properties (6) 8.77% 12/01/09 52,835 615 4,622 --- --- --- --- --- 38,940
Other 6.10% 10/01/16 2,574 75 157 --- --- --- --- --- ---
-------- ------ ------- ----- ----- ----- ----- ----- -------
Subtotal 251,866 1,197 19,856 0 0 0 0 40,000 183,818
-------- ------ ------- ----- ----- ----- ----- ----- -------
Tax-Exempt Fixed Rate
- ---------------------
Providian Properties(7) 6.38% 08/01/04 48,365 538(8) 3,083 --- --- --- --- --- 48,365
Lakes at Indian Creek 7.03%(9) 01/31/25 11,785 155 818 --- --- --- --- --- ---
--------- ------- ------- ----- ----- ----- ----- ------ --------
Subtotal 60,150 693 3,901 0 0 0 0 0 48,365
--------- ------- ------- ----- ----- ----- ----- ------ --------
Tax-Exempt Floating Rate
- ------------------------
Gables Wood Crossing (10) 03/18/00(11) 11,650 --- 466 --- --- --- 11,650 --- ---
Gables Wood Arbor (10) 03/18/00(11) 7,130 --- 285 --- --- --- 7,130 --- ---
Gables Hickory Hollow I (10) 03/18/00(11) 12,750 --- 510 --- --- --- 12,750 --- ---
Gables Hickory Hollow II (10) 03/18/00(11) 13,400 --- 536 --- --- --- 13,400 --- ---
------- ------- ------- ----- ----- ----- ------ ----- -----
Subtotal 44,930 0 1,797 0 0 0 44,930 0 0
Credit Facilities
- -----------------
Unencumbered Pool(12) LIBOR+1.50% 03/22/00(13) 37,000(14) --- Varies --- --- --- 37,000 --- ---
Unsecured LIBOR+1.50% 10/09/97(15) 8,667(14) --- Varies 8,667 --- --- --- --- ---
------ ------- -------- ----- ----- ---- ------ ----- ------
Subtotal 45,667 0 Varies 8,667 0 0 37,000 0 0
------ ------- -------- ----- ----- ---- ------ ----- ------
Total Indebtedness (16) $402,613 $1,890 $25,554 $8,667 $0 $0 $81,930 $40,000 $232,183
========= ======= ======== ====== ===== ==== ====== ====== ========
<PAGE>
PAGE-37
<FN>
(1) All of the mortgages can be prepaid at any time without penalty or
premium, except for the mortgages encumbering the Providian Properties, Lakes at
Indian Creek, Gables Cityscape, Gables CityWalk/ Waterford Square, the TIAA
Properties and Gables Stonebridge.
(2) All of the debt is recourse to Gables in whole or in part except for
the mortgages encumbering Gables Cityscape, Gables CityWalk/Waterford Square and
Gables Stonebridge.
(3) These loans represent the eight loans that funded in December, 1995,
June, 1996 and December, 1996, as applicable, under the Teachers Insurance and
Annuity Association ("TIAA") financing commitment. The $14.7 million balance of
the original commitment has been terminated. At the option of Gables, these
loans become unsecured upon the attainment of a BBB or equivalent rating by
Gables.
(4) Principal amortization based on a 30-year schedule begins in January,
1998.
(5) This $40 million term loan bore interest at LIBOR plus 1.25% through
April, 1997 and was effectively fixed at an all-in rate of 6.60% after
application of $40 million of the $44.53 million interest rate swap and cap
agreements described elsewhere herein. The loan currently bears interest at
LIBOR plus 1.10% and thus is effectively fixed at an all-in rate of 6.45%. At
March 31, 1997, the unencumbered pool was comprised of two properties that had
escrowed mortgages. Subsequent to March 31, 1997, these escrowed mortgages were
released in connection with the attainment of the Credit Ratings.
(6) The NWML Properties (Wildwood Gables, Gables Valley Ranch and Gables
Piney Point) together secure the $53 million mortgage loan from Northwestern
Mutual Life Insurance Co.
(7) The Providian Properties together secure the $48.4 million mortgage
loan from Providian Corporation and are comprised of three properties induced
for tax-exempt bond financing (Gables Wood Glen, Gables Wood Knoll and Gables
Cordova) and three additional properties (Gables Bradford Pointe, Gables
Hendersonville and Rivercrest).
(8) Principal amortization payments are retained in an escrow account and
are not applied to reduce the outstanding principal balance of the loan.
Interest earned on the escrow account accrues to the benefit of Gables.
(9) The interest rate does not include credit enhancement fees of 0.60% per
annum, which fees were prepaid in January, 1995 for a period of ten years. In
addition, certain of the bond documents require the payment of certain other
customary fees ranging up to approximately 0.25% per annum.
(10) These bonds bear interest at a variable rate of interest, adjusted
weekly based upon a negotiated rate. The payment schedules reflect a 4% rate
which represents Gables' budgeted rate for 1997. The average rate experienced
for 1996 and 1995 were 3.5% and 3.9%, respectively. The interest rates do not
include the payment of credit enhancement fees which are currently 1.0% per
annum. In addition, certain of the bond documents require the payment of certain
other customary fees ranging up to approximately 0.25% per annum.
(11) The maturity date noted represents the date on which credit
enhancement for the bonds expires. The stated maturity date for the loans range
from December, 2007 to August, 2024.
(12) At March 31, 1997, the unencumbered pool was comprised of 15
properties and two parcels of land that had escrowed mortgages. Subsequent to
March 31, 1997, these escrowed mortgages were released in connection with the
attainment of the Credit Ratings.
(13) Gables has two remaining one-year extension options.
(14) Debt service will be variable based on the principal balance which
will be outstanding under the Credit Facilities. Borrowings under the Credit
Facilities bore interest at LIBOR plus 1.50% through April, 1997 and currently
bear interest at LIBOR plus 1.10%.
(15) Gables has unlimited one-year extension options.
(16) Excludes $16.4 million of tax-exempt bonds and $17.0 million of
conventional indebtedness related to joint ventures in which Gables has an
indirect 25% general partner interest.
</FN>
</TABLE>
- ---------------------------------------------------
The Arbors of Harbortown apartment community secures a $16.4 million
tax-exempt bond obligation, which is recourse to the Operating Partnership up to
$1.0 million (this amount is fully cash-collateralized and is held by the Arbors
of Harbortown JV), bears interest at a variable low-floater rate, has a maturity
date of April, 2013, and is payable in monthly installments of interest only.
The credit enhancement for the bond obligation expires in May, 2001. The
Metropolitan Uptown apartment community secures a conventional variable-rate
loan with $17.0 million outstanding at March 31, 1997, 25% of which has been
guaranteed by the Operating Partnership. The loan has a maturity date of June
30, 2000 and currently bears interest at a rate of 7.2% which has been locked in
for a three year period expiring July, 1998.
<PAGE>
PAGE-38
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
The following table sets forth the beneficial ownership of Units for (i)
Trustees, the Chief Executive Officer and the other four most highly compensated
executive officers of the Company (together with the Chief Executive Officer,
the "Named Executive Officers"), (ii) the Trustees and Named Executive Officers
of the Company as a group and (iii) each limited partner of the Operating
Partnership that the Operating Partnership believes holds more than a 5%
beneficial interest in the Operating Partnership. The information in the
following table was provided by the unitholders listed and reflects their
beneficial ownership known by the Operating Partnership and the Company on July
24, 1997.
Number
of Units
Name and Business Address Beneficially Percent of
of Beneficial Owners Owned * All Units
-------------------- ----- ---------
TRUSTEES AND EXECUTIVE OFFICERS
Marcus E. Bromley ........... 155,009 **
John T. Rippel .............. 247,414 1.08%
William M. Hammond........... 65,112 **
C. Jordan Clark ............. 105,165 **
Marvin R. Banks, Jr.......... 42,667 **
David M. Holland ............ --- ---
Peter D. Linneman ........... --- ---
Lauralee E. Martin .......... --- ---
John W. McIntyre ............ --- ---
2859 Paces Ferry Road
Overlook III, Suite 1450
Atlanta, Georgia 30339
All trustees and executive officers
as a group (9 persons).. 615,367 2.68%
5% HOLDERS
Gables Residential Trust 19,433,076 84.63%
2859 Paces Ferry Road
Overlook III, Suite 1450
Atlanta, Georgia 30339
___________________________
* Excludes 4,600,000 Series A Preferred Units issued in connection with the
Company's sale of 4,600,000 Series A Preferred Shares on July 24, 1997. All
of such units are owned directly or indirectly by the Company.
** Less than one percent.
ITEM 5. TRUSTEES AND EXECUTIVE OFFICERS
- ------- -------------------------------
Through GGPI, a wholly-owned subsidiary of the Company and the sole general
partner of the Operating Partnership, the Company controls the Operating
Partnership. The board of directors of GGPI, the members of which are the same
as the members of the Board of Trustees of the Company, manages the affairs of
the Operating Partnership by directing the affairs of the general partner of the
Operating Partnership. The Operating Partnership has no directors, trustees, or
executive officers. Consequently, this Item 5 reflects information with respect
to the trustees and executive officers of the Company.
<PAGE>
PAGE-39
Trustees
- --------
MARCUS E. BROMLEY. Mr. Bromley is the Chairman of the Board of Trustees and
Chief Executive Officer and has been since the Company's IPO. Mr. Bromley also
served as President of the Company from the time of the Company's IPO until
December, 1995, when Mr. Rippel was named President and Chief Operating Officer
of the Company. Mr. Bromley joined the Company's Predecessor in 1982 and was
responsible for overseeing the development and lease-up of multifamily
properties in the Southeastern United States. Prior to joining the Company's
Predecessor, Mr. Bromley was chief financial officer for a large engineering
firm from 1976 to 1982, and assistant treasurer for the Amelia Island Company
from 1973 to 1976. Mr. Bromley received his master of business administration
degree from the University of North Carolina at Chapel Hill. He earned a
bachelor's degree in economics from Washington and Lee University. Mr. Bromley
is a former president of the Atlanta Apartment Association and currently serves
on its board of directors, as well as the board of the National Multi-Housing
Council. Mr. Bromley also serves on the Board of Advisors for The School of
Commerce, Economics and Politics at Washington and Lee University, and the
Development Committee of The Westminster Schools. He is 47 years old.
JOHN T. RIPPEL. Mr. Rippel is a trustee, President and Chief Operating
Officer of the Company. Prior to becoming President and Chief Operating Officer
in December, 1995, Mr. Rippel served as Senior Vice President, responsible for
the development and acquisition of multifamily properties in Houston, San
Antonio and Austin. Mr. Rippel joined the Company's Predecessor in 1982 as the
chief financial officer for the Predecessor's start-up operation in Houston and
later led the expansion of the organization into the southwestern United States.
Prior to joining the Company's Predecessor, Mr. Rippel was a CPA with Kenneth
Leventhal Company, a national public accounting firm recognized for its
expertise in the real estate industry. Mr. Rippel is a graduate of The
University of Texas at Austin where he received a bachelor's degree in
accounting. He is 42 years old.
DAVID M. HOLLAND. Mr. Holland is a trustee of the Company. Mr. Holland is
the assistant to the chairman of the board of DSC Communications Corporation, a
communications equipment company listed on the New York Stock Exchange, and
formerly served as Senior Vice President, Sales, Marketing & Service, as well as
Corporate Planning and Development. Prior to joining DSC Communications
Corporation, Mr. Holland held various positions, including executive vice
president and chief marketing officer at Sprint Communication Company, and
executive positions at Datapoint Corporation and Xerox Corporation. Mr. Holland
received his bachelor's degree in business from Michigan State University. He is
60 years old.
PETER D. LINNEMAN. Dr. Linneman is a trustee of the Company. Dr. Linneman
is the Albert Sussman professor of finance, real estate and public policy at The
Wharton School of Business at the University of Pennsylvania. Dr. Linneman also
serves as the Director of the Wharton Real Estate Center and Chairman of the
Real Estate Department. He has written extensively in the fields of real estate,
finance and economics. Dr. Linneman is an Urban Land Institute Research Fellow,
as well as a member of NAREIT. He is a member of the boards of directors of both
Kranzco Realty Trust and Universal Health Realty Trust, which are New York Stock
Exchange listed real estate investment trusts. He was also chairman of the board
of Rockefeller Center Properties, Inc. A graduate of Ashland University, Dr.
Linneman received both his master's and Ph.D. degrees in economics from the
University of Chicago. He is 46 years old.
LAURALEE E. MARTIN. Ms. Martin is a trustee of the Company. Ms. Martin is
Chief Financial Officer of Heller Financial Inc., an international commercial
finance company. Ms. Martin oversees the treasury operations, tax, information
technology and controllership functions. In addition, Ms. Martin serves on the
Heller International Corporation board of directors and reports directly to the
chairman. Prior to joining Heller Financial, Inc., she held various positions at
General Electric Credit Corporation, including president, General Electric
Mortgage, and manager of Construction Lending Operations. Ms. Martin received
her master of business administration from the University of Connecticut and her
bachelor's degree from Oregon State University. She is 46 years old.
JOHN W. MCINTYRE. Mr. McIntyre is a trustee of the Company. Mr. McIntyre is
former vice chairman of the board of directors of Citizens and Southern
Corporation, a bank holding company, and former chairman of the board of
directors and CEO of Citizens and Southern Georgia Corporation and Citizens and
Southern National Bank. Mr. McIntyre is a director or trustee of a number of
organizations, including the Global Health Science Fund, the Invesco Mutual
Funds and affiliated entities, the Golden Poultry Company and the Kaiser
<PAGE>
PAGE-40
Foundation Health Plan of Georgia. Mr. McIntyre received his bachelor's degree
in business administration from Emory University School of Business, and
attended the Business Executive Management Program at Stanford University
Graduate School of Business. He is 66 years old.
Executive Officers Who Are Not Trustees
- ---------------------------------------
WILLIAM M. HAMMOND. Mr. Hammond is a Senior Vice President in charge of the
Company's property operations. Mr. Hammond joined the Company's Predecessor in
1988 and was responsible for running one of the Predecessor's largest management
divisions. Prior to joining the Company's Predecessor, Mr. Hammond was an
assistant vice president and asset manager for CIGNA Real Estate Investments.
Before joining CIGNA, he served as vice president for a national real estate
company, where he directed the residential management activities in the eastern
United States. Mr. Hammond is a graduate of Michigan State University where he
received a bachelor's degree in science. A former president of the Northern
Virginia Apartment Association, Mr. Hammond has also served on the board of
directors for the Apartment Association of Greater Dallas. He is 41 years old.
C. JORDAN CLARK. Mr. Clark is a Senior Vice President in charge of the
Company's development and acquisition efforts in the Southeast. Mr. Clark joined
the Company's Predecessor in 1986 as a development associate. Prior to joining
the Company's Predecessor, Mr. Clark was the curator of the 3M art collection in
Minnesota. Mr. Clark received his master of business administration degree from
the University of North Carolina at Chapel Hill. He also holds a master's degree
in art history from the University of Virginia and an undergraduate degree in
English from Davidson College. He is 42 years old.
MARVIN R. BANKS, JR. Mr. Banks is Vice President, Secretary and Chief
Financial Officer and has been since the Company's IPO. He is responsible for
all corporate financings, financial reporting and all accounting and tax issues.
Mr. Banks joined the Company's Predecessor in 1987 and since 1990 was the chief
financial officer for certain divisions. Prior to joining the Company's
Predecessor, he was a CPA with Ernst & Young, where he specialized in the
financial services and construction industries. Mr. Banks is a graduate of the
University of Texas at Austin with a bachelor's degree in accounting and is a
member of the Urban Land Institute. He is 36 years old.
ITEM 6. EXECUTIVE COMPENSATION
- ------- ----------------------
Through GGPI, a wholly-owned subsidiary of the Company and the sole general
partner of the Operating Partnership, the Company controls the Operating
Partnership. The board of directors of GGPI, the members of which are the same
as the members of the Board of Trustees of the Company (the "Trustees"), manages
the affairs of the Operating Partnership by directing the affairs of the general
partner of the Operating Partnership. The Operating Partnership has no
directors, trustees or executive officers and pays no compensation.
Consequently, the information provided in this Item 6 reflects compensation paid
to the Trustees and executive officers of the Company.
TRUSTEES. Trustees of the Company who are also employees receive no
additional compensation for their services as trustees. During 1996, the
Independent Trustees each received for their service as trustees (i) an annual
trustee's fee of $16,000 and (ii) $1,000 per day for personal attendance at any
meetings of the full Board of Trustees. During 1997, each Independent Trustee
will receive for his or her service as a trustee (i) a quarterly trustee's fee
of $4,600; (ii) $1,200 per day for personal attendance at any meetings of the
full Board of Trustees; and (iii) $500 per day for personal attendance at any
committee meetings held on days on which no meetings of the full Board of
Trustees are held. Independent Trustees may elect to waive part or all of such
fees in exchange for Common Share grants under the Second Amended and Restated
1994 Share Option Plan, as amended (the "1994 Share Option Plan"), and each
Independent Trustee has elected that after May 11, 1997 he or she shall receive
50% of such fees in the form of Common Share Grants.
Under the 1994 Share Option Plan, following each annual meeting of
shareholders, each of the Company's Independent Trustees automatically receives
an option to purchase 5,000 Common Shares at the market price of the Common
Shares on the date of grant. Pursuant to this provision, following the 1996
Annual Meeting, each Independent Trustee was granted an option to purchase 5,000
Common Shares at $23.00 per share. All options granted to Independent Trustees
vest one year after the date of grant.
<PAGE>
PAGE-41
EXECUTIVE OFFICERS. The following table sets forth the compensation awarded
to each of the six most highly compensated executive officers of the Company
whose total salary and bonus exceeded $100,000 during each of the fiscal years
ended December 31, 1996, 1995 and 1994.
Summary Compensation Table
- --------------------------
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------ -----------------------
Restricted All Other
Salary Bonus Share Awards Options Compensation (1)
Name and Principal Position Year ($) ($) ($) (#) ($)
- --------------------------- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Marcus E. Bromley........... 1996 $ 180,000 $188,500 (2) $207,000 (3) 0 $6,585
Chairman of the Board 1995 160,000 115,000 (4) 0 20,000 6,303
of Trustees and Chief 1994 140,000 (5) 100,000 (4) 0 47,000 4,954
Executive Officer
John T. Rippel.............. 1996 160,000 160,388 (6) 170,775 (7) 0 6,068
President and Chief 1995 145,000 102,000 (4) 0 15,000 6,225
Operating Officer 1994 126,000 (5) 85,000 (4) 0 47,000 4,882
William M. Hammond ......... 1996 152,000 88,988 (8) 87,975 (9) 0 2,721
Senior Vice President 1995 145,000 92,000 (4) 0 10,000 4,225
1994 116,667 (5) 65,000 (4) 0 47,000 3,938
C. Jordan Clark ............ 1996 152,000 137,625 (10) 155,250 (11) 0 4,750
Senior Vice President 1995 145,000 103,000 (4) 0 15,000 4,539
1994 102,667 (5) 80,000 (4) 0 32,900 3,096
Marvin R. Banks, Jr. ....... 1996 152,000 137,625 (12) 155,250 (13) 0 7,360
Chief Financial Officer 1995 145,000 97,000 (4) 0 15,000 7,188
1994 112,000 (5) 85,000 (4) 0 28,200 3,762
Perry M. Parrott, Jr (14).. 1996 152,000 0 0 0 284,414 (15)
Senior Vice President 1995 145,000 91,000 (4) 0 15,000 8,743
1994 126,000 (5) 75,000 (4) 0 47,000 6,818
<FN>
(1) 1996 amounts include the Company's matching contribution under its 401 (k)
plan ($4,750 for Mr. Bromley, $3,193 for Mr. Rippel, $1,586 for Mr.
Hammond, $4,750 for Mr. Clark, $4,750 for Mr. Banks and $3,169 for Mr.
Parrott) and the Company's cost of life insurance for 1996 ($1,835 for Mr.
Bromley, $2,875 for Mr. Rippel, $1,135 for Mr. Hammond, $0 for Mr. Clark,
$2,610 for Mr. Banks and $6,245 for Mr. Parrott).
(2) Amount consists of (i) $85,000 which was paid in cash in 1997 and (ii)
4,000 unrestricted Common Shares ("Unrestricted Shares") awarded on
February 21, 1997 under the 1994 Share Option Plan based on a closing price
of the Common Shares on the date of grant of $25.875 (the "Share Price").
(3) Consists of 8,000 restricted Common Shares ("Restricted Shares") awarded on
February 21, 1997 under the 1994 Share Option Plan based on the $25.875
Share Price. These Restricted Shares vest in two equal annual installments
beginning on January 1, 1998. Dividends will be paid on these Restricted
Shares.
(4) Amounts reflect bonuses in 1995 and 1994, which were paid in cash in 1996
and 1995, respectively.
(5) 1994 amounts reflect actual base salary earned during 1994, beginning with
the Company's commencement of operations on January 26, 1994. They are
based on the following annual base salary rates: $150,000 for Mr. Bromley;
$135,000 for Mr. Rippel; $125,000 for Mr. Hammond; $110,000 for Mr. Clark;
$120,000 for Mr. Banks; and $135,000 for Mr. Parrott.
<PAGE>
PAGE-42
(6) Amount consists of (i) $75,000 which was paid in cash in 1997 and (ii)
3,300 Unrestricted Shares awarded on February 21, 1997 based on the $25.875
Share Price.
(7) Consists of 6,600 Restricted Shares awarded on February 21, 1997 based on
the $25.875 Share Price. These Restricted Shares vest in two equal annual
installments beginning on January 1, 1998. Dividends will be paid on these
Restricted Shares.
(8) Amount consists of (i) $45,000 which was paid in cash in 1997 and (ii)
1,700 Unrestricted Shares awarded on February 21, 1997 based on the $25.875
Share Price.
(9) Consists of 3,400 Restricted Shares awarded on February 21, 1997 based on
the $25.875 Share Price. These Restricted Shares vest in two equal annual
installments beginning on January 1, 1998. Dividends will be paid on these
Restricted Shares.
(10) Amount consists of (i) $60,000 which was paid in cash in 1997 and (ii)
3,000 Unrestricted Shares awarded on February 21, 1997 based on the $25.875
Share Price.
(11) Consists of 6,000 Restricted Shares awarded on February 21, 1997 based on
the $25.875 Share Price. These Restricted Shares vest in two equal annual
installments beginning on January 1, 1998. Dividends will be paid on these
Restricted Shares.
(12) Amount consists of (i) $60,000 which was paid in cash in 1997 and (ii)
3,000 Unrestricted Shares awarded on February 21, 1997 based on the $25.875
Share Price.
(13) Consists of 6,000 Restricted Shares awarded on February 21, 1997 based on
the $25.875 Share Price. These Restricted Shares vest in two equal annual
installments beginning on January 1, 1998. Dividends will be paid on these
Restricted Shares.
(14) Effective November 11, 1996, Mr. Parrott resigned as Senior Vice President.
See "Employment and Severance Agreements."
(15) 1996 amount includes a lump sum severance payment of $275,000 made pursuant
to a severance agreement, dated November 11, 1996, by and between the
Company and Mr. Parrott. See "Employment and Severance Agreements."
</FN>
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1996. No options have been or will be granted
to executive officers of the Company with respect to the fiscal year ended
December 1996.
OPTION EXERCISES AND YEAR-END HOLDINGS. The following table sets forth the
aggregate number of options exercised in 1996 and the value of options held at
the end of 1996 by the Company's Chief Executive Officer and five other most
highly compensated executive officers.
Aggregated Option Exercises in Fiscal Year 1996 and
Fiscal Year-End 1996 Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-money
Options Options
at Fiscal at Fiscal
Shares Year-End(#) Year-End ($)
Acquired On Value ----------- ------------
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---- ----------- ------- -------------- -------------
Marcus E. Bromley... 0 0 53,667/13,333 363,000/115,000
John T. Rippel...... 0 0 52,000/10,000 348,625/ 86,250
William M. Hammond.. 0 0 50,333/ 6,667 334,250/ 57,500
C. Jordan Clark..... 0 0 37,900/10,000 256,975/ 86,250
Marvin R. Banks, Jr. 0 0 33,200/10,000 226,425/ 86,250
Perry M. Parrott, Jr. 0 0 52,000/10,000(1)348,625/ 86,250 (1)
<PAGE>
PAGE-43
(1) In accordance with a severance agreement, dated November 11, 1996, by and
between the Company and Mr. Parrott, all of Mr. Parrott's options became
exercisable as of January 26, 1997. See "Employment and Severance
Agreements."
Employment and Severance Agreements
- -----------------------------------
The Company has entered into one-year employment agreements (each an
"Employment Agreement") with each of Messrs. Bromley, Rippel, Hammond, Clark and
Banks (the "Executive Officers") that will continue in effect until January 1,
1998. Pursuant to their Employment Agreements, Mr. Bromley is serving as
Chairman of the Board of Trustees and Chief Executive Officer of the Company,
Mr. Rippel is serving as President and Chief Operating Officer of the Company,
Mr. Hammond is serving as a Senior Vice President of the Company, Mr. Clark is
serving as a Senior Vice President of the Company and Mr. Banks is serving as
Chief Financial Officer of the Company. Base salaries for 1996 were as follows:
$180,000 for Mr. Bromley, $160,000 for Mr. Rippel and $152,000 for each of
Messrs. Hammond, Clark and Banks. Base salaries for 1997 will remain unchanged.
Each Employment Agreement provides for an annual review of base salary. In
addition, the Compensation Committee of the Board may provide for additional
compensation as a bonus should it determine that such compensation is
appropriate in its discretion based on merit, the Company's anticipated
financial performance, and other criteria. See "Incentive Compensation Plan" for
a more detailed description of bonus compensation. Pursuant to their Employment
Agreements, the Company is, in general, required to purchase policies of life
insurance for the benefit of each of the Executive Officers in the amount of
$1,000,000 per policy. The related annual premium cost of the life insurance
policies was $14,700 in total for 1996. The Company maintains a comprehensive
medical plan for the benefit of the Executive Officers and that of their
immediate families and pays or reimburses each of the Executive Officers for the
cost of disability insurance and provides them with a car allowance of
approximately $500 per month. Each of the Executive Officers has agreed to
devote substantially all of his working time to the business of the Company.
Pursuant to their Employment Agreements, the Company has also agreed to
indemnify each of the Executive Officers to the full extent permitted by law and
subject to the Company's Amended and Restated Declaration of Trust and Second
Amended and Restated Bylaws with respect to any actions commenced against such
executive officer in his capacity as an officer or trustee or former officer or
trustee of the Company, or any affiliate thereof for which he may serve in such
capacity, and to advance any expenses incurred by such executive officers and
trustees in defending such actions.
If the employment of an Executive Officer is terminated by the Company
during the year (i) without "good reason" (as defined in the relevant Employment
Agreement), (ii) within six (6) months following a "change of control" (as
defined in the relevant Employment Agreement) or (iii) upon the occurrence of
certain other events, the terminated employee will be entitled to receive a
severance payment (the "Severance Amount") equal to his base salary and bonus
for the preceding year. Upon the termination of the employment of an Executive
Officer by reason of death, his estate will be entitled to receive a payment
equal to the Severance Amount, except that the amount of such benefit shall be
zero if the proceeds of life insurance payable in connection with the Employment
Agreement equal or exceed $1,000,000. The Employment Agreements provide that if
an Executive Officer is terminated for "good reason" or voluntarily terminates
his employment (other than termination which occurs within six (6) months
following a "change of control"), no Severance Amount will be payable and such
individual will not, without the prior written consent of the Board of Trustees,
directly or indirectly compete with the Company with respect to any multifamily
apartment residential real estate property development, construction,
acquisition or management activities then undertaken or being considered by the
Company, or directly or indirectly compete with the Company in any other
multifamily apartment residential real estate property within thirty miles of
any of the Company's properties, for a period of twelve months following the
termination of employment with the Company.
During 1996, Mr. Parrott resigned as an executive officer and trustee of
the Company. Under the terms of a severance agreement dated November 11, 1996
between the Company and Mr. Parrott (the "Severance Agreement"), Mr. Parrott
continued as a consultant to the Company through January 26, 1997 (the
"Termination Date"), during which period he continued to receive his base salary
and benefits. Pursuant to the terms of the Severance Agreement, prior to
December 31, 1996, Mr. Parrott received a lump sum payment of $275,000 (less all
normal deductions), representing Mr. Parrott's 1996 bonus as well as severance.
In addition, all of Mr. Parrott's stock options that had not already vested
according to their terms as of the Termination Date immediately became vested as
of such date. Pursuant to the Severance Agreement, the Company also released Mr.
Parrott from the terms of the non-competition provisions set forth in Mr.
Parrott's employment agreement with the Company dated January 26, 1994.
<PAGE>
PAGE-44
Additionally, the Company agreed that in the event Mr. Parrott is sued in his
capacity as a former trustee of the Company, (i) Mr. Parrott would be entitled
to coverage under the Board of Trustees' errors and omissions insurance to the
extent applicable and (ii) the Company would indemnify Mr. Parrott for all
reasonable expenses incurred and any judgments against him to the extent that
the Company, in its discretion, determines that his actions as trustee were
proper.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
Not Applicable.
ITEM 8. LEGAL PROCEEDINGS
- ------- -----------------
Neither the Operating Partnership nor any of the Communities is presently
subject to any material litigation or, to the Operating Partnership's knowledge,
is any litigation threatened against the Operating Partnership or any of the
Communities, other than routine actions for negligence or other claims and
administrative proceedings arising in the ordinary course of business, some of
which are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the business
or financial condition of the Operating Partnership.
ITEM 9. MARKET PRICE AND DISTRIBUTIONS AND RELATED SECURITY HOLDER MATTERS
- ------- ------------------------------------------------------------------
There is no established public trading market for the Units. As of June 30,
1997, there were 40 holders of record of Units.
The following table sets forth the quarterly distributions per Unit paid by
the Operating Partnership to holders of its Units with respect to each such
period.
Quarter Ended Distributions
------------- -------------
March 31, 1995 $0.45
June 30, 1995 0.45
September 30, 1995 0.48
December 31, 1995 0.48
March 31, 1996 0.48
June 30, 1996 0.48
September 30, 1996 0.49
December 31, 1996 0.49
March 31, 1997 0.49
June 30, 1997 0.49
The Operating Partnership currently intends to make quarterly distributions
to holders of its Units. Distributions are declared at the discretion of the
board of directors of GGPI, the general partner of the Operating Partnership and
a wholly-owned subsidiary of the Company, and will depend on actual funds from
operations of the Operating Partnership, its financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of
the Code,and such other factors as the board of directors may deem relevant. The
board of directors may modify the Operating Partnership's distribution policy
from time to time.
Certain of the Operating Partnership's loan agreements contain customary
representations, covenants and events of default, including covenants which
restrict the ability of the Operating Partnership to make distributions in
excess of stated amounts. In general, during any fiscal year the Operating
Partnership may only distribute up to 95% of the Operating Partnership's
consolidated income available for distribution (as defined in the related
agreement) exclusive of distributions of capital gains for such year. The
applicable loan agreements contain exceptions to these limitations to allow the
Operating Partnership to make any distributions necessary to allow the Company
to maintain its status as a REIT. The Operationg Partnership does not anticipate
that this provision will adversely effect the ability of the Operating
Partnership to make distributions, as currently anticipated.
<PAGE>
PAGE-45
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
- -------- ---------------------------------------
During the past three years, the Operating Partnership has issued Units in
private placements in reliance on the exemption from registration under Section
4 (2) of the Securities Act of 1933, as amended, in the amounts and for the
consideration set forth below:
. In October, 1994, the Operating Partnership issued 444,500 Units to Gables
Residential Trust in exchange for a cash contribution of approximately $9.9
million.
. In October, 1995, the Operating Partnership issued 4,600,000 Units to
Gables Residential Trust in exchange for a cash contribution of approximately
$94.4 million.
. In December, 1995, the Operating Partnership issued 111,074 Units (valued
at approximately $2.4 million at the time of acquisition) to the seller of the
land for the Gables Vinings community in partial consideration of its interest
in the property.
. In March, 1996, the Operating Partnership issued 879,068 Units to Gables
Residential Trust in exchange for a cash contribution of approximately $20.6
million.
. In July, 1996, the Operating Partnership issued 243,787 Units (valued at
approximately $5.7 million at the time of acquisition) to the seller of the
Gables Stonebridge community in partial consideration of its interest in the
property.
. In September, 1996, the Operating Partnership issued 1,725,000 Units to
Gables Residential Trust in exchange for a cash contribution of approximately
$38.6 million.
. In September, 1996, the Operating Partnership also issued 1,435,000 Units
to Gables Residential Trust in exchange for a cash contribution of approximately
$34.3 million.
. On March 31, 1997, Gables Residential Trust issued an aggregate of 22,970
Common Shares in connection with unrestricted share awards. In connection with
such issuance, the Operating Partnership issued 22,970 Units to Gables
Residential Trust.
. On March 31, 1997, Gables Residential Trust also issued an aggregate of
45,940 Common Shares in connection with restricted share awards. In connection
with such issuance, the Operating Partnership issued 45,940 Units to Gables
Residential Trust.
. On July 16, 1997, Gables Residential Trust issued 444 Common Shares to
the four independent Trustees for partial consideration of their services as
trustees.
. On July 24, 1997, the Operating Partnership issued 4,600,000 Series A
Preferred Units to Gables Residential Trust in exchange for a cash contribution
of approximately $111.2 million.
. From time to time, Gables Residential Trust has issued an aggregate of
10,925 Common Shares pursuant to its Share Builder Plan and has contributed the
proceeds (approximately $0.2 million) of these sales to the Operating
Partnership in consideration of an aggregate of 10,925 Units.
. From time to time, Gables Residential Trust has also issued an aggregate
of 112,600 Common Shares upon the exercise of share options and has contributed
the proceeds (approximately $2.4 million) of these sales to the Operating
Partnership in consideration of an aggregate of 112,600 Units.
<PAGE>
PAGE-46
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
- -------- -------------------------------------------------------
General
- -------
The following description is only a summary of certain provisions of the
partnership agreement of the Operating Partnership (the "Partnership Agreement")
and is subject to, and qualified in its entirety by, the Partnership Agreement,
a copy of which has been filed with the Securities and Exchange Commission.
Voting Rights
- -------------
Under the Partnership Agreement, the Operating Partnership's limited
partners (the "Limited Partners") do not have voting rights relating to the
operation and management of the Operating Partnership except in connection with
certain amendments to the Partnership Agreement, dissolution of the Operating
Partnership and the sale or exchange of all or substantially all of the
Operating Partnership's assets, including mergers or other combinations.
Vote Required to Dissolve the Operating Partnership
- ---------------------------------------------------
Under Delaware law, the Operating Partnership may be dissolved, other than
in accordance with the terms of the Partnership Agreement, only upon the
unanimous vote of the Limited Partners.
Vote Required to Sell Assets or Merge
- -------------------------------------
Under the Partnership Agreement, except in certain circumstances, the
Operating Partnership may not sell, exchange, transfer or otherwise dispose of
all or substantially all of its assets, including by way of merger or
consolidation or other combination of the Operating Partnership, without the
consent of the Limited Partners (including the Company) holding 75% or more of
the percentage interests of the Limited Partners. Currently, the Company holds
84.5% of the percentage interests of the Limited Partners (determined without
giving any weighting to the Company's ownership of Series A Preferred Units).
Meetings of the Partners
- ------------------------
Meetings of the partners may be called by the General Partner and must be
called by the General Partner upon receipt of a written request by Limited
Partners holding 20% or more of the partnership interests. The notice must state
the nature of the business to be transacted, and must be given to all partners
not less than seven (7) days nor more than thirty (30) days prior to the date of
such meeting. Partners may vote in person or by proxy at such meeting. Partners
can act without a meeting with the written consent of holders of 75% or more of
the percentage interests of the partners.
Transferability of Interests
- ----------------------------
GGPI may not transfer any of its general partner interest or withdraw as
the general partner of the Operating Partnership (the "General Partner") or
transfer any of its Units, and the Company may not transfer any of its Units,
except in certain specifically identified types of transactions, including under
certain circumstances in the event of a merger, consolidation or sale of all or
substantially all of the assets of the Company or the General Partner.
The Limited Partners generally may transfer their interests in the
Operating Partnership, in whole or in part, without the consent of the General
Partner. No Limited Partner has the right to substitute a transferee as a
Limited Partner in its place without the consent of the General Partner, which
consent may be withheld in the sole discretion of the General Partner. If the
General Partner does not consent to the admission of a permitted transferee, the
transferee shall be considered an assignee of an economic interest in the
Operating Partnership but will not be a holder of Units for any other purpose;
as such the assignee will not be permitted to vote on any affairs or issues on
which a Limited Partner may vote.
<PAGE>
PAGE-47
Issuance of Additional Units
- ----------------------------
The Operating Partnership is authorized to issue Units and other
partnership interests to its partners or to other persons for such consideration
and on such terms and conditions as the General Partner, in its sole discretion,
may deem appropriate. In addition, the Company may cause the Operating
Partnership to issue to the Company additional Units, or other partnership
interests in different series or classes which may be senior to the Units, in
conjunction with an offering of securities of the Company having substantially
similar rights and in which the proceeds thereof are contributed to the
Operating Partnership. No Limited Partner has any preemptive, preferential or
similar rights with respect to additional capital contributions to the Operating
Partnership or the issuance or sale of any interests therein.
Redemption Rights
- -----------------
Pursuant to the Partnership Agreement, the Limited Partners (other than the
Company) have redemption rights which, subject to certain limitations, enable
them to cause the Operating Partnership to redeem each Unit for cash equal to
the market value of a Common Share or, at the Company's election, the Company
may purchase each Unit offered for redemption for cash or one Common Share (the
"Redemption Rights").
Management Liability and Indemnification
- ----------------------------------------
The Partnership Agreement generally provides that the General Partner will
incur no liability to the Operating Partnership or any Limited Partner for
losses sustained or liabilities incurred as a result of errors in judgment or of
any act or omission if the General Partner acted in good faith. In addition, the
General Partner is not responsible for any misconduct or negligence on the part
of its agents provided the General Partner appointed such agents in good faith.
The General Partner may consult with legal counsel, accountants, appraisers,
management consultants, investment bankers and other consultants and advisors,
and any action it takes or omits to take in reliance upon the opinion of such
persons, as to matters which the General Partner reasonably believes to be
within their professional or expert competence, shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the General
Partner, the directors and officers of the General Partner, and such other
persons as the General Partner may from time to time designate, against any and
all losses, claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorney's fees and other legal fees and expenses),
judgments, fines, settlements and other amounts arising from any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Operating Partnership in
which such person may be involved.
Amendment
- ---------
Amendments to the Partnership Agreement may be proposed by the General
Partner or by Limited Partners holding twenty percent (20%) or more of the
partnership interests and generally require approval of Limited Partners
(including the Company) holding a majority of the outstanding Limited Partner
interests. Certain amendments that would, among other things, convert a Limited
Partner's interest to a General Partner interest, modify the limited liability
of a Limited Partner in a manner adverse to such Limited Partner, alter rights
of a Limited Partner to receive distributions or allocations, alter or modify
the Redemption Rights in a manner adverse to a Limited Partner, or cause the
termination of the Operating Partnership prior to the expiration of the term of
the Partnership Agreement, require the consent of each Limited Partner adversely
affected by such amendment.
Management Fees and Expenses
- ----------------------------
GGPI may not be compensated for its services as General Partner. However,
GGPI and/or the Company may be reimbursed for all expenses that they incur
relating to the ownership and operation of, or for the benefit of, the Operating
Partnership.
<PAGE>
PAGE-48
Distributions and Allocations
- -----------------------------
The Partnership Agreement provides that the Operating Partnership will
distribute all available cash (as defined in the Partnership Agreement) on at
least a quarterly basis, in amounts determined by the General Partner in its
sole discretion, to the partners in accordance with their respective percentage
interest in the Operating Partnership. Upon liquidation of the Operating
Partnership, after payment of, or adequate provision for, debts and obligations
of the Operating Partnership, including any partner loans, any remaining assets
of the Operating Partnership will be distributed to all partners with positive
capital accounts in accordance with their respective positive capital account
balances.
Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership generally will be allocated among the partners in
accordance with their respective interest in the Operating Partnership. Taxable
income and loss will be allocated in the same manner, subject to compliance with
the provisions of Code sections 704(b) and 704(c) and Treasury Regulations
promulgated thereunder.
Series A Preferred Units
- ------------------------
In connection with the issuance and sale by the Company of the Series A
Preferred Shares on July 24, 1997, and the subsequent contribution of the net
proceeds therefrom to the Operating Partnership immediately thereafter, the
Operating Partnership issued to the Company an equal number of Series A
Preferred Units. The Series A Preferred Units, in general, have, with respect to
other Units, rights and preferences that are analogous to the rights and
preferences that the Series A Preferred Shares have with respect to the Common
Shares. Accordingly, distributions may not be made to holders of other Units
unless all appropriate distributions have first been made to holders of Series A
Preferred Units in accordance with the terms of the Partnership Agreement.
Additionally, the Series A Preferred Units do not have any voting rights with
respect to the Operating Partnership; however, changes in the terms or economic
rights of the Series A Preferred Units may be made only if the approval of the
Series A Preferred Shares is obtained in accordance with applicable law.
Term
- ----
The Operating Partnership will continue until December 31, 2092, or until
sooner dissolved upon (i) withdrawal of the General Partner (unless the Limited
Partners elect to continue the Operating Partnership), (ii) through December 31,
2053, an election to dissolve the Operating Partnership made by the General
Partner with the consent of the Limited Partners (including the Company) holding
75% or more of the limited partner interests in the Operating Partnership, (iii)
on or after January 1, 2054, an election to dissolve the Operating Partnership
made by the General Partner in its sole and absolute discretion, (iv) entry of a
decree of judicial dissolution, (v) the sale of all or substantially all of the
assets of the Operating Partnership, or (vi) a final and non-appealable judgment
ruling the General Partner bankrupt or insolvent (unless the Limited Partners
elect to continue the Operating Partnership prior to the entry of such order or
judgment).
Tax Matters
- -----------
Pursuant to the Partnership Agreement, the General Partner will be the tax
matters partner of the Operating Partnership and, as such, will have authority
to handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.
ITEM 12. INDEMNIFICATION OF DIRECTORS, TRUSTEES AND OFFICERS
- -------- ---------------------------------------------------
The Operating Partnership is managed by GGPI, which serves as general
partner of the Operating Partnership. GGPI is a wholly-owned subsidiary of the
Company.
Under Maryland law, a real estate investment trust formed in Maryland is
permitted to limit, by provision in its declaration of trust, the liability of
trustees and officers so that no trustee or officer of the Company shall be
liable to the Company or to any shareholder for money damages except to the
extent that (i) the trustee or officer actually received an improper benefit in
money, property, or services, for the amount of the benefit or profit in money,
property, or services actually received, or (ii) a judgment or other final
adjudication adverse to the trustee or officer is entered in a proceeding based
on a finding in a proceeding that the trustee's or officer's action was the
<PAGE>
PAGE-49
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The Company's Declaration of Trust has
incorporated the provisions of such law limiting the liability of trustees and
officers. GGPI's Articles of Incorporation contain similar provisions that are
consistent with Texas law.
The Company's Bylaws require it to indemnify, to the full extent of
Maryland law, any present or former trustee or officer (and such person's spouse
and children) (an "Indemnitee") who is or was a party or threatened to be made a
party to any proceeding by reason of his or her service in that capacity,
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him or her in connection with the proceeding,
provided that the Company shall have received a written affirmation by the
Indemnitee that he or she has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws. The Company shall
not be required to indemnify an Indemnitee if (a) it is established that (i) the
Indemnitee's act or omission was committed in bad faith or was the result of
active or deliberate dishonesty, (ii) the Indemnitee actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, the Indemnitee had reasonable cause to believe that the
Indemnitee's act or omission was unlawful, (b) the proceeding was initiated by
the Indemnitee, (c) the Indemnitee received payment for such expenses pursuant
to insurance or otherwise or (d) the proceeding arises under Section 16 of the
Securities Exchange Act of 1934, as amended. Pursuant to the Bylaws, the
Indemnitee is required to repay the amount paid or reimbursed by the Company if
it shall ultimately be determined that the standard of conduct was not met. The
Company's Bylaws also permit the Company to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
the MGCL or to which the Indemnitee may be entitled. GGPI's bylaws contain
similar provisions that are consistent with Texas law.
Each of the Company's officers and trustees (the "Indemnitees") has entered
into an indemnification agreement with the Company, the Operating Partnership
and GGPI (the "Indemnitors"). The indemnification agreements require, among
other things, that the Indemnitors indemnify the Indemnitees to the fullest
extent permitted by law and advance to the Indemnitees all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted. Under these agreements, the Indemnitors also must indemnify
and advance all expenses incurred by the Indemnitees seeking to enforce their
rights under the indemnification agreements, and cover such Indemnitees under
the Company's trustees' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Company's Declaration of Trust and Bylaws, it
provides greater assurance to trustees and officers that indemnification will be
available because, as a contract, it cannot be modified unilaterally in the
future by the Board of Trustees or by the Company's shareholders to eliminate
the rights it provides.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------- -------------------------------------------
See "Consolidated and Combined Financial Statements Table of Contents" on
page F-1 of this Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- -------- ------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not Applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
- -------- ---------------------------------
(a) Financial Statements and Financial Statement Schedules
See "Consolidated and Combined Financial Statements Table of Contents" on
page F-1 of this Form 10.
(b) Exhibits
Exhibit No. Description
- ----------- -----------
3.1* Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership.
<PAGE>
PAGE-50
Exhibit No. Description
- ----------- -----------
3.2 Amended and Restated Declaration of Trust of the Company (incorporated
herein by reference to the Company's Registration Statement on Form
S-11 (File No. 33-70570), as amended) and the Articles Supplementary
to the Company's Amended and Restated Declaration of Trust creating
the Series A Preferred Shares (incorporated herein by reference to the
Company's Current Report on Form 8-K dated July 24, 1997).
3.3 Second Amended and Restated Bylaws of the Company, incorporated herein
by reference to Exhibit 3.1 to the Company's Registration Statement on
Form 8-A/A-2.
10.1 Articles of Incorporation of East Apartment Management, Inc.,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.2 Bylaws of East Apartment Management, Inc., incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.3 Articles of Incorporation of Central Apartment Management, Inc.,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.4 Bylaws of Central Apartment Management, Inc., incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.5 Assignment of Interests dated January 26, 1994 from the Assignors
named therein to the Operating Partnership and to Gables-Tennessee
Properties pursuant to the Omnibus Option Agreement described therein,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.6 Assignment of Notes dated January 26, 1994 from the Assignors named
therein to the Company pursuant to the Omnibus Note Purchase Option
Agreement described therein, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
10.7 Assignment of Interests dated January 26, 1994 from the Assignors
named therein to the Operating Partnership and to Gables-Tennessee
Properties pursuant to the Omnibus Cash Option Agreement described
therein, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10.8 Assignment of Interests dated January 26, 1994 from the Assignors
named therein to the Operating Partnership pursuant to the Option
Agreement described therein, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993. 10.9 Form of Promissory Note from each Management
Company of the Operating
Partnership, incorporated herein by reference to the Company's
Registration Statement on Form S-11 (File No. 33-70570), as amended.
10.10 Assignment of Purchase Contracts dated as of January 26, 1994 by and
among TCF Houston 1992, Inc., TC Residential Houston Limited
Partnership and Wood Properties, Inc., incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.11 Assignment of Purchase Contracts dated as of January 18, 1994 by and
among Arbor Properties, Inc. and Wood Properties, Inc., incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
10.12 Asset Purchase Agreement between Central RS, Inc. and Central
Apartment Management, Inc. dated as of January 26, 1994, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
10.13 Asset Purchase Agreement between East RS, Inc. and East Apartment
Management, Inc. dated as of January 26, 1994, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.14 Promissory Note dated November 29, 1994, for a $53,000,000 mortgage
loan from the Northwestern Mutual Life Insurance Company to Gables
Realty Limited Partnership, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.15 Interest rate protection agreement (notional amount of $44,530,000)
between Gables Realty Limited Partnership and NationsBank of North
Carolina, N.A. dated January 25, 1994, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
<PAGE>
PAGE-51
Exhibit No. Description
- ----------- -----------
10.16 Interest rate protection agreement (notional amount of $85,470,000)
between Gables Realty Limited Partnership and NationsBank of North
Carolina, N.A. dated January 25, 1994, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.17 Confirmation of Partial Unwind of January, 1994 interest rate
protection agreement (original notional amount of $85,470,000) between
Gables Realty Limited Partnership and NationsBank of North Carolina,
N.A., dated March 19, 1996, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.18 Interest rate protection agreement (notional amount of $44,530,000)
between Gables Realty Limited Partnership and First Union National
Bank of Georgia, dated August 21, 1996, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
10.19 Interest rate protection agreement (notional amount of $50,000,000)
between Gables Realty Limited Partnership and NationsBank, N.A., dated
March 19, 1996, incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
10.20 Loan Application and Commitment Agreement between Teachers Insurance
and Annuity Association of America ("lender") and Gables Realty
Limited Partnership and Gables-Tennessee Properties (collectively, the
borrower) for a $130,689,000 loan, incorporated herein by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995.
10.21 Loan Agreement, Conversion and Note Agreement, Security Deed Note and
Deed of Trust Notes between Teachers Insurance and Annuity Association
of America ("lender") and Gables Realty Limited Partnership and
Gables-Tennessee Properties (collectively, the borrower) for a
$130,689,000 loan, dated December 29, 1995, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
10.22 $175,000,000 Credit Agreement dated as of March 28, 1996 among Gables
Realty Limited Partnership (as Borrower) and Wachovia Bank of Georgia,
N.A., First Union National Bank of Georgia, Guaranty Federal Bank,
AmSouth Bank of Alabama, and Commerzbank AG, Atlanta Agency
(collectively, as Lenders) and Wachovia Bank of Georgia, N.A. (as
Agent), incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
10.23 Guaranty Agreement dated as of March 28, 1996 among Gables GP, Inc.,
Gables Residential Trust and Gables-Tennessee Properties in favor of
the Agent, for the ratable benefit of the Lenders, under the
$175,000,000 Credit Agreement dated as of March 28, 1996, incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996.
10.24 First Amendment to the $175,000,000 Credit Agreement dated as of
November 22, 1996 among Gables Realty Limited Partnership and the
Lenders, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
10.25 Second Amendment to the $175,000,000 Credit Agreement dated as of
March 18, 1997 among Gables Realty Limited Partnership and the
Lenders, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
10.26 $40,000,000 Term Loan Credit Agreement dated as of November 20, 1996
among Gables Realty Limited Partnership (as Borrower) and Wachovia
Bank of Georgia, N.A. (as Agent and Lender), incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
21.1+ Schedule of Subsidiaries of the Operating Partnership.
27.1+ March 31, 1997 Financial Data Schedule.
27.2+ December 31, 1996 Financial Data Schedule.
* Filed herewith
+ Previously filed as an exhibit to this Registration Statement
<PAGE>
PAGE-F-1
GABLES REALTY LIMITED PARTNERSHIP
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets of Gables Realty Limited Partnership F-3
as of December 31, 1996 and December 31, 1995, and (unaudited)
as of March 31, 1997.
Consolidated Statements of Operations of Gables Realty Limited F-4
Partnership for the years ended December 31, 1996 and 1995 and
for the period from January 26, 1994 to December 31, 1994, and
(unaudited) for the three months ended March 31, 1997 and 1996,
and Combined Statement of Operations of Gables Residential Group
for the period from January 1, 1994 to January 25, 1994.
Consolidated Statements of Partners' Capital of Gables Realty F-5
Limited Partnership for the years ended December 31, 1996 and
1995 and for the period from January 26, 1994 to December 31,
1994, and (unaudited) for the three months ended March 31, 1997,
and Combined Statement of Partners' Capital of Gables Residential
Group for the period from January 1, 1994 to January 25, 1994.
Consolidated Statements of Cash Flows of Gables Realty Limited F-6
Partnership for the years ended December 31, 1996 and 1995 and
for the period from January 26, 1994 to December 31, 1994, and
(unaudited) for the three months ended March 31, 1997 and 1996,
and Combined Statement of Cash Flows of Gables Residential Group
for the period from January 1, 1994 to January 25, 1994.
Notes to Consolidated and Combined Financial Statements F-7 to
F-20
Schedule III - Real Estate Investments and Accumulated Depreciation F-21 to
as of December 31, 1996. F-23
<PAGE>
PAGE-F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Gables Realty Limited Partnership:
We have audited the accompanying consolidated balance sheets of Gables
Realty Limited Partnership and subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations, partners' capital and cash
flows for the years ended December 31, 1996 and 1995 and for the period January
26, 1994 to December 31, 1994. We have also audited the combined statements of
operations, partners' capital and cash flows of Gables Residential Group for the
period January 1, 1994 to January 25, 1994. These financial statements and
schedule are the responsibility of the management of Gables Realty Limited
Partnership. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
Gables Realty Limited Partnership and subsidiaries as of December 31, 1996 and
1995 and the results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 and for the period January 26, 1994 to December
31, 1994, and the results of operations and cash flows of Gables Residential
Group for the period January 1, 1994 to January 25, 1994, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 28, 1997
<PAGE>
PAGE-F-3
GABLES REALTY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Real estate assets: (Notes 4 and 6)
Land $109,534 $102,762 $73,848
Buildings 599,708 558,569 382,174
Furniture, fixtures and equipment 47,755 45,830 33,382
Construction in progress 60,665 74,690 96,015
Land held for future development 4,086 2,749 5,814
------- ------- -------
Real estate assets before accumulated depreciation 821,748 784,600 591,233
Less: accumulated depreciation (78,803) (74,903) (57,343)
------- ------- -------
Net real estate assets 742,945 709,697 533,890
Cash and cash equivalents 2,882 4,385 8,529
Restricted cash 6,185 8,430 5,296
Deferred charges, net (Note 5) 4,612 5,412 5,995
Other assets, net 9,411 31,736 9,117
-------- -------- --------
Total assets $766,035 $759,660 $562,827
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL:
Notes payable (Note 6) $402,613 $390,321 $286,259
Accrued interest payable 1,882 1,811 1,075
Distributions payable (Note 13) 11,235 11,194 8,877
Real estate taxes payable 3,793 9,785 5,110
Accounts payable and accrued expenses - construction 6,598 6,218 9,027
Accounts payable and accrued expenses - operating 3,664 5,455 4,718
Security deposits 1,975 1,968 1,340
-------- -------- --------
Total liabilities 431,760 426,752 316,406
-------- -------- --------
Commitments and contingencies (Notes 6 and 7)
Limited partners' capital interest (3,528,232, 3,528,232
and 3,310,519 Units), at redemption value (Note 1) 93,278 98,482 75,314
-------- ------- -------
Partners' capital:
General partner (229,274, 228,453 and 184,938 Units) 3,311 3,245 2,577
Limited partner (19,169,873, 19,088,645 and
14,998,368 Units) 237,686 231,181 168,530
-------- ------- -------
Total partners' capital (19,399,147, 19,317,098 and
15,183,306 Units) 240,997 234,426 171,107
-------- ------- -------
Total liabilities, limited partners' capital
interest and partners' capital $766,035 $759,660 $562,827
======== ======== ========
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
PAGE-F-4
GABLES REALTY LIMITED PARTNERSHIP AND GABLES RESIDENTIAL GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Unit Amounts)
<TABLE>
<CAPTION>
Gables
Residential
Gables Realty Limited Partnership Group
------------------------------------------- ----------
Three Months Ended Years Ended Jan. 26 to Jan. 1 to
March 31, December 31, Dec. 31 Jan. 25,
1997 1996 1996 1995 1994 1994
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Rental revenues .................................... $29,483 $22,139 $104,543 $72,703 $53,884 $3,317
Other property revenues ............................ 1,338 1,061 4,928 3,268 2,041 184
------- ------- ------- ------- ------- -------
Total property revenues ....................... 30,821 23,200 109,471 75,971 55,925 3,501
------- ------- ------- ------- ------- -------
Property management - third party ................... 588 761 2,960 3,324 4,034 272
Property management - related party ................. 211 219 911 965 1,116 134
------- ------- ------- ------- ------- -------
Total property management revenues ............. 799 980 3,871 4,289 5,150 406
Non-recurring Olympic revenues, net ................. 0 0 900 0 0 0
Other ............................................... 612 262 1,939 1,500 1,752 88
------- ------- ------- ------- ------- -------
Total other revenues ........................... 1,411 1,242 6,710 5,789 6,902 494
------- ------- ------- ------- ------- -------
Total revenues ................................. 32,232 24,442 116,181 81,760 62,827 3,995
------- ------- ------- ------- ------- -------
Property operating and maintenance (exclusive
of items shown separately below) ............... 11,058 8,070 38,693 28,228 21,228 1,619
Depreciation and amortization ....................... 5,337 3,732 18,892 12,669 9,315 591
Amortization of deferred financing costs ............ 281 350 1,348 932 893 234
Property management - owned (Note 8) ................ 828 657 2,824 2,170 1,540 140
Property management - third/related party (Note 8) .. 640 769 2,793 3,178 3,707 387
General and administrative .......................... 881 714 3,045 2,869 1,668 74
Interest ............................................ 5,815 3,808 21,112 13,088 8,345 1,043
Credit enhancement fees ............................. 128 164 576 710 661 35
------- ------- ------- ------- ------- -------
Total expenses ................................. 24,968 18,264 89,283 63,844 47,357 4,123
------- ------- ------- ------- ------- -------
Income (loss) before equity in income of joint
ventures and interest income ................... 7,264 6,178 26,898 17,916 15,470 (128)
Equity in income of joint ventures .................. 66 49 280 64 255 15
Interest income ..................................... 122 99 363 389 247 21
------- ------- ------- ------- ------- -------
Income (loss) before gain on sale of real estate assets
and extraordinary loss........................... 7,452 6,326 27,541 18,369 15,972 (92)
Gain on sale of real estate assets ................... 4,858 0 0 0 0 0
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary loss .............. 12,310 6,326 27,541 18,369 15,972 (92)
Extraordinary loss (Note 9) .......................... (712) (631) (631) (955) (148) 0
-------- ------- -------- ------- ------- -------
Net income (loss) .................................... $11,598 $5,695 $26,910 $17,414 $15,824 ($92)
======== ======= ======= ======= ======= =======
Weighted average number of Units outstanding ........ 22,856 18,603 20,194 14,644 13,442
======== ======= ======= ======= =======
Per Unit Information (Note 3):
Income before extraordinary loss .................... $0.54 $0.34 $1.36 $1.25 $1.19
======== ======= ======= ======= =======
Net income .......................................... $0.51 $0.31 $1.33 $1.19 $1.18
======== ======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
PAGE-F-5
GABLES REALTY LIMITED PARTNERSHIP AND GABLES RESIDENTIAL GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
Limited
Total Partners'
General Limited Partners' Capital
Partner Partner Capital Interest
------- ------- ------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 ................................. $ 0 $ 0 $ 0 $ 1,236
Capital contributions .................................... 0 0 0 682
Capital distributions .................................... 0 0 0 (5,523)
Net loss ................................................. 0 0 0 (92)
------- ------- ------- -------
Balance, January 25, 1994 .................................. 0 0 0 (3,697)
Capital contributions .................................... 0 0 0 6,901
Capital distributions .................................... 0 0 0 (26,475)
Proceeds of IPO, net of underwriting discount and
issuance costs of $21,722 .............................. 2,782 187,671 190,453 0
Issuance of redeemable Units, net of carryover
predecessor basis ...................................... 0 0 0 (9,999)
Proceeds of offering of 444,500 shares, net of
issuance costs of $125 .................................. 99 9,777 9,876 0
Net income ............................................... 158 11,898 12,056 3,768
Distributions paid ($1.225 per Unit) ..................... (165) (12,445) (12,610) (3,920)
Distributions declared ($0.45 per Unit) .................. (62) (4,697) (4,759) (1,440)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... (1,020) (101,030) (102,050) 102,050
------- ------- ------- -------
Balance, December 31, 1994 ................................. 1,792 91,174 92,966 67,188
Proceeds of 4,600,000 share offering, net of under-
writing discount and issuance costs of $6,261 ........... 944 93,420 94,364 0
Proceeds from Share Builder Plan ......................... 2 175 177 0
Filing costs for Share Builder Plan, Profit Sharing
Plan and $200,000 shelf registration statement ......... (2) (235) (237) 0
Contribution related to land acquisition ................. 24 (24) 0 2,437
Net income ............................................... 174 13,382 13,556 3,858
Distributions paid ($1.38 per Unit) ...................... (190) (14,406) (14,596) (4,415)
Distributions declared ($0.48 per Unit) .................. (89) (7,199) (7,288) (1,589)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... (78) (7,757) (7,835) 7,835
------- ------- ------- -------
Balance, December 31, 1995 ................................. 2,577 168,530 171,107 75,314
Proceeds of 4,039,068 share offerings, net of under-
writing discounts and issuance costs of $3,302 .......... 935 92,549 93,484 0
Proceeds from exercise of share options .................. 14 1,416 1,430 0
Proceeds from Share Builder Plan ......................... 0 32 32 0
Filing costs for $300,000 shelf registration statement ... (1) (96) (97) 0
Contribution related to apartment community acquisition .. 57 (57) 0 5,697
Conversion of redeemable Units to common shares .......... 25 2,516 2,541 (2,541)
Net income ............................................... 269 22,112 22,381 4,529
Distributions paid ($1.45 per Unit) ...................... (298) (24,603) (24,901) (4,874)
Distributions declared ($0.49 per Unit) .................. (112) (9,353) (9,465) (1,729)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... (221) (21,865) (22,086) 22,086
------- ------- ------- ------
Balance, December 31, 1996 ................................. 3,245 231,181 234,426 98,482
Proceeds from exercise of share options .................. 2 247 249 0
Proceeds from Share Builder Plan ......................... 0 11 11 0
Net income ............................................... 116 9,692 9,808 1,790
Issuance of share grants, net of deferred compensation ... 7 737 744 0
Distributions declared ($0.49 per Unit) .................. (112) (9,394) (9,506) (1,729)
Adjustment to reflect limited partners' redeemable capital
at redemption value at balance sheet date ............... 53 5,212 5,265 (5,265)
------- ------- ------- -------
Balance, March 31, 1997 (Unaudited) ........................ $ 3,311 $ 237,686 $ 240,997 $ 93,278
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
PAGE-F-6
GABLES REALTY LIMITED PARTNERSHIP AND GABLES RESIDENTIAL GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
Gables
Residential
Gables Realty Limited Partnership Group
------------------------------------------- ----------
Three Months Ended Years Ended Jan. 26 to Jan. 1 to
March 31, December 31, Dec. 31 Jan. 25,
1997 1996 1996 1995 1994 1994
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $11,598 $5,695 $26,910 $17,414 $15,824 ($92)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ............................. 5,618 4,082 20,240 13,601 10,208 825
Equity in income of joint ventures ........................ (66) (49) (280) (64) (255) (15)
Gain on sale of real estate assets ........................ (4,858) 0 0 0 0 0
Long-term compensation expense ............................ 102 102 408
Extraordinary loss ......................................... 712 631 631 955 148 0
Change in operating assets and liabilities:
Restricted cash ......................................... 2,416 891 (2,366) (1,695) (1,526) 3,165
Other assets ............................................ 457 (361) (282) (260) (6,079) 1,134
Other liabilities ....................................... (7,297) (3,728) 6,368 (863) 8,234 (2,703)
------- ------- ------- ------- ------- -------
Net cash provided by operating activities .......... 8,682 7,263 51,629 29,088 26,554 2,314
------- ------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of outside partners' interests ................... 0 0 0 0 (56,092) 0
Purchase and construction of real estate assets............... (23,748) (18,326) (194,886) (148,475) (89,124) (3,329)
Investment in mortgage note receivable ....................... 0 0 (21,505) 0 0 0
Long-term land lease payments ................................ 0 0 (1,500) 0 (2,300) 0
Net proceeds from sale of real estate assets ................. 12,333 0 3,968 0 0 0
Distributions received from joint ventures ................... 63 28 327 241 222 89
------- ------- ------- ------- ------- -------
Net cash used in investing activities ................... (11,352) (18,298) (213,596) (148,234) (147,294) (3,240)
------- ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from the Company and GGPI:
Proceeds from IPO, net of issuance costs ................... 0 0 0 0 190,453 0
Proceeds from secondary share offerings, net of
issuance costs ......................................... 0 20,630 93,484 94,364 9,876 0
Proceeds from exercise of share options .................... 249 630 1,430 0 0 0
Proceeds from Share Builder Plan ........................... 11 5 32 177 0 0
Payments of filing costs for Share Builder Plan, Profit
Sharing Plan and shelf registration statements ......... (97) (237) 0 0
------- ------- ------- ------- ------- -------
Total 260 21,265 94,849 94,304 200,329 0
Payments of deferred financing costs ......................... (20) (972) (1,668) (1,777) (8,753) 0
Net proceeds from liquidation of defeasance trusts ........... 0 0 0 0 130 0
Payment of defeasance escrow requirements .................... 0 0 0 0 (1,298) 0
Notes payable proceeds ....................................... 29,237 21,200 282,569 281,597 189,281 2,335
Notes payable repayments ..................................... (16,945) (21,409) (178,507) (224,643) (219,426) (4,179)
Principal escrow deposits .................................... (171) (192) (768) (652) (134) 0
Change in distributions payable and related party loans ...... 0 0 0 0 (2,597) (498)
Capital contributions ........................................ 0 0 0 0 6,901 682
Capital distributions ........................................ 0 0 0 0 (26,475) (5,523)
Distributions paid ($0.49, $0.48, $1.93, $1.83 and
$1.225 per Unit, respectively) ........................ (11,194) (8,877) (38,652) (25,210) (16,530) 0
------- ------- -------- ------- ------- -------
Net cash provided by (used in) financing activities ..... 1,167 11,015 157,823 123,619 121,428 (7,183)
------- ------- -------- ------- ------- -------
Net change in cash and cash equivalents (1,503) (20) (4,144) 4,473 688 (8,109)
Cash and cash equivalents, beginning of period ............... 4,385 8,529 8,529 4,056 3,368 11,477
------- ------- ------- ------- ------- -------
Cash and cash equivalents, end of period ..................... $ 2,882 $ 8,509 $ 4,385 $ 8,529 $ 4,056 $ 3,368
======= ======= ======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest .................................. $ 7,019 $ 4,678 $24,749 $20,669 $11,212 $1,566
Interest capitalized .................................... 1,275 1,399 4,373 7,481 3,031 54
------- ------- ------- ------- ------- --------
Cash paid for interest, net of amounts capitalized $5,744 $ 3,279 $20,376 $13,188 $ 8,181 $1,512
======= ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
PAGE-F-7
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
- -- -------------------------------------------------------
Gables Realty Limited Partnership (the "Operating Partnership") is the
entity through which Gables Residential Trust (the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"),
conducts substantially all of its business and owns (either directly or through
subsidiaries) substantially all of its assets. In 1993, the Company was formed
under Maryland law and the Operating Partnership was organized as a Delaware
limited partnership to continue and to expand the multifamily apartment
community management, development, construction and acquisition operations of
its privately owned predecessor organization. The term "Gables Residential
Group" or "Group" as used herein refers to the privately owned predecessor
organization prior to the Company's initial public offering in January, 1994
(the "Initial Offering" or "IPO") and the concurrent completion of the various
transactions that occurred simultaneously therewith (the "Formation
Transactions"). The term "Operating Partnership" or "Gables" as used herein
means Gables Realty Limited Partnership and its subsidiaries on a consolidated
basis, or, where the context so requires, Gables Realty Limited Partnership
only, and, as the context may require, their predecessors.
The Company is currently an 84.6% economic owner of the Operating
Partnership and controls it through Gables GP, Inc. ("GGPI"), a wholly-owned
subsidiary of the Company and the sole general partner of the Operating
Partnership (this structure is commonly referred to as an umbrella partnership
REIT or "UPREIT"). The board of directors of GGPI, the members of which are the
same as the members of the Board of Trustees of the Company, manages the affairs
of the Operating Partnership by directing the affairs of GGPI. The Company's
limited partner and indirect general partner interests in the Operating
Partnership entitle it to share in cash distributions from, and in the profits
and losses of, the Operating Partnership in proportion to its ownership interest
therein and entitle the Company to vote on all matters requiring a vote of the
limited partners.
The other limited partners of the Operating Partnership are persons who
contributed their direct or indirect interests in certain properties to the
Operating Partnership primarily in connection with the Formation Transactions.
The Operating Partnership is obligated to redeem each unit of limited
partnership ("Unit") at the request of the holder thereof for cash equal to the
fair market value of a share of the Company's common shares of beneficial
interest, $.01 per share, at the time of such redemption, provided that the
Company at its option may elect to acquire any such Unit presented for
redemption for one common share or cash. The Company presently anticipates that
it will elect to issue its common shares to acquire Units presented for
redemption, rather than paying cash. With each such redemption the Company's
percentage ownership interest in the Operating Partnership will increase. In
addition, whenever the Company issues common shares, the Company is obligated to
contribute any net proceeds therefrom to the Operating Partnership and the
Operating Partnership is obligated to issue an equivalent number of Units to the
Company. Such limited partners' redemption rights are reflected in "limited
partners' capital interest" in the accompanying consolidated balance sheets at
the cash redemption amount at the balance sheet date. Capital activity with
regard to such limited partners' redemption rights is reflected in the
accompanying consolidated and combined statements of partners' capital.
Distributions to holders of Units are made to enable distributions to be
made to the Company's shareholders under its dividend policy. Federal income tax
laws require the Company, as a REIT, to distribute 95% of its ordinary taxable
income. The Operating Partnership makes distributions to the Company to enable
it to satisfy this requirement.
The Operating Partnership's third party management businesses are conducted
through two subsidiaries, Central Apartment Management, Inc., a Texas
corporation, and East Apartment Management, Inc., a Georgia corporation (each, a
"Management Company"). The Management Companies also provide management services
to the communities owned by the Operating Partnership.
At December 31, 1996, Gables owned 46 completed multifamily apartment
communities comprising 14,581 apartment homes, of which 30 were developed and 16
were acquired by the Operating Partnership, and an indirect 25% general partner
interest in two apartment communities developed by the Operating Partnership,
comprising 663 apartment homes. Two of these completed communities were in the
lease-up stage as of December 31, 1996. During January, 1997, Gables sold one of
these communities comprising 486 apartment homes and acquired a community
comprising 232 apartment homes. Additionally, Gables had nine multifamily
apartment communities under development expected to comprise 2,515 apartment
homes, including one community expected to comprise 231 apartment homes, for
which the land was acquired in January, 1997. Gables also owned parcels of land
<PAGE>
PAGE-F-8
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
for the future development of three apartment communities expected to comprise
648 apartment homes and during March, 1997, Gables purchased an additional
parcel of land for the development of an apartment community expected to
comprise 256 apartment homes. Additionally, Gables has contracts or options to
acquire additional parcels of land. There can be no assurance that the Company
will acquire these land parcels, however it is the Company's intent to develop
an apartment community on each such land parcel, if purchased. The Company is
pursuing other acquisition and development opportunities in the ordinary course
of business which have not yet been, or may never be, put under contract.
At the completion of the IPO on January 26, 1994, the Company sold
9,430,000 common shares (including 1,230,000 shares as a result of the exercise
of an over-allotment option by the underwriters) at a price to the public of
$22.50 per share. The net proceeds to the Company from such sale totaled
approximately $190 million. The Company issued an additional 700,555 common
shares in connection with the Formation Transactions. Also concurrently with the
IPO, the Company entered into and drew down approximately $79 million under a
secured credit facility (the "Original Credit Facility"), including
approximately $45 million in the form of letters of credit. The net proceeds of
the IPO and initial draw-down under the Original Credit Facility were
principally used (i) by the Company to acquire a 76.0% economic interest in the
Operating Partnership, (ii) by the Company and the Operating Partnership to
acquire minority interests in partnerships that directly or indirectly owned the
communities acquired by Gables in connection with the IPO and Formation
Transactions (the "IPO Communities"), (iii) by the Operating Partnership to
acquire 99% of each Management Company's capital stock, with the Management
Companies in turn using such proceeds to acquire the fee management business of
the predecessor management companies of the Group (the "Predecessor Management
Companies"), (iv) to acquire certain promissory notes issued by the Predecessor
Management Companies, (v) to repay or economically defease indebtedness with
respect to the IPO Communities and the Predecessor Management Companies, (vi)
with respect to the Original Credit Facility, to provide substitute letters of
credit or replace backup security for existing credit enhancements with respect
to indebtedness associated with the IPO Communities, (vii) to purchase interest
rate protection agreements and pay deferred financing costs related to new
indebtedness, and (viii) to acquire an existing apartment community, an
apartment community that was substantially renovated in 1994 and certain
development rights. In connection with the IPO and Formation Transactions, the
Company wrote-off unamortized deferred financing costs related to notes payable
satisfied with proceeds of the IPO ($2,092), wrote-off unamortized organization
and deferred non-compete costs as a result of the Formation Transactions ($599),
paid defeasance escrow requirements ($1,298), wrote-off accrued interest payable
related to defeased indebtedness ($435), wrote-off deferred letter of credit
fees forgiven in connection with the IPO ($1,075) and collected settlement
proceeds from certain existing credit enhancement sources ($2,465). The net loss
related to these items of $14 has been included in general and administrative
expenses in the accompanying statement of operations for the period from January
1, 1994 to January 25, 1994.
2. SECONDARY OFFERINGS AND ISSUANCES OF OPERATING PARTNERSHIP UNITS
- -- ----------------------------------------------------------------
Secondary Offerings -
- ---------------------
Since the IPO, the Company has had the following common share offerings:
Number of Net
Closing Date Shares Issued Proceeds
------------ ------------- --------
October 7, 1994 444,500 $ 9,876
------- -------
October 31, 1995 4,600,000 $94,364
--------- -------
March 25, 1996 879,068 $20,630
September 17, 1996 1,725,000 $38,600
September 27, 1996 1,435,000 $34,254
--------- -------
1996 Totals 4,039,068 $93,484
========= =======
<PAGE>
PAGE-F-9
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
The net proceeds from these offerings were contributed to the Operating
Partnership in exchange for Units, and the Operating Partnership used the
proceeds (i) to reduce outstanding indebtedness under interim financing vehicles
utilized to fund its development and acquisition activities and (ii) for general
working capital purposes including funding of future development and acquisition
activities.
The Company issued the common shares in its 1995 and 1996 offerings under a
$200 million shelf registration statement which is now exhausted. In October,
1996, the Company filed a new registration statement, covering the registration
of up to $300 million of debt securities, common shares, preferred shares, and
warrants or other rights to purchase common shares or preferred shares.
Additional Issuances of Operating Partnership Units -
- -----------------------------------------------------
On December 5, 1995, the Operating Partnership acquired a parcel of land
for the development of an apartment community, financed in part through the
issuance of 111,074 Units.
On July 26, 1996, the Operating Partnership acquired an apartment community
comprising 500 apartment homes, financed in part through the issuance of 243,787
Units.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -- ------------------------------------------
Nature of Operations
- --------------------
Gables engages in the multifamily apartment community management,
development, construction, and acquisition businesses, including the provision
of related brokerage and corporate rental housing services. Gables' operating
performance relies predominantly on net operating income from the multifamily
apartment communities it owns which are located in seven core cities in Georgia,
Texas, and Tennessee. The Operating Partnership recently entered an eighth
market, Orlando, Florida, through an association with a subsidiary of the Walt
Disney Company and, in connection therewith, currently has two communities under
development in Orlando.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements of Gables Realty Limited
Partnership include the consolidated accounts of Gables Realty Limited
Partnership and its subsidiaries. The accompanying combined financial statements
of Gables Residential Group reflect the combined accounts of the Group. As a
result of the structure of the business combination, certain partners and owners
of the entities in Gables Residential Group received common shares of the
Company and/or Units in the Operating Partnership. Purchase accounting was
applied to the acquisition of all non-controlled interests. The acquisition of
all other interests was accounted for as a reorganization of entities under
common control and, accordingly, was reflected at historical cost in a manner
similar to that in pooling of interests accounting. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real Estate Assets and Depreciation
- -----------------------------------
Real estate assets are stated at depreciated cost. The cost of buildings
and improvements includes interest, property taxes, insurance and allocated
development overhead incurred during the construction period. Ordinary repairs
and maintenance are expensed as incurred; major replacements and betterments are
capitalized and depreciated over their useful lives. Depreciation is computed on
a straight-line basis over the useful lives of the real estate assets (buildings
and improvements 19-40 years; furniture, fixtures and equipment 5-10 years).
<PAGE>
PAGE-F-10
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
The Operating Partnership adopted Statement of Financial Accounting
Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. FAS 121
established new standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. There was no
financial statement impact resulting from the adoption of FAS 121.
Revenue Recognition
- -------------------
Rental: Gables leases its residential properties under operating leases with
terms generally equal to one year or less. Rental income is recognized when
earned which materially approximates revenue recognition on a straight-line
basis.
Property Management: Gables provides property management services for properties
in which it does not own a controlling interest. Income is recognized when
earned.
Development and Construction Services: Gables periodically provides development
and construction services for properties in which it does not own a controlling
interest. Income is recognized when earned on a percentage of completion basis.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, all investments purchased with
an original maturity of three months or less are considered to be cash
equivalents.
Restricted Cash
- ---------------
Restricted cash is primarily comprised of residential security deposits,
tax escrow funds, repairs and maintenance reserve funds, and principal escrow
bond funds.
Deferred Financing Costs and Amortization
- -----------------------------------------
Deferred financing costs include fees and costs incurred to obtain
financing and are capitalized and amortized over the terms of the related notes
payable.
Interest Rate Protection Agreements
- -----------------------------------
The Operating Partnership uses interest rate protection agreements to
manage its exposure to interest rate changes. These agreements are considered
hedges of the Operating Partnership's borrowings. Amounts paid to purchase such
agreements are capitalized and amortized over the terms of the related
agreements. Such amortization is included in amortization of deferred financing
costs in the accompanying statements of operations.
Other Assets
- ------------
Gables invested $21.5 million in an apartment community comprising 232
apartment homes on October 1, 1996 via a mortgage note receivable. The note
receivable and related costs are included in other assets in the accompanying
balance sheet at December 31, 1996 and interest income earned thereon is
included in other revenues in the accompanying statement of operations for the
year ended December 31, 1996. In January, 1997, Gables acquired the apartment
community from the borrower, and the mortgage note receivable was repaid in
full.
Investment in Joint Ventures
- ----------------------------
Gables' 25% general partner interests in Arbors of Harbortown JV and
Metropolitan Apartments JV are accounted for on the equity method of accounting.
<PAGE>
PAGE-F-11
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Per Unit Information
- --------------------
Earnings per Unit information with respect to periods ending subsequent to
January 25, 1994 has been computed based upon the weighted average number of
Units outstanding during the period. The impact of outstanding share options was
less than 3% dilutive during these periods and, therefore, the impact on primary
earnings per Unit ("EPU") has not been shown (Note 14). Historical per Unit
information with respect to periods ending prior to January 25, 1994 is not
relevant since it is a presentation of the combined operations of partnerships
and various corporations.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (FAS 128) "Earnings per
Share," which becomes effective for periods ending after December 15, 1997. FAS
128 will require dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and will
require restatement of all prior period EPS data presented. The impact of FAS
128 on the Operating Partnership's EPU information disclosed in the accompanying
financial statements is not material.
Interim Unaudited Financial Statements
- --------------------------------------
The consolidated financial statements and footnote information as of March
31, 1997 and for the three months ended March 31, 1997 and 1996 are unaudited;
however, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for fair presentation of the
consolidated financial statements for these interim periods have been included.
The results for the interim period ended March 31, 1997 are not necessarily
indicative of the results to be obtained for the full fiscal year ending
December 31, 1997.
4. REAL ESTATE ASSETS
- -- ------------------
Real estate assets, before accumulated depreciation, are as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 December 31, 1995
Basis Apt. Homes Basis Apt. Homes Basis Apt. Homes
----- ---------- ----- ---------- ----- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Completed properties $756,997 14,817 $707,161 14,581 $489,404 11,283
Properties under development 60,665 2,025 74,690 2,284 96,015 1,983
Land held for future development 4,086 904 2,749 648 5,814 865
-------- ------- -------- ------- ------- -------
Total (a) $821,748 17,746 $784,600 17,513 $591,233 14,131
======== ======= ======== ======= ======= =======
<FN>
(a) Excludes (i) costs and apartment homes attributable to Arbors of Harbortown
JV and Metropolitan Apartments JV as Gables' 25% general partner interests
in these joint ventures are accounted for on the equity method of
accounting and (ii) costs of approximately $3,700 for two prepaid long-term
land leases which are included in other assets in the accompanying balance
sheets.
</FN>
</TABLE>
The changes in real estate assets from December 31, 1995 to March 31, 1997
consisted of the following:
Balance at December 31, 1995 $ 591,233
Acquisitions, including renovation expenditures 128,472
Sale of real estate assets (4,826)
Development costs incurred, including related land acquisitions 65,867
Capital expenditures for completed properties 3,854
--------
Balance at December 31, 1996 $ 784,600
Acquisitions, including renovation expenditures 21,937
Sale of real estate assets (8,797)
Development costs incurred, including related land acquisitions 23,093
Capital expenditures for completed properties 915
--------
Balance at March 31, 1997 (Unaudited) $ 821,748
========
<PAGE>
PAGE-F-12
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
As discussed in Note 3, purchase accounting was applied to the acquisition
of all non-controlled interests in connection with the IPO and Formation
Transactions. The increase in basis related to such acquisition was $48,090 and
was allocated to the respective property's land and building accounts. The
acquisition of all other interests was accounted for as a reorganization of
entities under common control, and accordingly was reflected at historical cost.
5. DEFERRED CHARGES, NET
- -- ---------------------
Deferred charges, net consist of the following:
March 31, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
Deferred financing costs $5,624 $6,144 $6,678
Interest rate protection agreements costs 945 1,779 1,779
Deferred interest rate buydown costs 0 817 817
------- ------- ------
6,569 8,740 9,274
Less: accumulated amortization (1,957) (3,328) (3,279)
------- ------- -------
$4,612 $5,412 $5,995
======= ====== =======
The costs of the interest rate protection agreements and the interest rate
buydown on a mortgage note payable were funded with proceeds of the IPO.
Deferred financing costs associated with the Operating Partnership's loans that
were refinanced from 1994 to 1996 were written off (Note 9).
6. NOTES PAYABLE
- -- -------------
Notes payable consist of the following:
March 31, December 31,
1997 1996 1995
---- ---- ----
(Unaudited)
Conventional fixed-rate $251,866 $259,046 $173,944
Tax-exempt fixed-rate 60,150 67,270 67,385
-------- -------- --------
Total fixed-rate 312,016 326,316 241,329
Tax-exempt variable-rate 44,930 44,930 44,930
Credit facilities 45,667 19,075 0
-------- -------- --------
Total notes payable $402,613 $390,321 $286,259
======== ======== ========
Conventional Fixed-Rate Notes Payable
- -------------------------------------
At December 31, 1995, the fixed-rate notes payable were comprised of ten
loans collateralized by twelve apartment communities included in real estate
assets. At December 31, 1995, the interest rates on these notes payable ranged
from 7.00% to 8.77% (weighted average of 8.15%) and the maturity dates ranged
from September, 1997 through December, 2009.
Gables closed the final two loans during 1996 totaling $25,823 under its
1995 financing commitment from Teachers Insurance and Annuity Association. In
July, 1996, Gables acquired an apartment community in Memphis, Tennessee and
assumed a $19,762 mortgage note payable in connection with that acquisition. In
November, 1996, Gables closed on a five-year unsecured $40,000 term loan which
currently bears interest at LIBOR plus 1.25%. This loan is effectively fixed at
an all-in rate of 6.60% after application of $40,000 of the $44,530 interest
rate protection agreements discussed elsewhere herein. Although this loan is
unsecured, there are two designated real estate assets that have escrowed
mortgages. Promptly after the attainment of an investment grade rating by
Gables, the escrowed mortgages will be released.
<PAGE>
PAGE-F-13
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
At December 31, 1996, the fixed-rate notes payable are comprised of the
$40,000 term loan described above in addition to thirteen loans collateralized
by fifteen apartment communities included in real estate assets. At December 31,
1996, the interest rates on these notes payable ranged from 6.60% to 8.77%
(weighted average of 7.88%) and the maturity dates range from September, 1997
through December, 2009. Principal amortization payments are required on a
monthly basis for all notes payable, except the $40,000 term loan, based on
amortization schedules ranging from 25 to 30 years. Additionally, certain of the
notes payable do not require the principal amortization payments to begin until
specified dates in 1997 and 1998.
Tax-Exempt Fixed-Rate Notes Payable
- -----------------------------------
At December 31, 1996 and 1995, the tax-exempt, fixed-rate indebtedness was
comprised of three loans. One such loan was closed in August, 1994, has a
principal balance of $48,365, and is collateralized by three communities induced
for tax-exempt financing and three additional communities. Principal
amortization payments based on a 30 year amortization schedule are required on a
monthly basis. These payments are retained in an escrow account and are not
applied to reduce the outstanding principal balance of the loan. Principal
payments through December 31, 1996 and 1995 are included in restricted cash in
the accompanying balance sheets. The note payable bears interest at 6.38% and
matures in August, 2004. The three underlying tax-exempt bond issues mature in
August, 2024. The other two loans that closed in January, 1995 represent a
$19,020 tax-exempt bond financing secured by two apartment communities. Both
bond issues were credit enhanced for an annual fee of 0.60%. The bonds bear
interest at a weighted average rate of 7.03% on a fixed basis for 30 years.
Principal amortization payments are due in January each year pursuant to the
terms of the bond documents. Gables is required to make monthly escrow payments
each year totaling the annual principal payment due to the bondholders in the
month of January thereafter. Monthly principal escrow payments are included in
restricted cash until the January payments are made. One of these loans, with an
outstanding principal balance of $6,975 at December 31, 1996, was economically
defeased in January, 1997 in connection with the sale of the property.
The tax-exempt bonds contain certain covenants which require minimum
rentals to individuals based upon income levels specified by U.S. government
programs, as defined.
Tax-Exempt Variable-Rate Notes Payable
- --------------------------------------
At December 31, 1996 and 1995, the variable-rate mortgage notes payable
securing tax-exempt bonds were comprised of four loans, each of which is
collateralized by an apartment community included in real estate assets. The
tax-exempt bonds contain certain covenants which require minimum rentals to
individuals based upon income levels specified by U.S. government programs, as
defined. These bonds bear interest at a variable rate of interest, adjusted
weekly based upon a negotiated rate. The interest rate in effect at December 31,
1996 and 1995 was 4.2% and 5.3%, respectively. Tax-exempt variable rates are,
and historically have been, significantly higher at year-end than during the
year. The tax-exempt variable rate in effect at January 31, 1997 and 1996 was
3.6% and 3.3%, respectively. The effective interest rates were 3.5% and 3.9% for
the years ended December 31, 1996 and 1995 and ranged from 3.0% to 3.2% for the
year ended December 31, 1994. The bonds are currently secured by four letters of
credit provided by the New Credit Facility totaling approximately $46 million.
The fee for these letters of credit was 1.5% per annum through June 30, 1995,
1.25% per annum through March, 1996, and is currently 1.0% per annum. These
bonds are subject to mandatory redemption on the related letter of credit
termination date, each of which is March, 1999. Three of the underlying bond
issues mature in December, 2007 and the fourth underlying bond issue matures in
August, 2024.
$175 Million Credit Facility
- ----------------------------
In conjunction with the IPO, Gables closed a $175 million three-year
revolving credit facility (the "Original Credit Facility") which had an initial
maturity of January, 1997. Borrowings under the Original Credit Facility were
recourse to the Operating Partnership and bore interest at LIBOR plus 1.90%
(reduced from 2.25% in December, 1994). Additionally, fees associated with
letters of credit issued thereunder for the Operating Partnership's tax-exempt
variable-rate bonds were 1.25% per annum (reduced from 1.50% in July, 1995).
<PAGE>
PAGE-F-14
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
In March, 1996, Gables closed a new $175 million unsecured revolving credit
facility (the "New Credit Facility" or "$175 Million Credit Facility") that
replaced the Original Credit Facility. Although the New Credit Facility is
unsecured, there are certain designated real estate assets that have escrowed
mortgages. Promptly after the attainment of an investment grade rating by
Gables, the escrowed mortgages will be released. The New Credit Facility has an
initial term of three years and three one-year extension options. Borrowings
currently bear interest at LIBOR plus 1.50% (reduced from 1.65% in November,
1996) and letter of credit fees for the Operating Partnership's tax-exempt
variable-rate bonds are 1.00% per annum. Under the New Credit Facility, up to
$50 million is available to provide credit enhancements on outstanding
tax-exempt bond issues and all remaining amounts are available for borrowings.
Gables' availability under the New Credit Facility is limited to the lesser of
the total $175 million commitment or the borrowing base. The borrowing base
available under the New Credit Facility is based on the collateral value of the
real estate assets with escrowed mortgages and the debt service coverage ratio
of communities pledged as collateral under other recourse loans. As of December
31, 1996, the Operating Partnership had approximately $45.8 million of letters
of credit issued under the New Credit Facility and had $18.0 million in
borrowings outstanding thereunder and, therefore, had approximately $111.2
million of remaining capacity on the $175 million available under the facility.
$20 Million Credit Facility
- ---------------------------
In November, 1996, Gables closed an unsecured revolving credit facility
that currently provides for up to $20 million in borrowings. This facility has
an initial term of one year and has unlimited one-year extension options.
Borrowings currently bear interest at LIBOR plus 1.50%. At December 31, 1996,
the Operating Partnership had $1,075 in borrowings outstanding under this
facility.
Restrictive Covenants
- ---------------------
Certain of the Operating Partnership's debt agreements contain customary
representations, covenants and events of default, including covenants which
restrict the ability of the Operating Partnership to make distributions in
excess of stated amounts, which in turn restricts the discretion of the Company
to declare and pay dividends. In general, during any fiscal year the Operating
Partnership may only distribute up to 95% of the Operating Partnership's
consolidated income available for distribution (as defined in the related
agreement) exclusive of distributions of capital gains for such year. The
applicable debt agreements contain exceptions to these limitations to allow the
Operating Partnership to make any distributions necessary to allow the Company
to maintain its status as a REIT. The Company does not anticipate that this
provision will adversely effect the ability of the Operating Partnership to make
distributions or the Company to declare dividends, as currently anticipated.
Maturities
- ----------
The aggregate maturities of notes payable at December 31, 1996 are as follows:
1997 $11,893 (a)
1998 2,315
1999 65,511 (b)
2000 2,791
2001 43,022
2002 and thereafter 264,789
--------
$390,321
========
(a) Maturities in 1997 include $9,377 for the balance due on maturity of a
conventional mortgage note payable which was repaid February 28, 1997
and $1,075 related to the $20 Million Credit Facility.
(b) Maturities in 1999 include $44,930 of four variable-rate notes payable
securing tax-exempt bonds and $18,000 related to the $175 Million
Credit Facility. The bonds are subject to mandatory redemption on the
termination dates of letters of credit securing the bonds, each of
which is March, 1999. Three of the underlying bond issues mature in
December, 2007 and the fourth underlying bond issue matures in August,
2024.
<PAGE>
PAGE-F-15
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Interest Rate Protection Agreements
- -----------------------------------
Gables has four interest rate protection agreements in place at December 31,
1996, the terms of which are discussed below:
Notional Strike Effective Termination
Description of Agreement Amount Price (a) Date Date
- ------------------------ ------ --------- ---- ----
LIBOR, 30-day - "Rate Cap" $44,530 6.25% 01/27/94 01/30/99
LIBOR, 30-day - "Rate Swap" $44,530 5.35% 08/30/96 08/30/99 (b)
LIBOR, 30-day - "Rate Cap" $50,000 6.45% 01/30/97 12/31/97
LIBOR, 30-day - "Rate Cap" $35,470 5.13% 01/27/94 01/30/97
(a) The 30-day LIBOR rate in effect at December 31, 1996 was 5.66%.
(b) This is a knock-out swap agreement which fixes the Operating
Partnership's underlying 30-day LIBOR rate at 5.35%. The swap
terminates upon the earlier to occur of (i) the termination date or
(ii) a rate reset date on which the 30-day LIBOR rate is 6.26% or
higher.
Joint Venture Indebtedness
- --------------------------
The Arbors of Harbortown apartment community secures a $16.4 million
tax-exempt bond obligation, which is recourse to the Company up to $1.0 million
(this amount is fully cash-collateralized and is held by the Arbors of
Harbortown JV), bears interest at a variable low-floater rate, has a maturity
date of April, 2013, and is payable in monthly installments of interest only.
The credit enhancement for the bond obligation expires in May, 2001. The
Metropolitan Uptown apartment community secures a conventional variable-rate
loan with $16.5 million outstanding at December 31, 1996, 25% of which has been
guaranteed by Gables. The loan has a maturity date of June 30, 1997, subject to
a three year extension option, and currently bears interest at a rate of 7.20%
which has been locked-in for a three year period expiring July, 1998.
7. COMMITMENTS AND CONTINGENCIES
- -- -----------------------------
Purchase Contracts
- ------------------
Gables is under contract or option to purchase six land parcels. There can
be no assurance that Gables will acquire these land parcels, however it is
Gables' intent to develop an apartment community on each such land parcel, if
purchased. Gables is pursuing other acquisition and development opportunities in
the ordinary course of business which have not yet been, or may never be, put
under contract.
Sale Contract
- -------------
In January, 1997, Gables sold one of its completed apartment communities
comprising 486 apartment homes. The net sales proceeds were used to (i) defease
the related tax-exempt bond indebtedness which had a principal balance of $6,975
at December 31, 1996 and (ii) paydown outstanding borrowings under Gables'
credit facilities.
Office Leases
- -------------
Gables is party to office operating leases with terms expiring through
1998. Future minimum lease payments and rent expense for such leases are not
material.
<PAGE>
PAGE-F-16
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Contingencies
- -------------
The various entities comprising Gables are subject to various legal
proceedings and claims that arise in the ordinary course of business. These
matters are generally covered by insurance. While the resolution of these
matters cannot be predicted with certainty, management believes that the final
outcome of such matters will not have a material adverse effect on the financial
position or results of operations of Gables.
8. PROPERTY MANAGEMENT EXPENSES
- -- ----------------------------
Gables manages its owned properties, as well as properties owned by third
and related parties for which it provides services for a fee. Property
management expenses have been allocated between owned and third/related party
properties in the accompanying statements of operations based on the
proportionate number of owned and third/related party apartment homes managed by
Gables during the applicable periods.
9. EXTRAORDINARY LOSS
- -- ------------------
Extraordinary loss of $712 for the three months ended March 31, 1997
represents (i) the write-off of unamortized deferred financing costs and prepaid
credit enhancement fees associated with the defeasance of the tax-exempt bond
financing encumbering the Club Candlewood property that was sold in January,
1997 and (ii) the write-off of unamortized deferred financing costs associated
with the February 28, 1997 retirement of a conventional mortgage note payable
that was scheduled to mature on September 1, 1997.
Extraordinary loss of $631 for the three months ended March 31, 1996 and
for the year ended December 31, 1996 represents the write-off of unamortized
deferred financing costs associated with the early retirement of the Operating
Partnership's Original Credit Facility. The Original Credit Facility that was
scheduled to mature in January, 1997, was refinanced in March, 1996 with the New
Credit Facility.
Extraordinary loss of $955 for the year ended December 31, 1995 represents
the write-off of unamortized deferred financing costs associated with the early
retirement of the Operating Partnership's construction loans.
Extraordinary loss, net of $148 for the period January 26, 1994 to December
31, 1994 represents extraordinary losses totaling $278 related to the write-off
of unamortized deferred financing costs associated with certain refinancings in
1994, offset in part by an extraordinary gain of $130 related to the excess
proceeds received from the liquidation of defeasance trusts established in
connection with the IPO.
10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --- ----------------------------------------------------
Disclosure about the estimated fair value of financial instruments is based
on pertinent information available to management as of December 31, 1996.
Although management is not aware of any factors that would significantly effect
the reasonableness of the fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and current estimates of fair value may differ significantly from the
amounts presented herein.
Cash equivalents
- ----------------
Gables estimates that the fair value of cash equivalents approximates
carrying value due to the relatively short maturity of these instruments.
Notes payable
- -------------
Gables estimates that the fair value of notes payable approximates carrying
value based upon its effective current borrowing rate for issuance of debt with
similar terms and remaining maturities.
<PAGE>
PAGE-F-17
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Interest rate protection agreements
- -----------------------------------
Gables estimates that the fair value of its four interest rate protection
agreements approximates the $447 net carrying value of these agreements at
December 31, 1996. Estimated fair value is based on the value of cash flows
arising in the difference in the strike price per the agreement and projected
LIBOR rates. The net carrying value of these agreements is included in deferred
charges, net in the accompanying balance sheets.
11. INCOME TAXES
- --- ------------
Periods ended after the IPO
- ---------------------------
No federal or state income taxes are reflected in the accompanying
financial statements since Gables Realty Limited Partnership is a partnership
and its partners are required to include their respective share of profits and
losses in their income tax returns. Additionally, certain subsidiaries of
Gables, formed to provide management and other services to third and related
parties, are taxed based on reportable income. The tax attributes of these
entities are immaterial to the accompanying consolidated financial statements.
Periods ended prior to the IPO
- ------------------------------
Gables Residential Group is not a legal entity subject to income taxes. No
federal or state income taxes are applicable to the predecessor entities that
managed and owned the multifamily apartment communities; accordingly, none have
been provided for in the accompanying financial statements. These entities were
primarily partnerships whose partners were required to include their respective
share of profits and losses in their individual income tax returns. The
Predecessor Management Companies are corporations whose net profits were subject
to federal and state income taxes; however, no income tax provision was provided
since these entities had no tax liability for the period ended January 25, 1994.
General
- -------
The tax attributes of the owners' net assets flow directly to each
individual owner. Individual owners will have different investment bases
depending upon the timing and prices of their acquisition of partnership units.
Further, each owner's tax accounting, which is partially dependent upon their
individual tax position, may differ from the accounting followed in the
financial statements.
Accordingly, there could be significant differences between each individual
owner's tax basis and their proportionate share of the net assets reported in
the financial statements. Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," requires a public enterprise to disclose the
aggregate difference in the basis of its net assets for financial and tax
reporting purposes. However, Gables does not have access to information about
each individual owner's tax attributes in Gables, and the aggregate tax bases
cannot be readily determined. In any event, management does not believe that, in
Gables' circumstances, the aggregate difference would be meaningful information.
12. PROFIT SHARING PLAN
- --- -------------------
Eligible employees of Gables may participate in a profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. Under the plan,
employees may defer a portion of their salary on a pre-tax basis. Gables also
has the discretion to make matching contributions, currently equal to 50% of an
employee's first 4% salary deferral contribution. Expenses under this plan for
the years ended December 31, 1996, 1995 and 1994 were not material.
During January, 1996, the Company added the Gables Residential Trust Stock
Fund (the "Fund") as an investment option for the plan. The Fund is comprised of
common shares of the Company. In connection therewith, 100,000 common shares
were registered for issuance under the plan. The plan trustee will purchase
common shares of the Company for the Fund, at the direction of the plan
investment committee, either on the open market or directly from the Company.
<PAGE>
PAGE-F-18
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
13. DISTRIBUTIONS:
- ------------------
The Operating Partnership has declared and paid distributions for the years
ended December 31, 1996, 1995 and 1994 as follows:
Per Share Distributions
-----------------------
First Qtr.to Fourth
Year Fourth Qtr. Qtr.(a)
---- ----------- -------
1996 $1.940 $0.49
1995 $1.860 $0.48
1994 $1.675 $0.45
(a) The fourth quarter distributions for each year were declared in
December of the related year and were paid in the January thereafter.
14. 1994 SHARE OPTION AND INCENTIVE PLAN
- --- ------------------------------------
The Company adopted the 1994 Share Option and Incentive Plan (the "Plan")
to provide incentives to officers, employees and non-employee trustees. The Plan
provides for the grant of options to purchase a specified number of common
shares of the Company ("Options") or the grant of restricted or unrestricted
common shares of the Company ("Restricted Shares" or "Unrestricted Shares").
Under the Plan, as amended, the total number of shares available for grant is 8%
of the total number of Units outstanding at any time and the number of common
shares which may be issued as Restricted Shares or Unrestricted Shares is equal
to 50% of the number of shares available for issuance under the Plan at such
time. The Operating Partnership will issue a Unit for each common share of the
Company issued under the Plan.
To date, Options have been granted in two series during each of 1994, 1995
and 1996 with an exercise price equal to the fair value of the Company's common
shares on the dates the Options were granted. The Options granted are generally
exercisable in installments over three years beginning one year after the date
of grant. At December 31, 1996, 903,687 common shares are subject to outstanding
Options granted to officers, employees and trustees of the Company, of which
Options to purchase approximately 560,000 shares are currently exercisable.
The total number of common shares reserved for issuance under the Plan at
December 31, 1996 is 1,827,626 which is equal to 8% of the total number of Units
outstanding at that time.
A summary of the Options activity for the years ended December 31, 1996,
1995 and 1994 is as follows:
1996 1995 1994
---- ---- ----
Balance, beginning of year 772,875 678,475 0
Granted 269,600 110,000 691,600
Forfeited (71,510) (15,600) (13,125)
Exercised (67,278) 0 0
-------- ------- -------
Balance, end of year 903,687 772,875 678,475
======== ======= =======
Option prices:
Granted $22.750- $23.00 $19.125 - $20.375 $19.50 - $22.50
Forfeited $19.500- $22.75 $19.500 - $22.500 $22.50
Exercised $19.500- $22.50 N/A N/A
Balance, end of year $19.125- $23.00 $19.125 - $22.500 $19.50 - $22.50
<PAGE>
PAGE-F-19
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Gables accounts for stock options issued under the Plan in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized, since all options have been granted with
an exercise price equal to the fair value of the Company's common shares on the
date of grant. Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting Standards No. 123 (FAS 123) "Accounting
for Stock-Based Compensation," the Operating Partnership's net income and
earnings per Unit would have been reduced to the following pro forma amounts:
1996 1995
---- ----
Net income: As Reported $26,910 $17,414
Pro Forma $26,762 $17,370
Earnings per Unit: As Reported $1.33 $1.19
Pro Forma $1.33 $1.19
Because the FAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The weighted average fair value of options granted is $1.91 and $1.45 for
1996 and 1995, respectively. The fair value of each option grant as of the date
of grant has been estimated using the Black-Scholes option pricing models with
the following weighted-average assumptions for grants in 1996 and 1995,
respectively: risk free interest rates of 6.44% and 6.42%; expected lives of
4.90 and 6.64; dividend yields of 8.43% and 8.94%, and expected volatility of
19% and 19%.
On February 21, 1997, the Company granted 22,970 Unrestricted Shares and
45,940 Restricted Shares (collectively, the "Share Grants") to certain officers
and employees of Gables. The Share Grants were awarded based on the closing
price of the Company's common shares on February 21, 1997 of $25.875. Gables has
accrued approximately $600 as of December 31, 1996 equal to the value of the
Unrestricted Shares. The Restricted Shares vest ratably over a two-year period
beginning January 1, 1998. Upon issuance of the Share Grants in 1997, the
approximate $1,800 value of the Share Grants will be recorded in partners'
capital and the approximate $1,200 value of the Restricted Shares will be
recorded as a reduction to partners' capital as deferred compensation. Such
deferred compensation will be amortized ratably over the two-year vesting
period.
15. QUARTERLY FINANCIAL INFORMATION (Unaudited)
- --- -------------------------------------------
Quarterly financial information for the years ended December 31, 1996 and
1995 is as follows:
Year Ended December 31, 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------
Revenues $24,442 $28,143 $31,768 $31,828
Income before extraordinary loss 6,326 6,549 7,005 7,661
Extraordinary loss ( 631) 0 0 0
Net income 5,695 6,549 7,005 7,661
Earnings per Unit:
Income before extraordinary loss $ 0.34 $ 0.34 $ 0.35 $ 0.33
Net income $ 0.31 $ 0.34 $ 0.35 $ 0.33
<PAGE>
PAGE-F-20
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Unit Amounts)
- -----------------------------------------------
Year Ended December 31, 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------------------------------------
Revenues $18,445 $19,031 $21,133 $23,151
Income before extraordinary loss 4,225 4,276 4,306 5,562
Extraordinary loss 0 0 0 ( 955)
Net income 4,225 4,276 4,306 4,607
Earnings per Unit (a):
Income before extraordinary loss $ 0.31 $ 0.31 $ 0.31 $ 0.32
Net income $ 0.31 $ 0.31 $ 0.31 $ 0.27
(a) The total of the four quarterly amounts for net income per Unit for
the year ended December 31, 1995 does not equal the total for the
year. This difference results from the use of a weighted average to
compute the number of Units outstanding for each quarter and the year.
<PAGE>
PAGE-F-21
<TABLE>
<CAPTION>
Gables Realty Limited Partnership
- --------------------------------- SCHEDULE III
Real Estate Investments and Accumulated Depreciation as of December 31, 1996 (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------
Costs Gross Amount at Which Year
Initial Costs Capital- Carried at Close of Period Construc-
----------------- ized ------------------------- tion/
Number of Related Bldgs.& Subsequent Bldgs.& Substantial Yr. Acquisi-
Apartment Encum- Improve- To Improve- Accum. Renovation Acqu- tion
Apartment Description Homes brances Land ments Acquisition Land ments Total Deprec. Complete ired Comments
- --------------------- ----- -------- ---- -------- ----------- ----- -------- ----- -------- -------- ---- -------
Completed Communities:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOUSTON, TEXAS
Baybrook Village ............ 776 $ -- (1) $ 2,875 $17,479 $2,408 $2,875 $19,887 $22,762 $4,148 1981 1990 (7)
Gables Bradford Place ....... 372 -- (1) 2,072 0 15,195 2,072 15,195 17,267 2,407 1991 1990 (8)
Gables Bradford Pointe ...... 360 7,271(2) 1,660 0 9,521 1,660 9,521 11,181 2,162 1990 1989 (8)
Gables CityPlaza ............ 246 -- (1) 2,889 0 10,466 2,889 10,466 13,355 599 1995 1994 (8)
Gables Cityscape ............ 252 9,214 4,313 0 12,557 4,313 12,557 16,870 1,916 1991 1990 (8)
Gables CityWalk/Waterford Sq. 317 11,674 4,246 3,441 11,929 5,055 14,561 19,616 2,495 '90/'85'89/'92 (8)(7)
Gables Edgewater ............ 292 9,466 1,607 0 11,295 1,838 11,064 12,902 1,943 1990 1990 (8)
Gables Meyer Park ........... 345 16,200(3) 3,398 0 13,530 3,418 13,510 16,928 1,817 1993 1992 (8)
Gables Piney Point .......... 246 11,857(4) 2,794 0 10,798 2,794 10,798 13,592 1,083 1994 1992 (8)
Gables Pin Oak Green ........ 582 -- (5) 7,511 28,543 103 7,511 28,646 36,157 719 1990 1996 (7)
Gables Pin Oak Park ......... 477 -- (5) 6,234 23,288 85 6,234 23,373 29,607 590 1992 1996 (7)
Gables River Oaks ........... 228 -- (1) 4,935 16,200 148 4,935 16,348 21,283 343 1993 1996 (7)
Rivercrest .................. 140 3,293(2) 500 3,706 981 582 4,605 5,187 1,130 1982 1987 (7)
Westhollow Park ............. 412 -- (1) 2,000 5,790 2,615 2,000 8,405 10,405 1,663 '78-'79 1990 (7)
ATLANTA, GEORGIA
Briarcliff Gables ........... 104 -- (1) 1,322 0 6,446 1,322 6,446 7,768 353 1995 1994 (8)
Buckhead Gables ............. 162 -- 2,978 993 3,670 2,978 4,663 7,641 455 '64/'94 1993 (7)(9)
Club Candlewood ............. 486 6,975 (6) 500 3,065 5,221 674 8,112 8,786 1,296 '69/'93 1992 (7)(9)
Dunwoody Gables ............. 311 15,920(3) 3,567 0 14,248 3,567 14,248 17,815 567 1995 1994 (8)
Gables Cinnamon Ridge ....... 200 -- (1) 1,500 6,239 280 1,500 6,519 8,019 590 1980 1994 (7)
Gables Cityscape ............ 192 -- (1) 2,250 5,750 312 2,250 6,062 8,312 745 1989 1994 (7)
Gables Over Peachtree ....... 263 -- (1) 2,644 8,400 9,365 2,644 17,765 20,409 848 '70/'96 1995 (7)(9)
Gables Wood Arbor ........... 140 7,130 915 0 5,988 915 5,988 6,903 1,834 1987 1985 (8)
Gables Wood Crossing ........ 268 11,650 1,605 0 12,124 1,605 12,124 13,729 4,297 '85-'86 1983 (8)
Gables Wood Glen ............ 380 9,666(2) 1,323 0 16,333 1,487 16,169 17,656 5,078 1983 1983 (8)
Gables Wood Knoll ........... 312 7,715(2) 1,865 10,856 1,554 1,865 12,410 14,275 2,688 1984 1990 (10)
Lakes at Indian Creek ....... 603 11,930 1,400 9,100 3,155 1,392 12,263 13,655 1,746 '69-'72 1993 (7)
Roswell Gables .............. 384 20,743(3) 3,231 0 18,084 3,231 18,084 21,315 852 1995 1994 (8)
Spalding Gables ............. 252 14,054(3) 2,292 0 13,876 2,292 13,876 16,168 602 1995 1994 (8)
Wildwood Gables ............. 546 26,640(4) 4,810 1,100 22,049 4,810 23,149 27,959 2,956'72/'92-93 1991 (7)(9)
DALLAS, TEXAS
Arborstone .................. 536 -- (1) 1,022 7,815 1,397 1,022 9,212 10,234 1,028 1985 1993 (7)
Gables Green Oaks I ......... 300 -- (1) 737 0 15,661 737 15,661 16,398 239 1996 1994 (8)
Gables at Pearl Street ...... 108 -- (1) 1,680 0 7,474 1,680 7,474 9,154 401 1995 1994 (8)
Gables Preston .............. 126 -- (1) 1,056 0 7,813 1,056 7,813 8,869 356 1995 1994 (8)
Gables Spring Park .......... 188 -- (1) 901 0 11,337 901 11,337 12,238 370 1996 1994 (8)
Gables Turtle Creek ......... 150 -- 2,181 11,001 0 2,181 11,001 13,182 156 1995 1996 (7)
Gables Valley Ranch ......... 319 14,503(4) 1,899 0 14,544 1,899 14,544 16,443 1,238 1994 1993 (8)
MEMPHIS, TENNESSEE
Gables Cordova .............. 464 10,790(2) 1,865 0 23,776 1,865 23,776 25,641 7,040 1986 1985 (8)
Gables Stonebridge .......... 500 19,665 2,312 23,674 118 2,312 23,792 26,104 384 '93-'96 1996 (7)
NASHVILLE, TENNESSEE
Brentwood Gables ............ 254 13,481(3) 849 0 15,636 849 15,636 16,485 472 1996 1994 (8)
Gables Hendersonville ....... 364 9,630(2) 1,182 0 14,625 1,237 14,570 15,807 2,927 1991 1989 (8)
Gables Hickory Hollow I...... 272 12,750 974 0 11,869 974 11,869 12,843 4,496 1988 1985 (8)
Gables Hickory Hollow II .... 276 13,400 1,027 0 11,877 1,027 11,877 12,904 4,939 1987 1985 (8)
</TABLE>
<PAGE>
PAGE-F-22
<TABLE>
<CAPTION>
Gables Realty Limited Partnership
- ---------------------------------
Real Estate Investments and Accumulated Depreciation as of December 31, 1996 (Dollars in Thousands)
- --------------------------------------------------------------------------------------------------- SCHEDULE III
Costs Gross Amount at Which Year
Initial Costs Capital- Carried at Close of Period Construc-
----------------- ized -------------------------- tion/
Number of Related Bldgs.& Subsequent Bldgs.& Substantial Yr. Acquisi-
Apartment Encum- Improve- To Improve- Accum. Renovation Acqu- tion
Apartment Description Homes brances Land ments Acquisition Land ments Total Deprec. Complete ired Comments
- --------------------- ----- -------- ---- -------- ----------- ----- -------- ----- ------- -------- ---- -------
Completed Communities (cont.):
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAN ANTONIO, TEXAS
Gables Colonnade I ..... 312 $ -- (1) $ 1,616 $ 0 $13,713 $ 1,616 $ 13,713 $15,329 $ 675 1995 1994 (8)
Gables Wall Street ..... 232 10,457(3) 1,223 0 11,400 1,223 11,400 12,623 451 1996 1994 (8)
AUSTIN, TEXAS
Gables Great Hills ..... 276 12,830(3) 1,475 0 10,209 1,475 10,209 11,684 1,148 1993 1992 (8)
Gables Town Lake ....... 256 12,342(3) 0 0 13,701 0 13,701 13,701 476 1996 1994 (8)(11)
------- --------- --------- -------- -------- -------- -------- -------- -------
Category Total .........14,581 $ 331,246 $ 101,235 $186,440 $419,486 $102,762 $604,399 $707,161 $74,718
======= ========= ========= ======== ======== ======== ======== ======== =======
Development Communities:
- ------------------------
ATLANTA, GEORGIA
Gables Vinings ........ 315 -- 3,679 0 7,560 3,679 7,560 11,239 0 1997 1995 (8)
Roswell Gables II ..... 284 -- 3,275 0 4,209 3,275 4,209 7,484 0 1997 1996 (8)
Gables at Sugarloaf ... 386 -- 3,249 0 357 3,249 357 3,606 0 1998 1996 (8)
AUSTIN, TEXAS
Gables Central Park ... 273 -- 0 0 11,231 0 11,231 11,231 0 1997 1996 (8)(11)
Gables Bluffstone ..... 256 -- 2,127 0 689 2,127 689 2,816 0 1998 1996 (8)
MEMPHIS, TENNESSEE
Gables Quail Ridge .... 238 -- 1,053 0 15,228 1,053 15,228 16,281 88 1997 1994 (8)
Gables Germantown ..... 252 -- 1,479 0 17,450 1,479 17,450 18,929 97 1997 1994 (8)
ORLANDO, FLORIDA
Gables at Little
Lake Bryan 280 -- 2,484 0 619 2,484 619 3,103 0 1998 1996 (8)
------- ------- ------- ------- ------- ------- ------ ------- ------
Category Total ....... 2,284 $ 0 $17,346 $0 $57,344 $17,346 $57,344 $74,690 $185
======= ======= ======= ======= ======= ======= ======= ======= ======
Land Held For Future Development:
- ---------------------------------
DALLAS, TEXAS
Gables Green Oaks II .. 250 -- (1) 600 0 0 600 0 600 0 (13) 1994 (8)
SAN ANTONIO, TEXAS
Gables Colonnade II .. 250 -- (1) 1,549 0 0 1,549 0 1,549 0 (13) 1994 (8)
MEMPHIS, TENNESSEE
Gables Quail Ridge II. 148 -- 600 0 0 600 0 600 0 (13) 1996 (8)
------- ------- ------- ----- ------ ------- ------- ------ -------
Category Total ....... 648 $ 0 $2,749 $ 0 $ 0 $ 2,749 $0 $2,749 $ 0
======= ======= ======== ======== ======== ======= ======== ======== ========
Grand Totals.... 17,513 $331,246 $121,330 $186,440 $476,830 $122,857 $661,743 $784,600 $74,903
======= ======= ======== ======== ======== ======== ======== ======== =======
<FN>
(1) Promptly after the attainment of an investment grade rating by Gables,
these properties, which currently have mortgages held in escrow related to
the $175 Million Credit Facility, will be unencumbered.
(2) These properties together secure a $48,365 tax-exempt fixed rate mortgage
note payable. The principal balance outstanding under the note has been
allocated to these properties proportionately based on each property's 1996
net operating income (equal to total property revenues less property
operating and maintenance expenses, exclusive of depreciation expense).
(3) Upon the attainment of a BBB or equivalent rating by Gables, these
properties, which currently secure financing provided by Teachers Insurance
and Annuity Association, will be unencumbered at Gables' option.
(4) These properties together secure a $53,000 conventional fixed rate mortgage
note payable. The principal balance outstanding under the note has been
allocated to these properties proportionately based on each property's 1996
net operating income (equal to total property revenues, less property
operating and maintenance expenses, exclusive of depreciation expense).
(5) Promptly after the attainment of an investment grade rating by Gables,
these properties, which currently have mortgages held in escrow related to
a $40 million team loan, will be unencumbered.
(6) This property was sold in January, 1997, and in connection with that sale,
the bonds encumbering the property were defeased.
(7) Acquisitions of existing apartment community.
(8) Acquisition of land for development.
(9) Property was substantially renovated following acquisition.
(10) Property was developed by Gables, sold and subsequently reacquired through
foreclosure.
(11) Land subject to a long-term lease.
(12) Represents the year in which construction is expected to be completed.
(13) The development timetable has not yet been determined for these
communities.
</FN>
</TABLE>
<PAGE>
PAGE-F-23
Gables Realty Limited Partnership SCHEDULE III
- ---------------------------------
Real Estate Investments and Accumulated Depreciation as of December 31, 1996
(Dollars in Thousands)
Depreciation of the Operating Partnership's real estate assets is
calculated over the following estimated useful lives on a straight line basis:
Buildings and Improvements -- 19 to 40 years
Furniture, Fixtures and Equipment -- 5 to 10 years
A summary of activity for real estate investments and accumulated depreciation
is as follows:
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
REAL ESTATE INVESTMENTS:
Balance, beginning of year $ 591,233 $ 437,782 $ 290,903
Additions ................ 198,193 153,451 146,879
Sales .................... (4,826) 0 0
--------- -------- --------
Balance, end of year ..... $ 784,600 $ 591,233 $ 437,782
========= ========= =========
ACCUMULATED DEPRECIATION:
Balance, beginning of year $ 57,343 $ 45,010 $ 35,594
Depreciation ............. 18,457 12,333 9,416
Sales .................... (897) 0 0
--------- --------- ---------
Balance, end of year ..... $ 74,903 $ 57,343 $ 45,010
========= ========= =========
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this amended Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia on this 5th day of August, 1997.
GABLES REALTY LIMITED PARTNERSHIP
By: Gables GP, Inc.
Its: General Partner
By: /s/ Marcus E. Bromley
-------------------------
Marcus E. Bromley
President
<PAGE>
EXHIBIT INDEX
- -------------
Exhibit No. Description
- ----------- -----------
3.1* Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership.
3.2 Amended and Restated Declaration of Trust of the Company (incorporated
herein by reference to the Company's Registration Statement on Form
S-11 (File No. 33-70570), as amended) and the Articles Supplementary
to the Company's Amended and Restated Declaration of Trust creating
the Series A Preferred Shares (incorporated herein by reference to the
Company's Current Report on Form 8-K dated July 24, 1997).
3.3 Second Amended and Restated Bylaws of the Company, incorporated herein
by reference to Exhibit 3.1 to the Company's Registration Statement on
Form 8-A/A-2.
10.1 Articles of Incorporation of East Apartment Management, Inc.,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.2 Bylaws of East Apartment Management, Inc., incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.3 Articles of Incorporation of Central Apartment Management, Inc.,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.4 Bylaws of Central Apartment Management, Inc., incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.5 Assignment of Interests dated January 26, 1994 from the Assignors
named therein to the Operating Partnership and to Gables-Tennessee
Properties pursuant to the Omnibus Option Agreement described therein,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10.6 Assignment of Notes dated January 26, 1994 from the Assignors named
therein to the Company pursuant to the Omnibus Note Purchase Option
Agreement described therein, incorporated herein by reference to the
Compan's Annual Report on Form 10-K for the fiscal year ended December
31, 1993.
10.7 Assignment of Interests dated January 26, 1994 from the Assignors
named therein to the Operating Partnership and to Gables-Tennessee
Properties pursuant to the Omnibus Cash Option Agreement described
therein, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10.8 Assignment of Interests dated January 26, 1994 from the Assignors
named therein to the Operating Partnership pursuant to the Option
Agreement described therein, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
10.9 Form of Promissory Note from each Management Company of the Operating
Partnership, incorporated herein by reference to the Company's
Registration Statement on Form S-11 (File No. 33-70570), as
amended.
10.10 Assignment of Purchase Contracts dated as of January 26, 1994 by and
among TCF Houston 1992, Inc., TC Residential Houston Limited
Partnership and Wood Properties, Inc., incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.11 Assignment of Purchase Contracts dated as of January 18, 1994 by and
among Arbor Properties, Inc. and Wood Properties, Inc., incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
<PAGE>
Exhibit No. Description
- ----------- -----------
10.12 Asset Purchase Agreement between Central RS, Inc. and Central
Apartment Management, Inc. dated as of January 26, 1994, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
10.13 Asset Purchase Agreement between East RS, Inc. and East Apartment
Management, Inc. dated as of January 26, 1994, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
10.14 Promissory Note dated November 29, 1994, for a $53,000,000 mortgage
loan from the Northwestern Mutual Life Insurance Company to Gables
Realty Limited Partnership, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.15 Interest rate protection agreement (notional amount of $44,530,000)
between Gables Realty Limited Partnership and NationsBank of North
Carolina, N.A. dated January 25, 1994, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.16 Interest rate protection agreement (notional amount of $85,470,000)
between Gables Realty Limited Partnership and NationsBank of North
Carolina, N.A. dated January 25, 1994, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.17 Confirmation of Partial Unwind of January, 1994 interest rate
protection agreement (original notional amount of $85,470,000) between
Gables Realty Limited Partnership and NationsBank of North Carolina,
N.A., dated March 19, 1996, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
10.18 Interest rate protection agreement (notional amount of $44,530,000)
between Gables Realty Limited Partnership and First Union National
Bank of Georgia, dated August 21, 1996, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
10.19 Interest rate protection agreement (notional amount of $50,000,000)
between Gables Realty Limited Partnership and NationsBank, N.A., dated
March 19, 1996, incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
10.20 Loan Application and Commitment Agreement between Teachers Insurance
and Annuity Association of America ("lender") and Gables Realty
Limited Partnership and Gables-Tennessee Properties (collectively, the
borrower) for a $130,689,000 loan, incorporated herein by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995.
10.21 Loan Agreement, Conversion and Note Agreement, Security Deed Note and
Deed of Trust Notes between Teachers Insurance and Annuity Association
of America ("Lender")and Gables Realty Limited Partnership and
Gables-Tennessee Properties (collectively, the borrower) for a
$130,689,000 loan, dated December 29, 1995, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
10.22 $175,000,000 Credit Agreement dated as of March 28, 1996 among Gables
Realty Limited Partnership (as Borrower) and Wachovia Bank of Georgia,
N.A., First Union National Bank of Georgia, Guaranty Federal Bank,
AmSouth Bank of Alabama, and Commerzbank AG, Atlanta Agency
(collectively, as Lenders) and Wachovia Bank of Georgia, N.A. (as
Agent), incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
10.23 Guaranty Agreement dated as of March 28, 1996 among Gables GP, Inc.,
Gables Residential Trust and Gables-Tennessee Properties in favor of
the Agent, for the ratable benefit of the Lenders, under the
$175,000,000 Credit Agreement dated as of March 28, 1996, incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996.
10.24 First Amendment to the $175,000,000 Credit Agreement dated as of
November 22, 1996 among Gables Realty Limited Partnership and the
Lenders, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
<PAGE>
Exhibit No. Description
- ----------- -----------
10.25 Second Amendment to the $175,000,000 Credit Agreement dated as of
March 18, 1997 among Gables Realty Limited Partnership and the
Lenders, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
10.26 $40,000,000 Term Loan Credit Agreement dated as of November 20, 1996
among Gables Realty Limited Partnership (as Borrower) and Wachovia
Bank of Georgia, N.A. (as Agent and Lender), incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.
21.1+ Schedule of Subsidiaries of the Operating Partnership.
27.1+ March 31, 1997 Financial Data Schedule.
27.2+ December 31, 1996 Financial Data Schedule.
* Filed herewith
+ Previously filed as an exhibit to this Registration Statement.
<PAGE>
PAGE-1
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GABLES REALTY LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF GABLES
REALTY LIMITED PARTNERSHIP ("Agreement"), dated as of July 24, 1997, is entered
into by and among Gables GP, Inc. ("GGPI"), a Texas corporation, as the General
Partner and the Persons whose names are set forth on Exhibit A as attached
hereto, as the Limited Partners, together with any other Persons who become
Partners in the Partnership as provided herein.
WHEREAS, the partnership was organized on October 15, 1993 by Arbor
Properties, Inc., as general partner and Marcus E. Bromley as organizational
limited partner;
WHEREAS, by amendment dated January 19, 1994, Arbor Properties, Inc.
withdrew from the Partnership and GGPI was admitted as a successor general
partner;
WHEREAS, by amendment dated January 26, 1994, the Limited Partners made
certain contributions to the capital of the Partnership;
WHEREAS, the General Partner is, pursuant to and in accordance with Section
4.2.A, causing the Partnership to issue additional Partnership Interests (the
"Series A Preferred Units") in connection with the offering by Gables Trust of
shares of its 8.30% Series A Cumulative Redeemable Preferred Shares ("Gables
Trust Series A Preferred Shares");
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on the
books and records of the Partnership.
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"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for each
Partner as of the end of each Partnership taxable year (i) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership taxable year.
"ADJUSTED PROPERTY" means any property the Carrying Value of which has been
adjusted pursuant to Exhibit B hereof. Once an Adjusted Property is deemed
distributed by, and recontributed to, the Partnership for federal income tax
purposes upon a termination thereof pursuant to Section 708 of the Code, such
property shall thereafter constitute a Contributed Property until the Carrying
Value of such property is further adjusted pursuant to Exhibit B hereof.
"AFFILIATE" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.
"AGREED VALUE" means (i) in the case of any Contributed Property set forth
in Exhibit D and as of the time of its contribution to the Partnership, the
Agreed Value of such property as set forth in Exhibit D; (ii) in the case of any
Contributed Property not set forth in Exhibit D and as of the time of its
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed, and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
"AGREEMENT" means this First Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
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"ASSIGNEE" means a Person to whom one or more Partnership Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made, (i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the case may be) for such
period (without regard to adjustments resulting from allocations
described in Sections 1.A through 1.E of Exhibit C);
(b) Depreciation and all other noncash charges deducted in determining Net
Income or Net Loss for such period;
(c) the amount of any reduction in the reserves of the Partnership
referred to in clause (ii) (f) below (including, without limitation,
reductions resulting because the General Partner determines such
amounts are no longer necessary);
(d) the excess of proceeds from the sale, exchange, disposition, or
refinancing of Partnership property for such period over the gain
recognized from such sale, exchange, disposition, or refinancing
during such period (excluding Terminating Capital Transactions); and
(e) all other cash received by the Partnership for such period that was
not included in determining Net Income or Net Loss for such period;
(ii) less the sum of:
(a) all principal debt payments made by the Partnership during such
period;
(b) capital expenditures made by the Partnership during such period;
(c) investments made by the Partnership during such period in any entity
(including loans made thereto) to the extent that such investments are
not otherwise described in clause (ii)(a) or (ii)(b);
(d) all other expenditures and payments not deducted in determining Net
Income or Net Loss for such period;
(e) any amount included in determining Net Income or Net Loss for such
period that was not received by the Partnership during such period;
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(f) the amount of any increase in reserves during such period which the
General Partner determines to be necessary or appropriate in its sole
and absolute discretion; and
(g) the amount of any working capital accounts and other cash or similar
balances which the General Partner determines to be necessary or
appropriate, in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
"BOOK-TAX DISPARITIES" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"CAPITAL ACCOUNT" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash, cash
equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1, 4.2, or 4.3 hereof.
"CARRYING VALUE" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property, reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts following the contribution of or adjustment with respect to
such Property, and (ii) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Exhibit B hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
Value on the Valuation Date of the REIT Shares Amount.
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"CERTIFICATE" means the Certificate of Limited Partnership relating to the
Partnership filed in the office of the Delaware Secretary of State, as amended
from time to time in accordance with the terms hereof and the Act.
"CODE" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"CONSENT" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2 hereof.
"CONTRIBUTED PROPERTY" means each property or other asset, in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (including deemed contributions to the
Partnership on termination and reconstitution thereof pursuant to Section 708 of
the Code). Once the Carrying Value of a Contributed Property is adjusted
pursuant to Exhibit B hereof, such property shall no longer constitute a
Contributed Property for purposes of Exhibit B hereof, but shall be deemed an
Adjusted Property for such purposes.
"CONVERSION FACTOR" means 1.0, provided that in the event that the Gables
Trust (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Share in
REIT Shares; (ii) subdivides its outstanding REIT Shares; or (iii)combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
assuming for such purpose that such dividend, distribution, subdivision or
combination has occurred as of such time, and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination. Any adjustment to the Conversion Factor shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
"DECLARATION OF TRUST" means the Declaration of Trust of Gables Residential
Trust (formerly Gables Properties Trust) filed in the State of Maryland on
October 13, 1993, as amended or restated from time to time.
"DEPRECIATION" means, for each taxable year an amount equal to the federal
income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
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"EFFECTIVE DATE" means the date of closing of the initial public offering
of REIT Shares pursuant to that certain purchase agreement among the Gables
Trust, the General Partner and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Dean Witter Reynolds Inc. and The Robinson-Humphrey Company, Inc.,
as representatives of the underwriters.
"GABLES TRUST" means Gables Residential Trust, a Maryland real estate
investment trust.
"GENERAL PARTNER" means Gables GP, Inc., in its capacity as the general
partner of the Partnership, or its successors as general partner of the
Partnership.
"GENERAL PARTNER INTEREST" means a Partnership Interest held by the General
Partner that is a general partnership interest. A General Partner Interest may
be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"IMMEDIATE FAMILY" means, with respect to any natural Person, such natural
Person's spouse and such natural Person's natural or adoptive parents,
descendants, nephews, nieces, brothers, and sisters.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
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PAGE-7
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within one
hundred twenty (120) days after the commencement thereof, (g) the appointment
without the Partner's consent or acquiescence of a trustee, receiver or
liquidator has not been vacated or stayed within ninety (90) days of such
appointment, or (h) an appointment referred to in clause (g) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
(A) his status as the General Partner, or the sole shareholder of the General
Partner (i.e., the Gables Trust), or a director or officer of the Partnership,
the General Partner or the Gables Trust, or (B) his or its liabilities, pursuant
to a loan guarantee or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
assets subject to), and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"LIMITED PARTNER" means the Gables Trust and any other Person named as a
Limited Partner in Exhibit A attached hereto, as such Exhibit may be amended
from time to time, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"LIQUIDATING EVENT" has the meaning set forth in Section 13.1.
"LIQUIDATOR" has the meaning set forth in Section 13.2.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B.
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"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B.
"NONRECOURSE BUILT-IN GAIN" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the
form of Exhibit E to this Agreement.
"ORGANIZATIONAL LIMITED PARTNER" means Marcus E. Bromley.
"OWNERSHIP INTEREST" means the stock and securities (including any evidence
of indebtedness) of the General Partner at any time owned or held by the Gables
Trust.
"PARTNER" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations Section
1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership taxable year shall be
determined in accordance with the rules of Regulations Section 1.704-2(i)(2).
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"PARTNERSHIP" means the limited partnership formed under the Act and
pursuant to the Prior Agreement, as amended and restated pursuant to this
Agreement, and any successor thereto.
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in a Partnership Minimum Gain, for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall be the same as the record date established by the Gables
Trust for a distribution to its shareholders of some or all of its portion of
such distribution.
"PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1, 4.2 and 4.3. The
number of Partnership Units outstanding and the Percentage Interest in the
Partnership represented by such Units are set forth in Exhibit A attached
hereto, as such Exhibit may be amended from time to time. The ownership of
Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time unless the General Partner
determines that the Partnership Units shall be uncertificated securities.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which shall be
the calendar year.
"PERCENTAGE INTEREST" means, as to a Partner, its interest in the
Partnership as determined by dividing the Partnership Units (other than Series A
Preferred Units) owned by such Partner by the total number of Partnership Units
(other than Series A Preferred Units) then outstanding and as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"PRIOR AGREEMENT" means the Agreement of Limited Partnership of Gables
Realty Limited Partnership, dated as of October 15, 1993 between Arbor
Properties, Inc., as the sole general partner, and the Organizational Limited
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Partner, as the sole limited partner, as amended on January 19, 1994, which
Prior Agreement is amended and restated in its entirety by this Agreement as of
the Effective Date.
"RECAPTURE INCOME" means any gain recognized by the Partnership upon the
disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"REDEEMING PARTNER" has the meaning set forth in Section 8.6 hereof.
"REDEMPTION RIGHT" shall have the meaning set forth in Section 8.6 hereof.
"REGULATIONS" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the Code.
"REIT SHARE" shall mean a common share of beneficial interest, par value
$.01, in the Gables Trust.
"REIT SHARES AMOUNT" shall mean a number of REIT Shares equal to the
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor, provided that in the event the
Gables Trust issues to all holders of REIT Shares rights, options, warrants or
convertible or exchangeable securities entitling the shareholders to subscribe
for or purchase REIT Shares, or any other securities or property (collectively,
the "rights"), then the REIT Shares Amount shall also include such rights that a
holder of that number of REIT Shares would be entitled to receive.
"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"704(C) VALUE" of any Contributed Property means the value of such property
as set forth in Exhibit D or if no value is set forth in Exhibit D, the fair
market value of such property or other consideration at the time of contribution
as determined by the General Partner using such reasonable method of valuation
as it may adopt; provided, however, that the 704(c) Value of any property deemed
contributed to the Partnership for federal income tax purposes upon termination
and reconstitution thereof pursuant to Section 708 of the Code shall be
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determined in accordance with Exhibit B hereof. Subject to Exhibit B hereof, the
General Partner shall, in its sole and absolute discretion, use such method as
it deems reasonable and appropriate to allocate the aggregate of the 704(c)
Values of Contributed Properties in a single or integrated transaction among the
separate properties on a basis proportional to their respective fair market
values.
"SERIES A PREFERRED UNITS" means the Partnership Units issued to the Gables
Trust and the General Partner on July 24, 1997 in connection with the issuance
of 8.30% Series A Cumulative Redeemable Preferred Shares by the Gables Trust and
the contribution of the net proceeds therefrom to the Partnership, which
Partnership Units have the rights, preferences and privileges designated herein.
The number of Series A Preferred Units issued to the Gables Trust and the
General Partner is set forth on Exhibit A attached hereto.
"SPECIFIED REDEMPTION DATE" means the tenth (10th) Business Day after
receipt by the General Partner of a Notice of Redemption; provided that no
Specified Redemption Date shall occur before one (1) year from the date of this
Agreement, provided further that if the Gables Trust combines its outstanding
REIT Shares, no Specified Redemption Date shall occur after the record date of
such combination of REIT Shares and prior to the effective date of such
combination.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owed,
directly or indirectly, by such Person.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"UNREALIZED GAIN" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Exhibit B hereof) as of such date,
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B hereof) as of such date.
"UNREALIZED LOSS" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (i) the Carrying Value
of such property (prior to any adjustment to be made pursuant to Exhibit B
hereof) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B hereof) as of such date.
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"VALUATION DATE" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"VALUE" means, with respect to a REIT Share, the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be: (i) if the
REIT Shares are listed or admitted to trading on any securities exchange or the
NASDAQ-National Market System, the closing price, regular way, on such day, or
if no such sale takes place on such day, the average of the closing bid and
asked prices on such day; (ii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the NASDAQ-National Market System, the
last reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner; or (iii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
the NASDAQ-National Market System and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than ten (10) days prior to the date in
question) for which prices have been so reported; provided that if there are no
bid and asked prices reported during the ten (10) days prior to the date in
question, the Value of the REIT Shares shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights that a holder of REIT Shares would
be entitled to receive, then the Value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
SECTION 2.1 ORGANIZATION AND CONTINUATION
The Partnership is a limited partnership organized by GGPI (as successor
general partner to Arbor Properties, Inc.) and the Organizational Limited
Partner pursuant to the provisions of the Act and upon the terms and conditions
set forth in the Prior Agreement. The Partners hereby continue the Partnership
and amend and restate the Prior Agreement in its entirety as of the Effective
Date. Immediately following the admission of one or more Limited Partners to the
Partnership on the Effective Date, the Organizational Limited Partner shall
withdraw from the Partnership and release and relinquish any and all rights,
interest, and claims he may have in and to the Partnership; provided, however,
that the Organizational Limited Partner shall be admitted as a Limited Partner
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pursuant to the terms hereof, with all the rights and interests thereof. Except
as expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
Section 2.2 NAME
The name of the Partnership shall be Gables Realty Limited Partnership. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
principal office of the Partnership shall be 2859 Paces Ferry Road, Overlook
III, Suite 1400, Atlanta, Georgia 30339, or such other place as the General
Partner may from time to time designate by notice to the Limited Partners. The
Partnership may maintain offices at such other place or places within or outside
the State of Delaware as the General Partner deems advisable.
Section 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments or restatement thereof) that the
General Partner or the Liquidator deems appropriate or necessary to
form, qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which the
limited Partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may or plans to
conduct business or own property; (b) all instruments that the General
<PAGE>
PAGE-14
Partner deems appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement in accordance
with its terms; (c) all conveyances and other instruments or documents
that the General Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation; (d) all instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article 11, 12 or
13 hereof or the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of Partnership
Interest; and
(2) execute, swear to, seal, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner
or any Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with the terms of
this agreement or appropriate or necessary, in the sole discretion of
the General Partner or any Liquidator, to effectuate the terms or
intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, in recognition of the fact that each of the
Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
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Section 2.5 TERM
The term of the Partnership commenced on October 15, 1993, the date the
Certificate was filed in the office of the Secretary of State of Delaware in
accordance with the Act and shall continue until December 31, 2092, unless, the
Partnership is dissolved sooner pursuant to the provisions of Article 13 or as
otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the Gables Trust
at all times to be classified as a REIT, unless the Gables Trust ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Partnership, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or to own interests in any entity
engaged in any of the foregoing, and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, and without
limiting the Gables Trust's right, in its sole discretion, to cease qualifying
as a REIT, the Partners acknowledge the Gables Trust's current status as a REIT
inures to the benefit of all of the Partners and not solely the General Partner.
Section 3.2 POWERS
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership, provided that the Partnership shall
not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the Gables Trust to continue to qualify as a REIT, (ii) could
subject the Gables Trust to any additional taxes under Section 857 or Section
4981 of the Code, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the Gables Trust or the
General Partner or either of their securities, unless such action (or inaction)
shall have been specifically consented to by the General Partner in writing.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
At the time of the execution of this agreement, the Partners shall make
Capital Contributions set forth in Exhibit A to this Agreement. At the request
of the General Partner, certain Capital Contributions may be made by way of
transfers to Gables-Tennessee Properties, a Tennessee general partnership that
is 99% owned by the Partnership (the "Tennessee Partnership"). To the extent the
Partnership acquires any property by the merger of any other Person into the
Partnership, Persons who receive Partnership Interests in exchange for their
interests in the Person merging into the Partnership shall become Partners and
shall be deemed to have made Capital Contributions as provided in the applicable
merger agreement and as set forth in Exhibit A as amended to reflect such deemed
Capital Contributions. The Partners shall own Partnership Units in the amounts
set forth for such Partner in Exhibit A and shall have a Percentage Interest in
the Partnership as set forth Exhibit A, which Percentage Interest shall be
adjusted in Exhibit A from time to time by the General Partner to the extent
necessary to reflect accurately redemptions, Capital Contributions, the issuance
of additional Partnership Units (pursuant to any merger or otherwise), or
similar events having an effect on any Partner's Percentage Interest. The number
of Partnership Units held by the General Partner (equal to one percent (1%) of
all outstanding Partnership Units from time to time) shall be deemed to be the
General Partner Interest. Except as provided in Sections 4.2 and 10.5, the
Partners shall have no obligation to make any additional Capital Contributions
or loans to the Partnership.
Section 4.2 ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS
A. The General Partner is hereby authorized to cause the Partnership from
time to time to issue to the Partners (including the General Partner) or other
Persons additional Partnership Units or other Partnership Interests in one or
more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including rights, powers and duties senior to Limited
Partner Interests, all as shall be determined by the General Partner in its sole
and absolute discretion subject to Delaware law, including, without limitation,
(i) the allocations of items of Partnership income, gain, loss, deduction and
credit to each such class or series of Partnership Interests; (ii) the right of
each such class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; provided that no
such additional Partnership Units or other Partnership Interests shall be issued
to the Gables Trust or the General Partner unless either (a)(1) the additional
Partnership Interests are issued in connection with an issuance of REIT Shares
or other shares by the Gables Trust, which shares have designations, preferences
and other rights such that the economic interests attributable to such shares
are substantially similar to the designations, preferences and other rights of
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PAGE-17
the additional Partnership Interests issued to the Gables Trust or the General
Partner in accordance with this Section 4.2.A, and (2) either (x) the Gables
Trust shall make a Capital Contribution to the Partnership in an amount equal to
the proceeds raised in connection with such issuance or (y) the Gables Trust
shall transfer to the General Partner, by loan or contribution, an amount equal
to the proceeds raised in connection with the issuance of such shares of the
Gables Trust and, in turn, the General Partner shall make a Capital Contribution
to the Partnership in an amount equal to the amount transferred to it by the
Gables Trust or (z) through a combination of (x) and (y) above a Capital
Contribution equal to the proceeds raised in connection with the issuance of
such shares is made to the Partnership, or (b) the additional Partnership
Interests are issued to all Partners in proportion to their respective
Percentage Interests.
B. After the initial public offering of REIT Shares, the Gables Trust shall
not issue any additional REIT Shares (other than REIT Shares issued pursuant to
Section 8.6), or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase REIT Shares
(collectively "New Securities") other than to all holders of REIT Shares unless
(i) the General Partner shall cause the Partnership to issue to the Gables Trust
or to the General Partner Partnership Interests or rights, options, warrants or
convertible or exchangeable securities of the Partnership having designations,
preferences and other rights, all such that the economic interests are
substantially similar to those of the New Securities, and (ii) either (a) the
Gables Trust contributes to the Partnership the proceeds from the issuance of
such New Securities and from the exercise of rights contained in such New
Securities or (b) the Gables Trust transfers to the General Partner, by loan or
contribution, the proceeds from the issuance of such New Securities and from the
exercise of rights contained in such New Securities and the General Partner, in
turn, contributes the amount so transferred to it to the Partnership, or
(c) through a combination of (a) and (b) above a Capital Contribution equal to
the proceeds raised in connection with the issuance of such New Securities and
from the exercise of rights contained in such New Securities is made to the
Partnership. Without limiting the foregoing, the Gables Trust is expressly
authorized to issue New Securities for less than fair market value, and the
General Partner is expressly authorized to cause the Partnership to issue to the
General Partner corresponding Partnership Interests, so long as (x) the General
Partner concludes in good faith that such issuance is in the interests of the
General Partner and the Partnership (for example, and not by way of limitation,
the issuance of REIT Shares and corresponding Units pursuant to an employee
stock purchase plan providing for employee purchases of REIT Shares at a
discount from fair market value or employee stock options that have an exercise
price that is less than the fair market value of the REIT Shares, either at the
time of issuance or at the time of exercise), and (y) the Gables Trust
contributes all proceeds from such issuance and exercise to the Partnership or
transfers all proceeds from such issuance and exercise to the General Partner,
whether by loan or contribution, and the General Partner, in turn, contributes
the amount so transferred to it to the Partnership.
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PAGE-18
Section 4.3 CONTRIBUTION OF PROCEEDS OF ISSUANCE OF REIT SHARES
In connection with the initial public offering of REIT Shares by the Gables
Trust and any other issuance of REIT Shares or New Securities pursuant to
Section 4.2, the Gables Trust shall contribute to the Partnership any proceeds
(or a portion thereof) raised in connection with such issuance or shall transfer
to the General Partner any proceeds (or a portion thereof) raised in connection
with such issuance, by loan or capital contribution, and the General Partner
shall contribute the amount so transferred to it to the Partnership; provided
that if the proceeds actually received by the Gables Trust or the General
Partner are less than the gross proceeds of such issuance as a result of any
underwriter's discount or other expenses paid or incurred in connection with
such issuance, then the Gables Trust and the General Partner shall be deemed to
have made a Capital Contribution to the Partnership in the amount equal to the
sum of the net proceeds of such issuance plus the amount of such underwriter's
discount and other expenses paid by the Gables Trust or the General Partner.
Section 4.4 NO PREEMPTIVE RIGHTS
No Person shall have any preemptive, preferential or other similar right
with respect to (i) additional Capital Contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
(a) The General Partner shall distribute at least quarterly an amount equal
to 100% of Available Cash generated by the Partnership during such quarter or
shorter period to the Partners who are Partners on the Partnership Record Date
with respect to such quarter or shorter period (i) first, to the General Partner
and the Gables Trust (in proportion to the number of Series A Preferred Units
owned by each) an amount that in the aggregate equals the aggregate amount of
the dividends declared and payable with respect to the Gables Trust Series A
Preferred Shares for such quarter or shorter period; and (ii) second, to the
Partners in accordance with their respective Percentage Interests on such
Partnership Record Date; provided that in no event may a Partner receive a
distribution of Available Cash with respect to a Partnership Unit if such
Partner is entitled to receive a distribution out of such Available Cash with
respect to a REIT Share for which such Partnership Unit has been redeemed or
exchanged, and further provided that no distributions shall be made pursuant to
clause (ii) above unless all cumulative dividends with respect to the Gables
Trust Series A Preferred Shares for all past dividend periods and the then
current dividend period have been or contemporaneously are (x) declared and paid
<PAGE>
PAGE-19
in full or (y) declared and a sum sufficient for the full payment thereof is set
apart for such payment. The General Partner shall take such reasonable efforts,
as determined by it in its sole and absolute discretion and consistent with the
Gables Trust's qualification as a REIT, to distribute Available Cash to the
Limited Partners so as to preclude any such distribution or portion thereof from
being treated as part of a sale of property to the Partnership by a Limited
Partner under Section 707 of the Code or the Regulations thereunder; provided
that the General Partner and the Partnership shall not have liability to a
Limited Partner under any circumstances as a result of any distribution to a
Limited Partner being so treated.
(b) Notwithstanding anything to the contrary above, the Partnership shall
cause to be distributed to the Gables Trust and the General Partner (in
proportion to the number of Series A Preferred Units owned by each) an amount
that in the aggregate is equal to the aggregate amount necessary to redeem any
Gables Trust Series A Preferred Shares which have been called for redemption by
the Gables Trust, at such time as is necessary to facilitate any such
redemption. Such distribution will cause a redemption of a like number of Series
A Preferred Units.
Section 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any state or
local tax law and Section 10.5 hereof with respect to any allocation, payment or
distribution to the General Partner, the Limited Partners or Assignees shall be
treated as amounts distributed to the General Partner, Limited Partners, or
Assignees pursuant to Section 5.1 for all purposes under this Agreement.
Section 5.3 DISTRIBUTIONS UPON LIQUIDATION
Proceeds from a Terminating Capital Transaction and any other cash received
or reductions in reserves made after commencement of the liquidation of the
Partnership shall be distributed to the Partners in accordance with Section 13.2
ARTICLE 6
ALLOCATIONS
Section 6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
<PAGE>
PAGE-20
A. Net Income shall be allocated (i) first, to the General Partner to the
extent that Net Losses previously allocated to the General Partner pursuant to
the last sentence of Section 6.1.B exceed Net Income previously allocated to the
General Partner pursuant to this clause (i) of Section 6.1.A, (ii) second, to
the Gables Trust and the General Partner (in proportion to the number of Series
A Preferred Units owned by each) until the aggregate amount of Net Income
allocated pursuant to this clause (ii) for all fiscal periods equals the
aggregate amount distributed to the Gables Trust and the General Partner
pursuant to clause (i) of Section 5.1(a) for all fiscal periods, and (iii)
thereafter, Net Income shall be allocated to the Partners in accordance with
their respective Percentage Interests.
B. After giving effect to the special allocations set forth in Section 1 of
Exhibit C attached hereto, Net Losses shall be allocated to the Partners in
accordance with their respective Percentage Interests; provided that Net Losses
shall not be allocated to any Limited Partner pursuant to this Section 6.1.B to
the extent that such allocation would cause such Limited Partner to have an
Adjusted Capital Account Deficit at the end of such taxable year (or increase
any existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. For purposes of Regulations Section 1.752-3(a), the Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with their
respective Percentage Interests.
D. Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall to the extent possible, after taking
into account other required allocations of gain pursuant to Exhibit C, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 MANAGEMENT
A. Except as otherwise expressly provided in this Agreement, all management
powers over the business and affairs the Partnership are and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
<PAGE>
PAGE-21
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make distributions to its
Partners in such amounts as will permit the Gables Trust (so long as
the Gables Trust qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise tax
pursuant to Section 4981 of the Code) and to make distributions to its
Partners such that the Gables Trust can distribute to its shareholders
amounts sufficient to permit the Gables Trust to maintain REIT
status), the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidence of
indebtedness (including the securing of same by deed to secure debt,
mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations it deems
necessary for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including
the exercise or grant of any conversion, option, privilege, or
subscription right or other right available in connection with any
assets at any time held by the Partnership) or the merger or other
combination of the Partnership with or into another entity (all of the
foregoing subject to any prior approval only to the extent required by
Section 7.3 hereof);
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of
this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the
Gables Trust, the General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Subsidiaries of the Partnership
and/or the Gables Trust) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has
an equity investment, and the making of capital contributions to its
Subsidiaries;
<PAGE>
PAGE-22
(5) the management, operation, leasing, landscaping, repair, alteration,
demolition or improvement of any real property or improvements owed by
the Partnership or any Subsidiary of the Partnership;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's operations or
the implementation of the General Partner's powers under this
Agreement, including contracting with contractors, developers,
consultants, accountants, legal counsel, other professional advisors
and other agents and the payment of their expenses and compensation
out of the Partnership's assets;
(7) the distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other assets of
the Partnership;
(9) the collection and receipt of revenues and income of the Partnership;
(10) the establishment of one or more divisions of the Partnership, the
selection and dismissal of employees of the Partnership, any division
of the Partnership, or the General Partner (including, without
limitation, employees having titles such as "president," "vice
president," "secretary" and "treasurer" of the Partnership, any
division of the Partnership, or the General Partner), and agents,
outside attorneys, accountants, consultants and contractors of the
General Partner or the Partnership or any division of the Partnership,
and the determination of their compensation and other terms of
employment or hiring;
(11) the maintenance of such insurance for the benefit of the Partnership
and the Partners as it deems necessary or appropriate;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of interests
in, and the contributions of property to, its Subsidiaries and any
other Person in which it has an equity investment from time to time);
(13) the control of any matters affecting the rights and obligations of the
Partnership, including the settlement, compromise, submission to
<PAGE>
PAGE-23
arbitration or any other form of dispute resolution, or abandonment
of, any claim, cause of action, liability, debt or damages, due or
owing to or from the Partnership, the commencement or defense of
suits, legal proceedings, administrative proceedings, arbitration or
other forms of dispute, resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute resolution, the
incurring of legal expense, and the indemnification of any Person
against liabilities and contingencies to the extent permitted by law;
(14) the undertaking of any action in connection with the Partnership's
direct or indirect investment in its Subsidiaries or any other Person
(including, without limitation, the contribution or loan of funds by
the Partnership to such Persons);
(15) the determination of the fair market value of any Partnership property
distributed in kind using such reasonable method of valuation as the
General Partner may adopt;
(16) the exercise, directly or indirectly, through any attorney-in-fact
acting under a general or limited power of attorney, of any right,
including the right to vote, appurtenant to any asset or investment
held by the Partnership;
(17) the exercise of any of the powers of the General Partner enumerated in
this Agreement on behalf of or in connection with any Subsidiary of
the Partnership or any other Person in which the Partnership has a
direct or indirect interest, or jointly with any such Subsidiary or
other Person;
(18) the exercise of any of the powers of the General Partner enumerated in
this Agreement on behalf of any Person in which the Partnership does
not have an interest pursuant to contractual or other arrangements
with such Person; and
(19) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments or agreement in
writing necessary or appropriate in the judgment of the General
Partner for the accomplishment of any of the powers of the General
Partner enumerated in this Agreement.
<PAGE>
PAGE-24
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other applicable
law. The execution, delivery or performance by the General Partner or the
Partnership of any agreement authorized or permitted under this Agreement shall
not constitute a breach by the General Partner of any duty that the General
Partner may owe the Partnership or the Limited Partners or any other Persons
under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to obtain and maintain (i) casualty, liability and other
insurance on the properties of the Partnership and (ii) liability insurance for
the Indemnitees hereunder.
D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
E. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner of any action taken by it; provided that, if the General Partner
decides to refinance (directly or indirectly) any outstanding indebtedness of
the Partnership, the General Partner shall use reasonable efforts to structure
such refinancing in a manner that minimizes any adverse tax consequences
therefrom to the Limited Partners, and provided further that, in deciding
whether or not to dispose of any property that represents more than one percent
of the Partnership's total assets, the General Partner shall consider in good
faith the income tax consequences of such disposition for both the General
Partner and the Limited Partners. The General Partner and the Partnership shall
not have liability to a Limited Partner under any circumstances as a result of
an income tax liability incurred by such Limited Partner as a result of an
action (or inaction) by the General Partner pursuant to its authority under this
Agreement.
Section 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has previously filed the Certificate with the Secretary
of State of Delaware as required by the Act. The General Partner shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware and any
other state, or the District of Columbia, in which the Partnership may elect to
do business or own property. To the extent that such action is determined by the
<PAGE>
PAGE-25
General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, or the District of Columbia, in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 8.5.A(4) hereof, the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate or any
amendment thereto to any Limited Partner.
Section 7.3 RESTRICTIONS ON GENERAL PARTNER AUTHORITY
A. The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of Limited Partners holding 75% or more of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the Gables Trust
and the General Partner) (or such other percentage of the Limited Partners as
may be specifically provided for under a provision of this Agreement).
B. Except as provided in Article 13 hereof, the General Partner may not
sell, exchange, transfer or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination with any other
Person) without the Consent of Limited Partners holding 75% or more of the
Percentage Interests of the Limited Partners (including Limited Partnership
Interest held by the General Partner).
Section 7.4 REIMBURSEMENT OF THE GENERAL PARTNER
A. Except as provided in this Section 7.4 and elsewhere in this Agreement
(including the provisions of Articles 5 and 6 regarding distributions, payments,
and allocations to which it may be entitled), the General Partner shall not be
compensated for its services as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses that it and/or the Gables Trust incurs relating to
the ownership and operation of, or for the benefit of, the Partnership; provided
that the amount of any such reimbursement shall be reduced by any interest
earned by the General Partner with respect to bank accounts or other instruments
or accounts held by it on behalf of the Partnership as permitted in Section
7.5.A. The Limited Partners acknowledge that, for purposes of this Section
7.4.B, all expenses of the General Partner and the Gables Trust are deemed
incurred for the benefit of the Partnership. Such reimbursements shall be in
addition to any reimbursement to the General Partner and/or the Gables Trust as
a result of indemnification pursuant to Section 7.7 hereof.
C. As set forth in Section 4.3, the Gables Trust and the General Partner
shall be treated as having made a Capital Contribution in the amount of all
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PAGE-26
expenses that the Gables Trust and the General Partner incur relating to the
organization and/or reorganization of the Partnership and the General Partner,
the initial public offering of REIT Shares by the Gables Trust, and any other
issuance of additional Partnership Interests or REIT Shares pursuant to Section
4.2 hereof.
D. In the event that the General Partner or the Gables Trust shall elect to
purchase from the shareholders of the Gables Trust REIT Shares for the purpose
of delivering such REIT Shares to satisfy an obligation under any dividend
reinvestment program adopted by the Gables Trust, any employee stock purchase
plan adopted by the General Partner or the Gables Trust, or any similar
obligation or arrangement undertaken by the General Partner or the Gables Trust
in the future, the purchase price paid by the General Partner or the Gables
Trust for such REIT Shares and any other expenses incurred by the General
Partner or the Gables Trust in connection with such purchase shall be considered
expenses of the Partnership and shall be reimbursed to the General Partner or
the Gables Trust, as the case may be, subject to the condition that: (i) if such
REIT Shares subsequently are to be sold by the General Partner or the Gables
Trust, the General Partner shall pay to the Partnership any proceeds received by
the General Partner or the Gables Trust for such REIT Shares (provided that a
transfer of REIT Shares for Units pursuant to Section 8.6 would not be
considered a sale for such purposes); and (ii) if such REIT Shares are not
retransferred by the General Partner or the Gables Trust within 30 days after
the purchase thereof, the General Partner shall cause the Partnership to cancel
a number of Partnership Units held by the General Partner equal to the product
obtained by multiplying the Conversion Factor by the number of such REIT Shares.
Section 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER AND THE GABLES TRUST
A. The General Partner shall not directly or indirectly enter into or
conduct any business other than in connection with the ownership, acquisition
and disposition of Partnership Interests as a General Partner or Limited Partner
and the management of the business of the Partnership, and such activities as
are incidental thereto, and the Gables Trust shall not directly or indirectly
enter into or conduct any business other than in connection with the ownership
of the stock of the General Partner, the ownership, acquisition or disposition
of Partnership Interests as a Limited Partner, making loans to the General
Partner, and such activities as are incidental thereto. The assets of the
General Partner shall be limited to Partnership Interests and the assets of the
Gables Trust shall be limited to the stock and debt obligations of the General
Partner and Partnership Interests. The General Partner shall not hold any assets
other than Partnership Interests as a General Partner or Limited Partner, and
other than such bank accounts or similar instruments or accounts as it deems
necessary to carry out its responsibilities contemplated under this Agreement
and its organizational documents. The General Partner and any Affiliates of the
General Partner may acquire Limited Partner Interests and shall be entitled to
exercise all rights of a Limited Partner relating to such Limited Partner
Interests. Notwithstanding the above, the General Partner may own an equity
interest in, and participate thereby in the business of, any affiliate or
subsidiary of Gables Trust, including, without limitation, the Tennessee
Partnership.
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B. Except as provided in Section 7.4.D, in the event the Gables Trust
(and/or the General Partner) exercises its rights to purchase REIT Shares, then
the General Partner shall cause the Partnership to purchase from the Gables
Trust that number of Partnership Units equal to the product obtained by
multiplying the number of REIT Shares to be purchased by the Gables Trust
(and/or the General Partner) times the Conversion Factor on the same terms and
for the same aggregate price that the Gables Trust (and/or the General Partner)
purchased such REIT Shares. The General Partner shall then distribute such funds
to the Gables Trust.
C. The General Partner shall not issue at any time any capital stock
(whether voting or non-voting or common or preferred) or any evidence of
indebtedness except to the Gables Trust.
Section 7.6 CONTRACTS WITH AFFILIATES
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer assets
to joint ventures, other partnerships, corporations or other business entities
in which it is or thereby becomes a participant upon such terms and subject to
such conditions consistent with this Agreement and applicable law as the General
Partner, in its sole and absolute discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable and no less favorable to the Partnership
than would be obtained from an unaffiliated third party.
D. The General Partner, in its sole and absolute discretion and without the
approval of the Limited Partners, may propose and adopt on behalf of the
Partnership employee benefit plans, stock option plans, and similar plans funded
by the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the name
and on behalf of the Partnership, a right of first opportunity arrangement and
other conflict avoidance agreements with various Affiliates of the Partnership
and the General Partner, on such terms as the General Partner, in its sole and
absolute discretion, believes are advisable.
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Section 7.7 INDEMNIFICATION
A. The Partnership shall indemnify each Indemnitee from and against any and
all losses, claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorneys fees and other legal fees and expenses),
judgments, fines , settlements, and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, that relate to the operations of the Partnership, the General
Partner or the Gables Trust as set forth in this Agreement in which such
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (ii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A with respect to the subject
matter of such proceeding. The termination of any proceeding by conviction of an
Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee,
or an entry of an order of probation against an Indemnitee prior to judgment,
creates a rebuttable presumption that such Indemnitee acted in a manner contrary
to that specified in this Section 7.7.A. Any indemnification pursuant to this
Section 7.7 shall be made only out of the assets of the Partnership, and neither
the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership or otherwise provide funds, to
enable the Partnership to fund its obligations under this Section 7.7
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A. has been met, and (ii) a written undertaking
by or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to
any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
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otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnities is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification, or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth in this Agreement,
neither the General Partner nor the Gables Trust shall be liable for monetary
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damages to the Partnership, any Partners or any Assignees for losses sustained
or liabilities incurred as a result of errors in judgment or of any act or
omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership, the Gables Trust, and the shareholders of
the Gables Trust collectively, that the General Partner is under no obligation
to consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or Assignees) in deciding
whether to cause the Partnership to take (or decline to take) any actions, and
that neither the General Partner nor the Gables Trust shall be liable for
monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. Neither the General Partner nor the
Gables Trust shall be responsible for any misconduct or negligence on the part
of any such agent appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
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PAGE-31
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Gables Trust to continue to
qualify as a REIT or (ii) to avoid the Gables Trust incurring any taxes under
Section 857 or Section 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
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PAGE-32
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement except as
expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.
Section 8.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to any agreements entered into pursuant to Section 7.6.E hereof and
any other agreements entered into by a Limited Partner or its Affiliates with
the Partnership or a Subsidiary, any Limited Partner (other than the General
Partner and the Gables Trust) and any officer, director, employee, agent,
trustee, Affiliate or shareholder of any Limited Partner (other than the General
Partner and the Gables Trust) shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities that are in direct
competition with the Partnership or that are enhanced by the activities of the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner or
Assignee. None of the Limited Partners (other than the General Partner and the
Gables Trust) nor any other Person shall have any rights by virtue of this
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Agreement or the Partnership relationship established hereby in any business
ventures of any other Person (other than the General Partner to the extent
expressly provided herein) and such Person shall have no obligation pursuant to
this Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or such other Person, could be taken by such Person.
Section 8.4 RETURN OF CAPITAL
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. Except to
the extent provided by Exhibit C hereof or as permitted by Section 4.2.B, or
otherwise expressly provided in this Agreement, no Limited Partner or Assignee
shall have priority over any other Limited Partner or Assignee either as to the
return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. In addition to other rights provided by this Agreement or by the Act,
and except as limited by Section 8.5.C hereof, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense (including
such copying and administrative charges as the General Partner may establish
from time to time):
(1) to obtain a copy of the most recent annual and quarterly reports filed
with the Securities and Exchange Commission by the Gables Trust
pursuant to the Securities Exchange Act of 1934;
(2) to obtain a copy of the Partnership's federal, state and local income
tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash and a
description and statement of any other property or services
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PAGE-34
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner.
B. The Partnership shall notify each Limited Partner upon request of the
then current Conversion Factor.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or is business or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
Section 8.6 REDEMPTION RIGHT
A. Subject to Sections 8.6.B and 8.6.C, on or after the date one (1) year
after the closing of the initial public offering of REIT Shares by the Gables
Trust, each Limited Partner, other than the General Partner, shall have the
right (the "Redemption Right") to require the Partnership to redeem on a
Specified Redemption Date all or a portion of the Partnership Units held by such
Limited Partner at a redemption price equal to and in the form of the Cash
Amount to be paid by the Partnership. The Redemption Right shall be exercised
pursuant to a Notice of Redemption delivered to the Partnership (with a copy to
the General Partner) by the Limited Partner who is exercising the redemption
right (the "Redeeming Partner"); provided, however, that the Partnership shall
not be obligated to satisfy such Redemption Right if the Gables Trust and/or the
General Partner elects to purchase the Partnership Units subject to the Notice
of Redemption pursuant to Section 8.6.B. A Limited Partner may not exercise the
Redemption Right for less than one thousand (1,000) Partnership Units or, if
such Limited Partner holds less than one thousand (1,000) Partnership Units, all
of the Partnership Units held by such Partner. The Redeeming Partner shall have
no right, with respect to any Partnership Units so redeemed, to receive any
distributions paid on or after the Specified Redemption Date. The Assignee of
any Limited Partner may exercise the rights of such Limited Partner pursuant to
this Section 8.6, and such Limited Partner shall be deemed to have assigned such
rights to such Assignee and shall be bound by the exercise of such rights by
such Assignee. In connection with any exercise of such rights by such Assignee
on behalf of such Limited Partner, the Cash Amount shall be paid by the
Partnership directly to such Assignee and not to such Limited Partner.
B. Notwithstanding the provisions of Section 8.6.A, a Limited Partner that
exercises the Redemption Right shall be deemed to have offered to sell the
Partnership Units described in the Notice of Redemption to the General Partner
and the Gables Trust, and either of the General Partner or the Gables Trust (or
both) may, in its sole and absolute discretion, elect to purchase directly and
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PAGE-35
acquire such Partnership Units by paying to the Redeeming Partner either the
Cash Amount or the REIT Shares Amount, as elected by the General Partner or the
Gables Trust (in its sole and absolute discretion), on the Specified Redemption
Date, whereupon the General Partner or the Gables Trust shall acquire the
Partnership Units offered for redemption by the Redeeming Partner and shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. If the General Partner and/or the Gables Trust shall elect to exercise
its right to purchase Partnership Units under this Section 8.6.B with respect to
a Notice of Redemption, they shall so notify the Redeeming Partner within five
Business Days after the receipt by the General Partner of such Notice of
Redemption. Unless the General Partner and/or the Gables Trust (in their sole
and absolute discretion) shall exercise its right to purchase Partnership Units
from the Redeeming Partner pursuant to this Section 8.6.B, neither the General
Partner nor the Gables Trust shall have any obligation to the Redeeming Partner
or the Partnership with respect to the Redeeming Partner's exercise of the
Redemption Right. In the event the General Partner or the Gables Trust shall
exercise its right to purchase Partnership Units with respect to the exercise of
a Redemption Right in the manner described in the first sentence of this Section
8.6.B, the Partnership shall have no obligation to pay any amount to the
Redeeming Partner with respect to such Redeeming Partner's exercise of such
Redemption Right, and each of the Redeeming Partner, the Partnership, and the
General Partner or the Gables Trust, as the case may be, shall treat the
transaction between the General Partner or the Gables Trust, as the case may be,
and the Redeeming Partner for federal income tax purposes as a sale of the
Redeeming Partner's Partnership Units to the General Partner or the Gables
Trust, as the case may be. Each Redeeming Partner agrees to execute such
documents as the General Partner may reasonably require in connection with the
issuance of REIT Shares upon exercise of the Redemption Right.
C. Notwithstanding the provisions of Section 8.6.A and Section 8.6.B, a
Partner shall not be entitled to exercise the Redemption Right pursuant to
Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified
Redemption Date by the General Partner or the Gables Trust pursuant to Section
8.6.B (regardless of whether or not the General Partner or the Gables Trust
would in fact exercise its rights under Section 8.6.B) would be prohibited under
the Declaration of Trust or would violate any federal or state securities laws.
D. In connection with a redemption by Gables Trust of any or all of the
Gables Trust Series A Preferred Shares, the General Partner shall have the right
to cause the Partnership to redeem all or a portion of the Series A Preferred
Units that the Gables Trust and/or the General Partner holds, and such
redemption proceeds shall be distributed to the Gables Trust and/or the General
Partner, as applicable, pursuant to the provisions of Section 5.1(b).
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ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including, without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Section 9.3
hereof. Any records maintained by or on behalf of the Partnership in the regular
course of its business may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, micrographics or any other information storage
device, provided that the records so maintained are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles, or
such other basis as the General Partner determines to be necessary or
appropriate.
Section 9.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 REPORTS
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Partnership Year, the General Partner shall
cause to be mailed to each Limited Partner as of the close of the Partnership
Year, an annual report containing financial statements of the Partnership, or of
the General Partner or the Gables Trust if such statements are prepared solely
on a consolidated basis with the General Partner or the Gables Trust, for such
Partnership Year, presented in accordance with generally accepted accounting
principles, such statements to be audited by a nationally recognized firm of
independent public accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner as of the last day of the calendar quarter, a report containing
unaudited financial statements of the Partnership, or of the General Partner or
the Gables Trust, if such statements are prepared solely on a consolidated basis
with the General Partner or the Gables Trust, and such other information as may
be required by applicable law or regulation, or as the General Partner
determines to be appropriate.
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ARTICLE 10
TAX MATTERS
Section 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by Limited Partners
for federal and state income tax reporting purposes.
Section 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its sole
and absolute discretion, determine whether to make any available election
pursuant to the Code. The General Partner shall have the right to seek to revoke
any such election (including, without limitation, the election under Section 754
of the Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; provided,
however, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
B. The tax matters partner is authorized, but not required.
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred to
as a "tax audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the tax matters
partner may expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall not bind any
Partner (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter into a
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settlement agreement on behalf of such Partner or (ii) who is a
"notice partner" (as defined in Section 6231(a)(8) of the Code) or a
member of a "notice group" (as defined in Section 6223(b)(2) of the
Code);
(2) in the event that a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax
matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court
or the filing of a complaint for refund with the United States Claims
Court or the District Court of the United States for the district in
which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for judicial
review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS and,
if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be
taken account by a Partner for tax purposes, or an item affected by
such item; and
(6) to take any other action on behalf of the Partners or the Partnership
in connection with any tax audit or judicial review proceeding to the
extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its services.
All third party costs and expenses incurred by the tax matters partner in
performing its duties as such (including legal and accounting fees and expenses)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm to assist the tax matters
partner in discharging its duties hereunder, so long as the compensation paid by
the Partnership for such services is reasonable.
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Section 10.4 ORGANIZATIONAL EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
Section 10.5 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local, or foreign taxes that the General Partner determines that the
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (ii) the General Partner determines, in its sole and absolute discretion,
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Without limitation, in such event the General
Partner shall have the right to receive distributions that would otherwise be
distributable to such defaulting Limited Partner until such time as such loan,
together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points, or (B) the maximum lawful rate of interest on
such obligation, such interest to accrue from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
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ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 TRANSFER
A. The term "transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person, and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise. The term "transfer" when used in this
Article 11 does not include any redemption of Partnership Interests by the
Partnership from a Limited Partner or any acquisition of Partnership Units from
a Limited Partner by the General Partner or the Gables Trust pursuant to Section
8.6.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
Section 11.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST OR THE
GABLES TRUST'S INTEREST IN THE GENERAL PARTNER
A. The General Partner may not transfer any of its General Partner Interest
or Limited Partnership Interests or withdraw as General Partner except as
provided in Section 11.2.B or in connection with a transaction described in
Section 11.2.C. The Gables Trust shall not transfer any of its Limited Partner
Interest or Ownership Interest except in connection with a transaction described
in Section 11.2.B or 11.2.C.
B. The General Partner and the Gables Trust may transfer Limited Partner
Interests held by them either to the Partnership in accordance with Section
7.5.B hereof or to a purported holder of REIT Shares in accordance with the
provisions of Article V of the Declaration of Trust.
C. Except as otherwise provided in Section 11.2.D., neither the General
Partner nor the Gables Trust shall engage in any merger, consolidation or other
combination with or into another Person or sale of all or substantially all of
its assets, or effect any reclassification, or recapitalization or change of
outstanding REIT Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination as described in the
definition of "Conversion Factor") ("Transaction"), unless (i) the Transaction
also includes a merger of the Partnership or sale of substantially all of the
assets of the Partnership which has been approved by the requisite Consent of
the Partners pursuant to Section 7.3 and as a result of which all Limited
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Partners will receive for each Partnership Unit (other than Series A Preferred
Units, which will be treated in a manner intended to protect the economic rights
of holders of the Gables Trust Series A Preferred Shares) amount of cash,
securities, or other property equal to the product of the Conversion Factor and
the greatest amount of cash, securities or other property paid to a holder of
one REIT Share in consideration of one REIT Share at any time during the period
from and after the date on which the Transaction is consummated, provided that
if, in connection with the Transaction, a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than fifty percent
(50%) of the outstanding REIT Shares, each holder of Partnership Units shall
receive the greatest amount of cash, securities, or other property which such
holder would have received had it exercised the Redemption Right and received
REIT Shares in exchange for its Partnership Units immediately prior to the
expiration of such purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer, and provided further that the foregoing
amounts required to be received by holders of Partnership Units may be reduced
by such amount as is necessary to account for the fact that the General Partner
holds an interest in the Tennessee Partnership; and (ii) no more than forty-nine
percent (49%) of the equity securities of the acquiring Person in such
transaction shall be owned, after consummation of such Transaction, by the
General Partner or Persons who are Affiliates of the Partnership or the General
Partner immediately prior to the date on which the Transaction is consummated.
D. Notwithstanding Section 11.2.C, either the General Partner or the Gables
Trust may merge with another entity if immediately after such merger
substantially all of the assets of the surviving entity, other than Partnership
Units held by the General Partner (whether such Partnership Units constitute the
General Partnership Interest or a Limited Partnership Interest) or by the Gables
Trust, are contributed to the Partnership as a Capital Contribution in exchange
for Partnership Units with a fair market value, as reasonably determined by the
General Partner, equal to the 704(c) Value of the assets so contributed.
Section 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. Subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E, and 11.4,
a Limited Partner may transfer, with or without the consent of the General
Partner, all or any portion of its Partnership Interest, or any of such Limited
Partner's economic rights as a Limited Partner.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
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C. The General Partner may prohibit any transfer by a Limited Partner of
its Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would require filing of a registration statement under the
Securities Act of 1933 or would otherwise violate any federal or state
securities laws or regulations applicable to the Partnership or the Partnership
Unit.
D. No transfer by a Limited Partner of its Partnership Units may be made to
any Person if (i) in the opinion of legal counsel for the Partnership, it would
result in the Partnership being treated as an association taxable as a
corporation, or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" with the meaning of Section 7704 of the Code.
E. No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion, provided that as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Cash Amount
any Partnership Units in which a security interest is held simultaneously with
the time at which such lender would be deemed to be a partner in the Partnership
for purposes of allocating liabilities to such lender under Section 752 of the
Code.
Section 11.4 SUBSTITUTED LIMITED PARTNERS
A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his place. The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address, number of Partnership Units,
and Percentage Interest of such Substituted Limited Partner and to eliminate or
adjust, if necessary, the name, address and interest of the predecessor of such
Substituted Limited Partner.
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Section 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any other items, gain, loss deduction and credit of the
Partnership attributable to the Partnership Units assigned to such transferee,
but shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
In the event any such transferee desires to make a further assignment of any
such Partnership Units, such transferee shall be subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of Partnership Units.
Section 11.6 GENERAL PROVISIONS
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of its Partnership Units in a
transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to a redemption of all of its Partnership
Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 or redeemed or transferred pursuant to Section
8.6, or any day other than the first day of a Partnership Year, then Net Income,
Net Losses, each item thereof and all other items attributable to such interest
for such Partnership Year shall be divided and allocated between the transferor
Partner and the transferee Partner by taking into account their varying
interests during the Partnerships year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which the
transfer or assignment occurs shall be allocated to the transferee Partner, and
none of such items for the calendar month in which a redemption occurs shall be
allocated to the Redeeming Partner. All distributions of Available Cash
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attributable to such Partnership Unit with respect to which the Partnership
Record Date is before the date of such transfer, assignment, or redemption shall
be made to the transferor Partner or the Redeeming Partner, as the case may be,
and in the case of a transfer or assignment other than a redemption, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership year
shall be allocated between the transferring General Partner and such successor
as provided in Section 11.6.D hereof.
Section 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. After the admission to the Partnership of the initial Limited Partners
on the date hereof, a Person who makes a Capital Contribution to the Partnership
in accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General Partner's
sole and absolute discretion. The admission of any Person as an Additional
Limited Partner shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Partnership, following the
consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
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each item thereof and all other items allocable among Partners and Assignees for
such Partnership Year shall be allocated among such Additional Limited Partner
and all other Partners and Assignees by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such item for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
the Partners and Assigns including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees
including such Additional Limited Partner.
Section 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERShip
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events"):
A. the expiration of its terms as provided in Section 2.5 hereof.
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after such
event of withdrawal a majority in interest of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor General Partner;
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C. from and after the date of this Agreement through December 31, 2053, an
election to dissolve the Partnership made by the General Partner with the
Consent of Partners holding 75% or more of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the General
Partner and the Gables Trust);
D. on or after January 1, 2054 an election to dissolve the Partnership made
by the General Partner, in its sole and absolute discretion;
E. entry of a decree of judicial dissolution of the Partnership pursuant to
the provisions of the Act;
F. the sale of all or substantially all of the assets and properties of the
Partnership; or
G. a final and non-appealable judgment is entered by a court of competent
jurisdiction ruling that the General Partner is bankrupt or insolvent, or a
final and non-appealable order for relief is entered by a court with appropriate
jurisdiction against the General Partner, in each case under any federal or
state bankruptcy or insolvency laws as now or hereafter in effect, unless prior
to the entry of such order or judgment all of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.
Section 13.2 WINDING UP
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner or, in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partners (the General
Partner or such other Person being referred to herein as the "Liquidator"),
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities and
property and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the General Partner, include shares of
stock in the General Partner) shall be applied and distributed in the following
order:
(1) First, to the payment and discharge of all of the Partnership's debts
and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's debts
and liabilities to the General Partner and the Gables Trust;
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(3) Third, to the payment and discharge of all of the Partnership's debts
and liabilities to the other Partners;
(4) To the Partners holding Series A Preferred Units, pro rata, in the
ratio in which they hold such Units in an amount equal to the
liquidation preference with respect to the Gables Trust Series A
Preferred Shares plus any accrued but unpaid dividends with respect to
such shares; and
(5) The balance, if any, to the General Partner and Limited Partners in
accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of the General
Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or the General Partner arising out of or in connection
with the Partnership. The assets of any such trust shall be
distributed to the General Partner and Limited Partners from time to
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time, in the reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by the Partnership
would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement; or
(2) withheld or escrowed to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed
to the General Partner and Limited Partners in the manner and order of
priority set forth in Section 13.2.A as soon as practicable.
Section 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever.
Section 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, for federal income tax purposes and for purposes of maintaining Capital
Accounts pursuant to Exhibit B hereto, the Partnership shall be deemed to have
distributed the property in kind to the General Partner and Limited Partners,
who shall be deemed to have assumed and taken such property subject to all
Partnership liabilities, all in accordance with their respective Capital
Accounts. Immediately thereafter, the General Partner and Limited Partners shall
be deemed to have recontributed the Partnership property in kind to the
Partnership, which shall be deemed to have assumed and taken such property
subject to all such liabilities.
Section 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
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other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
Section 13.6 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
Section 13.7 TERMINATION OF PARTNERSHIP AND CANCELLATION OF CERTIFICATE OF
LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership cash and property
as provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
Section 13.8 REASONABLE TIME FOR WINDING-UP
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 AMENDMENTS
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners holding twenty percent (20%) or more of the Partnership
Interests (not including any interest on account of the Series A Preferred
Units). Following such proposal, the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
vote of the Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written vote, the General Partner may require a response
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within a reasonable specified time, but not less than fifteen (15) days, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 7.3.A, 7.3.B, 13.1.C, 14.1.B, 14.1.C or
14.1.D, a proposed amendment shall be adopted and be effective as an amendment
hereto if it is approved by the General Partner and it receives the Consent of
Partners holding a majority of the Percentage Interests of the Limited Partners
(including Limited Partner Interests held by the General Partner and the Gables
Trust).
B. Notwithstanding Section 14.1.A, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or withdrawal of
Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and preferences
of the holders of any additional Partnership Interests issued pursuant
to Section 4.2.A hereof;
(4) to reflect a change that is of an inconsequential nature and does not
adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement
that will not be inconsistent with law or with the provisions of this
Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without the Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a general partner interest, (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner, (iii) alter rights of the
<PAGE>
PAGE-51
Partner to receive distributions pursuant to Article 5 or Article 13, or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.2
and Section 14.1.B(3) hereof), (iv) alter or modify the Redemption Right and
REIT Shares Amount as set forth in Sections 8.6 and 11.2.B, and the related
definitions, in a manner adverse to such Partner, (v) cause the termination of
the Partnership prior to the time set forth in Sections 2.5 or 13.1, or (vi)
amend this Section 14.1.C. Further, no amendment may alter the restrictions on
the General Partner's authority set forth in Section 7.3 without the Consent
specified in that section.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General
Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without the
Consent of 75% of the Percentage Interests of the Limited Partners excluding
Limited Partners Interests held by the General Partner.
Section 14.2 MEETINGS OF THE PARTNERS
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners holding twenty percent (20%) or more of the Partnership
Interests (not including any interest on account of the Series A Preferred
Units). The call shall state the nature of the business to be transacted. Notice
of any such meeting shall be given to all Partners not less than seven (7) days
nor more than thirty (30) days prior to the date of such meeting. Partners may
vote in person or by proxy at such meeting. Whenever the vote or Consent of the
Partners is permitted or required under this Agreement, such vote or Consent may
be given at a meeting of the Partners or may be given in accordance with the
procedure prescribed in Section 14.1.A hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by 75% of the Percentage Interests of the Partners (or
such other percentage as is expressly required by this Agreement). Such consent
may be in one instrument or in several instruments, and shall have the same
force and effect as a vote of 75% of the Percentage Interests of the Partners
(or such other percentage as is expressly required by this Agreement). Such
consent shall be filed with the General Partner. An action so taken shall be
deemed to have been taken at a meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of or written notice
such revocation from the Limited Partner executing such proxy.
<PAGE>
PAGE-52
D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the Gables Trust and may be held
at the same time, and as part of, meetings of the shareholders of the Gables
Trust.
E. The Series A Preferred Units do not have any voting rights with respect
to the Partnership, except that any action which would alter the economic rights
or preferences of the Series A Preferred Units in a manner which, if done with
respect to the Gables Trust Series A Preferred Shares would require a separate
class vote of such shares, shall only be taken if such separate class of shares
approves of such action by a vote taken in accordance with applicable law.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
<PAGE>
PAGE-53
Section 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 CREDITORS
Other than as expressly set forth herein with respect to the Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto.
Section 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
<PAGE>
PAGE-54
Section 15.11 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreements among
them with respect thereto.
Section 15.12 GUARANTY BY THE GABLES TRUST
The Gables Trust unconditionally and irrevocably guarantees to the Limited
Partners the performance by the General Partner of the General Partner's
obligations under this agreement. This guarantee is exclusively for the benefit
of the Limited Partners and shall not extend to the benefit any creditor of the
Partnership.
<PAGE>
PAGE-55
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Agreement of Limited Partnership as of the date first written
above.
GENERAL PARTNER:
Gables GP, Inc.
By: /s/ Marvin R. Banks, Jr.
----------------------------------
Marvin R. Banks, Jr.
Chief Financial Officer
THE LIMITED PARTNERS AS SET FORTH ON
EXHIBIT A HERETO:
By: Gables GP, Inc., as attorney-in-fact
pursuant to the power of attorney set forth
in Section 2.4 hereof
By: /s/ Marvin R. Banks, Jr.
---------------------------------
Marvin R. Banks, Jr.
Chief Financial Officer
<PAGE>
EXHIBIT A
. Amended and Restated on March 10, 1994 to reflect the distribution of
Units by Candlewood Associates Limited Partnership to its partners.
. Amended and Restated on January 3, 1995 for the assignment of Leonard
Wood's Units to the Leonard Wood Family Limited Partnership.
. Amended and Restated on December 5, 1995 to reflect (i) the issuance
of 111,074 Units to Thomas C. Graham for partial consideration of a
land purchase and (ii) the transfer and assignment of 1,110.74 Units
from Gables Residential Trust to Gables GP, Inc.
. Amended and Restated on July 26, 1996 to reflect (i) the issuance of
243,787 Units to Morning Grove Apartments, L.L.C. for partial
consideration of an apartment community acquisition and (ii) the
transfer and assignment of 2,437.87 Units from Gables Residential
Trust to Gables GP, Inc.
. Amended and Restated on August 6, 1996 to reflect the conversion of
26,074 Units by Thomas C. Graham to common shares of Gables
Residential Trust and (ii) the issuance of 26,074 Units to Gables GP,
Inc. (1%) and Gables Residential Trust (99%).
. Amended and Restated on October 1, 1996 for the assignment of the
243,787 Units owned by Morning Grove Apartments, L.L.C. to its
partners, Philip H. McNeill, Sr. (50%), Clyde L. Patton, Jr. (25%) and
Bruce C. Taylor (25%).
. Amended and Restated on January 1, 1997 for the distribution of the
21,930 Units held by the Sonya Goldberg Ten Year Trust to its sole
beneficiaries, Richard Goldberg (50%) and Paul Goldberg (50%).
. Amended and Restated on and through July 24, 1997 to reflect the
issuance of 9,276,447 Units to Gables GP, Inc. (1%) and Gables
Residential Trust (99%) for the following activity:
* Issuance of 10,925 common shares in connection with the dividend
reinvestment plan.
* Issuance of 112,600 common shares in connection with the exercise
of stock options pursuant to the Second Amended and Restated 1994
Share Option and Incentive Plan, as amended (the "Plan").
* Issuance of 9,083,568 common shares in connection with secondary
offerings.
* Issuance of 68,910 common shares in connection with stock grants
to certain officers pursuant to the Plan.
* Issuance of 444 common shares to independent trustees, for
partial consideration of their services as trustees, pursuant to
the Plan.
. Amended and Restated on July 24, 1997 to reflect the issuance of
4,600,000 Series A Preferred Units to Gables GP, Inc. (1%) and Gables
Residential Trust (99%).
1
<PAGE>
<TABLE>
<CAPTION>
PARTNERS CONTRIBUTIONS AND PARTNERSHIP INTERESTS
OTHER PARTNERSHIP UNITS
Agreed Value
Name and Address Cash of Contributed Total Partnership Percentage
of Partner Contribution Property Contribution Units Interest
---------- ------------ -------- ------------ ----- --------
<S> <C> <C> <C> <C> <C>
Gables GP, Inc. $ 5,017,552.00 $ 0.00 $5,017,552.00 229,613 1.000%
2925 Briarpark, Suite 1220
Houston, TX 77042
Limited Partners:
Gables Residential Trust 424,750,150.00 424,750,150.00 19,203,463 83.634%
2859 Paces Ferry Road
Suite 1450
Atlanta, GA 30339
Crow Family Partnership, LP 8,802,427.50 8,802,427.50 391,219 1.704%
c/o Trammell Crow Interests
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
TCF Residential Partnership, Ltd. 5,926,545.00 5,926,545.00 263,402 1.147%
c/o Trammell Crow Interests
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
Harlan R. Crow 9,000.00 9,000.00 400 0.002%
c/o Trammell Crow Interests
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
Trammell S. Crow 23,107.50 23,107.50 1,027 0.004%
c/o Trammell Crow Interests
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
J. Ronald Terwilliger 11,471,242.50 11,471,242.50 509,833 2.220%
Trammell Crow Residential
2859 Paces Ferry Road
Suite 1400
Atlanta, GA 30339
Leonard W. Wood Family 12,791,587.50 12,791,587.50 568,515 2.476%
Limited Partnership
2859 Paces Ferry Road
Atlanta, GA 30339
Marcus E. Bromley 3,487,702.50 3,487,702.50 155,009 0.675%
Gables Residential Trust
2859 Paces Ferry Road
Suite 1450
Atlanta, GA 30339
John T. Rippel 5,566,818.00 5,566,815.00 247,414 1.078%
Gables Residential Trust
2925 Briarpark, Suite 1220
Houston, TX 77042
Perry M. Parrott, Jr. 2,542,275.00 2,542,275.00 112,990 0.492%
23 North Calibogue Cay
Hilton Head, SC 29928
2
<PAGE>
Agreed Value
Name and Address Cash of Contributed Total Partnership Percentage
of Partner Contribution Property Contribution Units Interest
---------- ------------ -------- ------------ ----- --------
William M. Hammond 1,465,020.00 1,465,020.00 65,112 0.284%
Gables Residential Trust
222 West Las Colinas Boulevard
Suite 350
Irving, TX 75039
Marvin R. Banks, Jr. 960,007.50 960,007.50 42,667 0.186%
Gables Residential Trust
2859 Paces Ferry Road
Suite 1450
Atlanta, GA 30339
C. Jordan Clark 2,366,212.50 2,366,212.50 105,165 0.458%
Gables Residential Trust
2859 Paces Ferry Road
Suite 1450
Atlanta, GA 30339
Stephen Sweet 1,014,097.50 1,014,097.50 45,071 0.196%
Gables Residential Trust
2925 Briarpark, Suite 1220
Houston, TX 77042
James Craig 1,014,097.50 1,014,097.50 45,071 0.196%
Gables Residential Trust
2925 Briarpark, Suite 1220
Houston, TX 77042
Dennis Rainosek 1,014,097.50 1,014,097.50 45,071 0.196%
Gables Residential Trust
2925 Briarpark, Suite 1220
Houston, TX 77042
Joseph Wilber 453,645.00 453,645.00 20,162 0.088%
Gables Residential Trust
2859 Paces Ferry Road
Suite 1450
Atlanta, GA 30339
Randy Pace 1,718,550.00 1,718,550.00 76,380 0.333%
Trammell Crow Residential
717 North Harwood, LB 128, Ste. 1200
Dallas, TX 75201
Dave Elwell 571,950.00 571,950.00 25,420 0.111%
Trammell Crow Residential
2859 Paces Ferry Road
Suite 1400
Atlanta, GA 30339
Richard Goldberg and Paul 4,358,227.50 4,358,227.50 193,699 0.844%
Goldberg, as Trustees
under Article 7 of the
Last Will and Testament
of Irving Goldberg
c/o Richard Goldberg
98 Cuttermill Road
Great Neck, NY 11021
Harvey Goldberg 1,159,425.00 1,159,425.00 51,530 0.224%
Osborn Road
Harrison, NY 10528
3
<PAGE>
Agreed Value
Name and Address Cash of Contributed Total Partnership Percentage
of Partner Contribution Property Contribution Units Interest
---------- ------------ -------- ------------ ----- --------
Richard Goldberg and Martin Sloate, 541,080.00 541,080.00 24,048 0.105%
as Trustees F/B/O Nancy Goldberg
U/A dated February 12, 1993
c/o Richard Goldberg
98 Cuttermill Road
Great Neck, NY 11021
Richard Goldberg and Martin Sloate, 541,080.00 541,080.00 24,048 0.105%
as Trustees F/B/O Stephanie
G. Goldberg U/A dated February
12, 1993
c/o Richard Goldberg
98 Cuttermill Road
Great Neck, NY 11021
Richard Goldberg and Martin Sloate, 541,080.00 541,080.00 24,048 0.105%
as Trustees F/B/O Danielle
Goldberg U/A dated February
12, 1993
c/o Richard Goldberg
98 Cuttermill Road
Great Neck, NY 11021
Richard Goldberg and Martin Sloate, 541,080.00 541,080.00 24,048 0.105%
as Trustees F/B/O Kathy
Goldberg U/A dated February
12, 1993
c/o Richard Goldberg
98 Cuttermill Road
Great Neck, NY 11021
Richard Goldberg and Martin Sloate, 541,080.00 541,080.00 24,048 0.105%
as Trustees F/B/O Seth
Goldberg U/A dated February
12, 1993
c/o Richard Goldberg
98 Cuttermill Road
Great Neck, NY 11021
Richard Goldberg 575,685.00 575,685.00 25,586 0.111%
98 Cuttermill Road
Great Neck, NY 11021
Manhasset Bay Associates 685,327.50 685,327.50 30,459 0.133%
49-49 30th Street
Long Island City, NY 11101
Marsha Goldberg 164,497.50 164,497.50 7,311 0.032%
700 Park Avenue
New York, NY 10021
Robert E. Helpern, as Trustee 164,497.50 164,497.50 7,311 0.032%
U/A dated August 1, 1979
F/B/O Caren Jill Goldberg
c/o Richard Goldberg
900 Third Avenue
New York, NY 10022
4
<PAGE>
Agreed Value
Name and Address Cash of Contributed Total Partnership Percentage
of Partner Contribution Property Contribution Units Interest
---------- ------------ -------- ------------ ----- --------
Robert E. Helpern, as Trustee 164,497.50 164,497.50 7,311 0.032%
U/A dated August 1, 1979
F/B/O Andrew Neil Goldberg
c/o Richard Goldberg
900 Third Avenue
New York, NY 10022
Paul Goldberg 246,712.50 246,712.50 10,965 0.048%
20 Dawn Drive
Wesport, CT 06880
Dennis Alberts 37,980.00 37,980.00 1,688 0.007%
c/o Pacific Retail Trust
8140 Walnut Hill Lane, Suite 400
Dallas, Texas 75231
Darryl Reyna 88,447.50 88,447.50 3,931 0.017%
1861 Omni Boulevard
Mt. Pleasant, SC 29464
Terence Golden 438,435.00 438,435.00 19,486 0.085%
c/o Bailey Realty Corp.
1130 Connecticut Avenue, N.W.
Suite 600
Washington, DC 20036
Thomas C. Graham 2,439,000.00 2,439,000.00 85,000 0.370%
3908 Chaucer Wood
Atlanta, GA 30319
Philip M. McNeil, Sr. 2,849,992.00 2,849,992.00 121,893 0.531%
4735 Spottswood, Suite 102
Memphis, TN 38117
Clyde L. Patton, Jr. 1,424,996.00 1,424,996.00 60,947 0.265%
P.O. Box 38409
Germantown, TN 38183
Bruce C. Taylor 1,424,996.00 1,424,996.00 60,947 0.265%
P.O. Box 38409
Germantown, TN 38183
-------------- -------------- ---------------- ------------ -------------
Total $429,767,702.00 $80,126,500.00 $ 509,894,199.00 22,961,308 100.000%
============== ============== ================ ============ =============
</TABLE>
5
<PAGE>
PARTNERS CONTRIBUTIONS AND PARTNERSHIP INTERESTS
SERIES A PREFERRED UNITS
Name and Address Partnership Percentage
of Partner Contribution Units Interest
---------- ------------ ----- --------
Gables GP, Inc. $1,150,000.00 460,000 1%
2859 Paces Ferry Road
Suite 1450
Atlanta, Georgia 30339
Gables Residential Trust $113,850,000.00 4,140,000 99%
2859 Paces Ferry Road --------------- --------- ------
Suite 1450
Atlanta, Georgia 30339
Total $115,000,000.00 4,600,000 100%
=============== ========= ====
6
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
--------------------------------
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1.A of
the Agreement and Exhibit C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1.B of the Agreement and Exhibit C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain,
loss and deduction shall be made without regard to any election under
Section 754 of the Code which may be made by the Partnership, provided
that the amounts of any adjustments to the adjusted bases of the
assets of the Partnership made pursuant to Section 734 of the Code as
a result of the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not previously been
reflected in the Partners' Capital Accounts) shall be reflected in the
Capital Accounts of the Partners in the manner and subject to the
limitations prescribed in Regulations Section 1.704(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction shall be
made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable gross
income or are neither currently deductible nor capitalized for federal
income tax purposes.
1
<PAGE>
(3) Any income, gain or loss attributable to the taxable disposition of
any Partnership property shall be determined as if the adjusted basis
of such property as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to such property as
of such date.
(4) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal
year.
(5) In the event the Carrying Value of any Partnership Asset is adjusted
pursuant to Section 1.D hereof, the amount of any such adjustment
shall be taken into account as gain or loss from the disposition of
such asset.
(6) Any items specifically allocated under Section 2 of Exhibit C hereof
shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor;
provided, however, that, if the transfer causes a termination of the Partnership
under Section 708(b)(1)(B) of the Code, the Partnership's properties shall be
deemed solely for federal income tax purposes, to have been distributed in
liquidation of the Partnership to the holders of Partnership Units (including
such transferee) and recontributed by such Persons in reconstitution of the
Partnership. In such event, the Carrying Values of the Partnership properties
shall be adjusted immediately prior to such deemed distribution pursuant to
Section 1.D(2) hereof. The Capital Accounts of such reconstituted Partnership
shall be maintained in accordance with the principles of this Exhibit B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the Carrying
Value of all Partnership assets shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the times of the adjustments provided in
Section 1.D(2) hereof, as if such Unrealized Gain or Unrealized Loss
had been recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a
de minimis Capital Contribution; (b) immediately prior to the
distribution by the Partnership to a Partner of more than a de minimis
amount of property as consideration for an interest in the
2
<PAGE>
Partnership; and (c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that adjustments pursuant to
clauses (a) and (b) above shall be made only if the General Partner
determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of the
time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes of this
Exhibit B, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents) shall be
determined by the General Partner using such reasonable method of
valuation as it may adopt, or in the case of a liquidating
distribution pursuant to Article 13 of the Agreement, shall be
determined and allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General Partner, or the
Liquidator, as the case may be, shall allocate such aggregate value
among the assets of the Partnership (in such manner as it determines
in its sole and absolute discretion to arrive at a fair market value
for individual properties).
E. The provisions of this Agreement (including this Exhibit B and other
Exhibits to this Agreement) relating to the maintenance of Capital Accounts are
intended to comply with Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations. In the event the
General Partner shall determine that it is prudent to modify (i) the manner in
which the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification without regard to
Article 14 of the Agreement, provided that it is not likely to have a material
effect on the amounts distributable to any Person pursuant to Article 13 of the
Agreement upon the dissolution of the Partnership. The General Partner also
shall (i) make any adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
and (ii) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
3
<PAGE>
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts,
(ii) the determination and allocation of adjustments under Sections 704(c), 734
and 743 of the Code, (iii) the determination of Net Income, Net Loss, taxable
income, taxable loss and items thereof under this Agreement and pursuant to the
Code, (iv) the adoption of reasonable conventions and methods for the valuation
of assets and the determination of tax basis, (v) the allocation of asset value
and tax basis, and (vi) conventions for the determination of cost recovery,
depreciation and amortization deductions, as it determines in its sole
discretion are necessary or appropriate to execute the provisions of this
Agreement and to comply with federal and state tax laws.
2. NO INTEREST
No interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
3. NO WITHDRAWAL
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the Agreement.
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EXHIBIT C
SPECIAL ALLOCATION RULES
1. SPECIAL ALLOCATION RULES
Notwithstanding any other provision of the Agreement or this Exhibit C, the
following special allocations shall be made in the following order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this Exhibit C, if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this Section 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to Section
6.1 of Partner Minimum Gain during such Partnership taxable year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other provision of
Section 6.1 of this Agreement or any other provisions of this Exhibit C (except
Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This Section 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of the
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership taxable year, other than allocations
pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
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1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
and after giving effect to the allocations required under Sections 1.A and 1.B
hereof, such Partner has an Adjusted Capital Account Deficit, items of
Partnership income and gain (consisting of a pro rate portion of each item of
Partnership income, including gross income and gain for the Partnership taxable
year) shall be specifically allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, its Adjusted
Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible.
D. Nonrecourse Deductions. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio for such Partnership taxable year which would satisfy
such requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Partnership taxable year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis, and such item of gain or loss shall be specially allocated
to the Partners in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Regulations.
G. Curative Allocations. The allocations set forth in Section 1.A through F
of this Exhibit C (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations under section 704(b) of the Code. The
Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that this
will be accomplished by specially allocating other items of income, gain, loss
and deduction among the Partners so that the net amount of the Regulatory
Allocations and such special allocations to each person is zero. However, the
General Partner will have discretion to accomplish this result in any reasonable
manner; provided, however, that no allocation pursuant to this Section 1.G shall
cause the Partnership to fail to comply with the requirements of Regulations
sections 1.704-1(b)(2)(ii)(d), -2(e) or -2(i).
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2. ALLOCATIONS FOR TAX PURPOSES
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1)(a)In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners consistent with the
principles of Section 704(c) of the Code and the Regulations
thereunder to take into account the variation between the 704(c) Value
of such property and its adjusted basis at the time of contribution;
and
(b)any item of Residual Gain or Residual Loss attributable to a
Contributed Property shall be allocated among the Partners in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section 1 of this
Exhibit C.
(2)(a)In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code and the Regulations
thereunder to take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof pursuant to
Exhibit B, and
(2) second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with
Section 2.B(1) of this Exhibit C; and
(b)any item of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners in the same manner its
correlative item of "book" gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1 of this Exhibit C.
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(3) all other items of income, gain, loss and deduction shall be allocated
among the Partners the same manner as their correlative item of "book"
gain or loss is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of the EXHIBIT C.
C. To the extent that the Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit the Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority to elect the method
to be used by the Partnership and such election shall be binding on all
Partners. It is anticipated that the General Partner will elect the "traditional
method" under Section 704(c) of the Code with respect to property contributed as
of the date hereof.
3. NO WITHDRAWAL
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 8 and 13 of the Agreement.
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EXHIBIT D
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
- ------------------- ------------ ------------
[Intentionally Left Blank]
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EXHIBIT E
NOTICE OF REDEMPTION
The undersigned Limited Partner hereby irrevocably (i) redeems __________
Limited Partnership Units in Gables Limited Partnership in accordance with the
terms of the Amended and Restated Agreement of Limited Partnership of Gables
Limited Partnership and the Redemption Right referred to therein, (ii)
surrenders such Limited Partnership Units and all right, title and interest
therein, and (iii) directs that the Cash Amount of REIT Shares Amount (as
determined by the General Partner) deliverable upon exercise of the Redemption
Right be delivered to the address specified below, and if REIT Shares are to be
delivered, such REIT Shares be registered or placed in the name(s) and at the
address(es) specified below. The undersigned hereby, represents, warrants, and
certifies that the undersigned (a) has marketable and unencumbered title to such
Limited Partnership Units, free and clear of the rights or interests of any
other person or entity, (b) has the full right, power, and authority to redeem
and surrender such Limited Partnership Units as provided herein, and (c) has
obtained the consent or approval of all person or entities, if any, having the
right to consent or approve such redemption and surrender.
Dated:_________________________
Name of Limited Partner:____________________________________
Please Print
____________________________________
(Signature of Limited Partner)
____________________________________
(Street Address)
____________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
____________________________________
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If REIT Shares are to be issued, issue to:
Name:_________________________________
Please insert social security or identifying number:__________________
