<PAGE> 1
Filed Pursuant to Rule 424b(2)
File No. 333-30093-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 11, 1997)
$100,000,000
GABLES REALTY LIMITED PARTNERSHIP [GABLES LOGO]
6.80% SENIOR NOTES DUE 2005
------------------------
The 6.80% Senior Notes Due March 15, 2005 (the "Notes") offered hereby (the
"Offering") are being issued by Gables Realty Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"), in an aggregate principal
amount of $100.0 million. Interest on the Notes will be payable semi-annually in
arrears on March 15 and September 15 of each year commencing September 15, 1998.
See "Description of Notes -- Principal and Interest." The Notes are redeemable
at any time at the option of the Operating Partnership, in whole or in part, at
a redemption price equal to the sum of (i) the principal amount of the Notes
being redeemed plus accrued interest to the redemption date, and (ii) the
Make-Whole Amount (as defined in "Description of the Notes -- Optional
Redemption"), if any. The Notes are unsecured obligations of the Operating
Partnership and will rank equally with all unsecured and unsubordinated
indebtedness of the Operating Partnership. The Notes are not subject to any
mandatory sinking fund. The Notes contain certain restrictions on the Operating
Partnership's ability to incur additional indebtedness. See "Description of
Notes."
The Notes constitute a separate series of debt securities which will be
represented by a single fully registered global note in book-entry form without
coupons (a "Global Note") registered in the name of The Depository Trust Company
("DTC") or its nominee. Beneficial interests in the Global Note will be shown
on, and transfers thereof will be effected only through, records maintained by
DTC (with respect to beneficial interests of participants) or by participants or
persons that hold interests through participants (with respect to beneficial
interests of beneficial owners). Owners of beneficial interests in the Global
Note will be entitled to physical delivery of Notes in certificated form equal
in principal amount to their respective beneficial interests only under the
limited circumstances described under "Description of Notes -- Book-Entry
System." Settlement of the Notes will be made in immediately available funds.
The Notes will trade in DTC's Same-Day Funds Settlement System until maturity or
earlier redemption, as the case may be, or until the Notes are issued in
certificated form, and secondary market trading activity in the Notes will
therefore settle in immediately available funds. All payments of principal and
interest in respect of the Notes will be made by the Operating Partnership in
immediately available funds. See "Description of Notes -- Same-Day Settlement
and Payment."
SEE "ADDITIONAL RISK FACTORS" COMMENCING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND "RISK FACTORS" COMMENCING ON PAGE 4 OF THE ACCOMPANYING
PROSPECTUS FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================================
Price to Public Underwriting Discounts Proceeds to Operating
(1) (2) Partnership (1)(3)
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<S> <C> <C> <C>
Per Note.......................................... 99.751% 0.625% 99.126%
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Total............................................. $99,751,000 $625,000 $99,126,000
==========================================================================================================================
</TABLE>
(1) Plus accrued interest from March 15, 1998 to the date of delivery.
(2) The Operating Partnership and Gables Residential Trust have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting estimated expenses of approximately $300,000 payable by the
Operating Partnership.
------------------------
The Notes offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the Notes
will be made in book-entry form through the facilities of DTC, against payment
therefor in immediately available funds, on or about March 23, 1998.
------------------------
PAINEWEBBER INCORPORATED LEHMAN BROTHERS
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 18, 1998.
<PAGE> 2
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus, including the
information incorporated by reference herein and therein, contain
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. The words "believe," "expect," "anticipate," "intend," "estimate,"
"assume" and other similar expressions which are predictions of or indicate
future events and trends and which do not relate solely to historical matters
identify forward-looking statements. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are in some cases beyond the control of
the Company (as defined herein) and may cause the actual results, performance or
achievements of the Company to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
the following: the Company may fail to secure or abandon development
opportunities; 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 market rents may be adversely affected by local
economic and market conditions which are beyond management's control; financing
may not be available, or may not be available on favorable terms; the Company's
cash flow may be insufficient to meet required payments of principal and
interest; and existing indebtedness may mature in an unfavorable credit
environment, preventing such indebtedness from being refinanced, or, if
refinanced, causing such refinancing to occur on terms that are not as favorable
as the terms of existing indebtedness. In addition, the factors described under
"Additional Risk Factors" commencing on page S-8 of this Prospectus Supplement
and "Risk Factors" commencing on page 4 of the accompanying Prospectus may
result in such differences. Prospective purchasers of the Notes offered hereby
should carefully review all of these factors.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE NOTES IN THE OPEN MARKET TO
STABILIZE THE MARKET PRICE AND THE PURCHASE OF NOTES TO COVER SHORT POSITIONS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 3
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein or therein by reference. Unless
the context otherwise requires, all references in this Prospectus Supplement to
the "Company" shall mean Gables Residential Trust, a Maryland real estate
investment trust, and its subsidiaries on a consolidated basis (including the
Operating Partnership and its subsidiaries) or, where the context so requires,
Gables Residential Trust only, and, as the context may require, their
predecessors.
THE COMPANY
The Notes offered hereby are being issued by Gables Realty Limited
Partnership, which is the operating partnership of Gables Residential Trust, a
self-administered and self-managed real estate investment trust (a "REIT") whose
common shares of beneficial interest, par value $0.01 per share (the "Common
Shares"), are listed on the New York Stock Exchange (the "NYSE") under the
symbol "GBP." Substantially all of the Company's business is conducted through,
and all of the Company's interests in property are held by or through, the
Operating Partnership. Gables Residential Trust is currently an 84.5% economic
owner of the Operating Partnership (excluding Gables Residential Trust's
ownership of 100% of the Operating Partnership's Series A Preferred Units). The
Company operates as a REIT under the Internal Revenue Code of 1986, as amended
(the "Code").
The Company is one of the largest owners, operators and developers of
multifamily apartment communities in the Southwestern and Southeastern United
States. The Company owns 59 multifamily apartment communities and has an
indirect 25% interest in two multifamily apartment communities (collectively,
the "Current Communities") located in the following major cities in Texas,
Georgia and Tennessee: Houston, Dallas, Austin, San Antonio, Atlanta, Memphis
and Nashville. The Current Communities total 18,479 apartment homes and include
one multifamily apartment community in the final stages of lease-up. The Company
also owns five multifamily apartment communities that are under construction and
that the Company expects will comprise 1,409 apartment homes (collectively, the
"Development Communities" and, with the Current Communities, the "Communities").
Three of the Development Communities are located in Atlanta, Austin and Houston
and two of the Development Communities are located in Orlando, Florida. The
Company also owns sites (the "Undeveloped Sites") on which it intends to develop
seven additional multifamily apartment communities that the Company currently
expects will comprise approximately 1,800 apartment homes and has rights (the
"Development Rights") to acquire additional sites on which the Company believes
it could develop multifamily apartment communities. See "The Company--General."
The Company's executive offices are located at 2859 Paces Ferry Road in
Atlanta, Georgia 30339 and its telephone number is (770) 436-4600.
RECENT DEVELOPMENTS
Pending Acquisitions -- South Florida
The Company has reached an agreement in principle to acquire the properties
and operations of Trammell Crow Residential South Florida ("TCR/SF"), which
consist of up to 15 multifamily apartment communities (the "South Florida
Communities") containing a total of 4,197 apartment homes (assuming completion
of three South Florida Communities currently under construction), and all of
TCR/SF's residential construction and development and third-party management
activities in South Florida (collectively, the "South Florida Transaction"). At
December 31, 1997, the weighted average physical occupancy rate for the 12
stabilized South Florida Communities was approximately 94.8%. The Company
currently anticipates the consideration for the South Florida Transaction,
assuming that all 15 South Florida Communities are ultimately acquired, to
consist of (i) approximately $149.0 million in cash, (ii) the assumption of
approximately $135.9 million of tax-exempt debt (subject to certain required
consents) and (iii) the issuance of limited partnership units of the Operating
Partnership ("Units") valued at up to
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S-3
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approximately $83.6 million, of which $12.5 million will be deferred until
January 1, 2000. The South Florida Communities are located in Palm Beach County,
Broward County and Dade County and encompass the metropolitan areas of Palm
Beach, Fort Lauderdale and Miami, respectively.
The Company believes the South Florida Transaction, if successfully
completed, will facilitate the following goals:
- establish a growth platform in the South Florida markets by integrating
the existing operating, acquisition, development and construction
personnel of TCR/SF into the Company's existing management team;
- allow the Company to enter into the South Florida markets with a
critical mass of multifamily apartment communities that have internal
earnings growth potential and product quality characteristics consistent
with the Company's existing portfolio;
- provide further geographic and economic diversification of the Company's
portfolio of multifamily apartment communities, thereby enhancing the
stability of the Company's cash flow;
- generate a pipeline of acquisition and development opportunities in the
South Florida markets, which are characterized by high job growth and
high barriers to entry;
- allow the Company to generate economies of scale by spreading its
corporate overhead costs over a larger portfolio and increasing its
buying power with vendors; and
- produce immediate earnings growth and accelerate long-term earnings
growth.
There can be no assurance that all South Florida Communities will be
included in the South Florida Transaction or that the South Florida Transaction
will be consummated at all. Additionally, although the Company expects the South
Florida Transaction and the Company's entry into new markets will provide the
benefits discussed above, there can be no assurance that these benefits will be
realized. See "Additional Risk Factors."
Pending Acquisitions -- Houston
On February 18, 1998, the Company entered into contribution agreements with
four partnerships under common control pursuant to which the Company expects to
acquire four multifamily apartment communities (the "Greystone Communities")
comprising a total of 913 apartment homes located in the Houston metropolitan
area, which at December 31, 1997 had a weighted average physical occupancy rate
of approximately 99.0% (the "Greystone Transaction"). In connection with such
acquisition, the Company will assume approximately $28.0 million of indebtedness
and issue Units valued at up to approximately $21.0 million, of which
approximately $2.0 million will be deferred for up to two years. The acquisition
of the Greystone Communities will enhance the Company's presence in the Houston
market, bringing the total number of multifamily apartment communities owned by
the Company in the Houston metropolitan area to 21, comprising an aggregate of
7,004 apartment homes.
After giving effect to the acquisition of both the South Florida
Communities and the Greystone Communities, the Company will own a total of 80
multifamily apartment communities comprising an aggregate of 23,589 apartment
homes in four states. There can be no assurance that the Greystone Transaction
will be consummated on the terms currently contemplated or at all. The Offering
is not conditioned upon the closing of either the South Florida Transaction or
the Greystone Transaction. See "Additional Risk Factors--Risk that Pending
Transactions will not be Completed."
Financing Activities
On December 1, 1997, the Company completed a public offering of 1,700,000
Common Shares at a price to the public of $27.1875 per share. The net proceeds
from the offering of approximately $43.8 million were used primarily to reduce
borrowings under the Company's $175 million and $20 million unsecured credit
- --------------------------------------------------------------------------------
S-4
<PAGE> 5
facilities (the "Credit Facilities"). This was the Company's seventh offering of
Common Shares since the Company's initial public offering in January, 1994 (the
"IPO").
Operating Results
On January 27, 1998, the Company reported fourth quarter earnings. For the
quarter ended December 31, 1997, funds from operations ("FFO") was $16.1
million, compared to $13.1 million for the same period in 1996. On a "same
store" basis, during the fourth quarter of 1997 compared to the same period in
1996, revenues increased 5.3% while expenses were held to a nominal 0.3%
increase. For the year ended December 31, 1997, FFO was $56.9 million, compared
to $46.2 million for the year ended December 31, 1996.
The Company considers 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 Company believes that in order to facilitate a clear
understanding of its operating results, FFO should be examined in conjunction
with net income as presented in the financial statements and data included
elsewhere (or incorporated by reference) in this Prospectus Supplement. For a
more detailed discussion of FFO, including the method by which the Company
computes FFO, see footnote (2) to the selected financial data table on page
S-15.
RISK FACTORS
An investment in the Notes involves various risks, including risks
associated with the addition of a substantial number of South Florida
Communities to the Company's portfolio in a new market area and the risk that
either or both of the South Florida Transaction or the Greystone Transaction
(collectively, the "Transactions") may not be completed. Prospective investors
should carefully consider the matters discussed under "Additional Risk Factors"
commencing on page S-8 of this Prospectus Supplement and under "Risk Factors"
commencing on page 4 of the accompanying Prospectus before making any investment
in the Notes. Certain statements contained in this Prospectus Supplement or
incorporated herein by reference are "forward-looking statements," which
investors should not rely on because they are subject to a variety of risks that
may cause material differences between actual and anticipated results,
performance or achievements. See "Forward-Looking Statements" on page S-2.
S-5
<PAGE> 6
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THE OFFERING
All capitalized terms used herein and not defined shall have the meanings
provided under "Description of Notes."
Securities Offered............ $100.0 million aggregate principal amount of the
6.80% Senior Notes Due 2005.
Maturity...................... March 15, 2005.
Interest Payment Dates........ Interest on the Notes is payable semi-annually
on each March 15 and September 15, commencing
September 15, 1998, and at maturity.
Ranking....................... The Notes will be senior unsecured obligations
of the Operating Partnership and will rank
equally with the Operating Partnership's other
unsecured and unsubordinated indebtedness,
including indebtedness under the Company's
Credit Facilities. The outstanding principal
balance under the Credit Facilities varies from
time to time and as of December 31, 1997 was in
the aggregate approximately $75.6 million. The
Notes will be effectively subordinated to
secured indebtedness of the Operating
Partnership, which as of December 31, 1997 was
$201.2 million in the aggregate.
Optional Redemption........... The Notes are redeemable at any time at the
option of the Operating Partnership, in whole or
in part, at a redemption price equal to the sum
of (i) the principal amount of the Notes being
redeemed plus accrued interest to the redemption
date and (ii) the Make-Whole Amount, if any. See
"Description of Notes--Optional Redemption."
Use of Proceeds............... The net proceeds from the sale of the Notes will
be used to reduce borrowings under the Credit
Facilities, which borrowings were used primarily
to fund the acquisition and development of
additional communities. See "Use of Proceeds"
and "Underwriting."
Certain Covenants............. The Notes contain various covenants including
the following:
- Neither the Operating Partnership nor any
Subsidiary may incur any Debt, other than
intercompany Debt, if, after giving effect
thereto, the aggregate principal amount of
all outstanding Debt of the Operating
Partnership and its Subsidiaries on a
consolidated basis is greater than 60% of
the sum of (i) the Operating Partnership's
Adjusted Total Assets as of the end of the
most recent fiscal quarter prior to the
incurrence of such additional Debt, (ii) the
purchase price of any real estate assets or
mortgages receivable (or interests therein)
acquired by the Operating Partnership or any
Subsidiary since the end of such fiscal
quarter, including those obtained in
connection with the incurrence of such
additional Debt and (iii) the amount of any
securities offering proceeds received by the
Operating Partnership or any Subsidiary
since the end of such fiscal quarter (to the
extent that such proceeds were not used to
acquire such real estate assets or mortgages
receivable or used to reduce Debt).
- Neither the Operating Partnership nor any
Subsidiary may incur any Debt, other than
intercompany Debt, if, after giving effect
thereto, the ratio of Consolidated Income
Available for
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S-6
<PAGE> 7
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Debt Service to the Annual Debt Service
Charge for the four consecutive fiscal
quarters most recently ended prior to the
date on which such additional Debt is to be
incurred shall have been less than 1.5:1, on
a pro forma basis after giving effect to
certain assumptions.
- Neither the Operating Partnership nor any
Subsidiary may incur any Secured Debt,
whether the collateral is owned at the date
of the Indenture or thereafter acquired, if,
after giving effect thereto, the aggregate
principal amount of all outstanding Secured
Debt of the Operating Partnership and its
Subsidiaries on a consolidated basis is
greater than 40% of the sum of (i) the
Operating Partnership's Adjusted Total
Assets as of the end of the most recent
fiscal quarter prior to the incurrence of
such additional Debt, (ii) the purchase
price of any real estate assets or mortgages
receivable (or interests therein) acquired
by the Operating Partnership or any
Subsidiary since the end of such fiscal
quarter, including those obtained in
connection with the incurrence of such
additional Debt and (iii) the amount of any
securities offering proceeds received by the
Operating Partnership or any Subsidiary
since the end of such fiscal quarter (to the
extent that such proceeds were not used to
acquire such real estate assets or mortgages
receivable or used to reduce Debt).
- The Operating Partnership will at all times
maintain an Unencumbered Total Asset Value
in an amount not less than 150% of the
aggregate principal amount of all
outstanding unsecured Debt of the Operating
Partnership and its Subsidiaries on a
consolidated basis.
For a more complete description of the terms and
definitions used in the foregoing summary, see
"Description of Notes--Certain Covenants."
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S-7
<PAGE> 8
ADDITIONAL RISK FACTORS
An investment in the notes involves various risks. in addition to the risks
described under "risk factors" commencing on page 4 in the accompanying
prospectus, prospective investors should carefully consider the following
information in conjunction with the other information contained or incorporated
by reference in this prospectus supplement and the accompanying prospectus
before making a decision to purchase the notes.
Risks associated with the addition of a substantial number of communities
under management. The Transactions will represent a significant increase in the
size of the Company's owned and managed portfolio. The Company's ability to
manage its growth effectively will require the Company, among other things, to
successfully apply its experience in managing its existing portfolio to an
increased number of properties. In addition, the Company will be required to
successfully manage the integration of a substantial number of new management
and operations personnel. While the Company believes that the affiliation of
TCR/SF with Trammell Crow Residential (with which the Company's predecessors
were also affiliated) makes the business and personnel to be acquired in the
South Florida Transaction compatible with the Company's own business and
personnel, there can be no assurance that the Company will be able to integrate
and manage these operations effectively or maintain or improve its historical
financial performance.
Risks associated with new markets. In connection with the proposed South
Florida Transaction, the Company will expand its operations beyond its current
market areas into the South Florida market. The Company may make other selected
acquisitions outside of its current market areas from time to time if
appropriate opportunities arise. The Company's historical experience is in the
Southwest and Southeast regions (not including the South Florida market), and
the Company's experience in these market areas does not ensure that it will be
able to operate successfully in new market areas. While senior personnel
associated with TCR/SF with an average of ten years of experience in the South
Florida market will be joining the Company, there can be no assurance that the
Company will not be exposed to the risks related to entry into new markets which
include, among others: (i) a lack of market knowledge and understanding of the
local economies; (ii) an inability to obtain land for development or to identify
acquisition opportunities; (iii) an inability to obtain construction
tradespeople; and (iv) an unfamiliarity with local governmental and permitting
procedures.
Portfolio acquisition risks. While the Company believes that acquisitions
of multiple apartment communities in single transactions reduce acquisition
expenses per apartment community and enable the Company to gain a critical mass
of assets that provides operating leverage, portfolio acquisitions such as the
Transactions are more complex than single-property acquisitions, and the risk
that a multiple-property acquisition will not close may be greater than in a
single-property acquisition. If the Company fails to close portfolio
acquisitions such as the Transactions, its ability to increase FFO will be
limited and a charge to earnings for costs related to the failed acquisition may
occur. Portfolio acquisitions may also result in the Company owning apartment
communities in geographically dispersed markets. While the Company's strategy
includes geographic diversification of its portfolio to reduce exposure to any
single market, geographic diversity will place additional demands on the
Company's ability to manage its operations.
Risk that pending transactions will not be completed. There can be no
assurance that the Transactions will be consummated on the terms currently
contemplated or at all. If the Company does not complete the Transactions, the
Company will have incurred significant costs and expenses which are not
recoverable or refundable, and under certain circumstances will be obligated to
pay to TCR/SF liquidated damages in the amount of $5.0 million. This Offering is
not conditioned upon the completion of either of the Transactions or any other
transaction. See "The Company--Recent Developments--Pending Acquisitions--South
Florida" and "The Company--Recent Developments--Pending Acquisitions--Houston."
S-8
<PAGE> 9
THE COMPANY
GENERAL
Gables Residential Trust is one of the largest owners, operators and
developers of multifamily apartment communities in the Southwestern and
Southeastern United States. The Company owns 59 multifamily apartment
communities and has an indirect 25% interest in two multifamily apartment
communities (collectively, the "Current Communities") located in the following
major cities in Texas, Georgia and Tennessee: Houston, Dallas, Austin, San
Antonio, Atlanta, Memphis and Nashville. The Current Communities total 18,479
apartment homes and include one multifamily apartment community in the final
stages of lease-up. The Company also owns five multifamily apartment communities
that are under construction and that the Company expects will comprise 1,409
apartment homes (collectively, the "Development Communities" and, with the
Current Communities, the "Communities"). Three of the Development Communities
are located in Atlanta, Austin and Houston and two of the Development
Communities are located in Orlando, Florida. After giving effect to the
acquisition of both the South Florida Communities and the Greystone Communities,
the Company will own a total of 80 multifamily apartment communities comprising
an aggregate of 23,589 apartment homes in four states.
The Company also owns sites (the "Undeveloped Sites") on which it intends
to develop seven additional multifamily apartment communities that the Company
currently expects will comprise approximately 1,800 apartment homes and has
rights (the "Development Rights") to acquire additional sites on which the
Company believes it could develop multifamily apartment communities. 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 Company.
There can be no assurance that the Company will decide or be able to complete
development of all or any of the multifamily apartment communities planned for
the Undeveloped Sites, or pursue acquisition or development of the sites subject
to the Development Rights.
In its efforts to increase cash flows and long-term shareholder value, the
Company actively seeks opportunities to acquire individual multifamily apartment
communities or portfolios of multifamily apartment communities, which
acquisitions may be material to the Company's results of operations and
financial condition. From time to time the Company considers acquisitions and
enters into negotiations concerning such potential acquisitions. At any
particular point in time, the Company may be actively pursuing a variety of such
opportunities, which pursuits may be in various stages of advancement. There can
be no assurance that the Company will proceed with or successfully complete any
acquisitions currently under consideration or negotiation. See "Recent
Developments."
The Company's senior management team consists of individuals who have been
responsible for the development or acquisition of approximately 43,000 apartment
homes since 1982 and who have, on average, in excess of fifteen years'
experience in the multifamily industry. The Company provides a full range of
integrated real estate management, construction and acquisition services through
a staff of approximately 900 employees who have experience in property
operations, development, acquisition and construction. The Company maintains
offices in Atlanta, Houston and Dallas, each with its own fully integrated real
estate staff. The finance, accounting and administrative functions for the
Company are controlled by a central staff located in Atlanta.
The Company operates as a real estate investment trust ("REIT") under the
Code. Substantially all of the Company's business is conducted through, and all
of the Company's interests in property are held by or through, the Operating
Partnership, of which the Company is currently an 84.5% economic owner
(excluding the Company's direct or indirect ownership of 100% of the Operating
Partnership's Series A Preferred Units) and which the Company controls through a
wholly-owned subsidiary that is the sole general partner of the Operating
Partnership. See "Certain Federal Income Tax Consequences" in this Prospectus
Supplement and "Federal Income Tax Considerations" in the accompanying
Prospectus.
S-9
<PAGE> 10
RECENT DEVELOPMENTS
Pending Acquisitions -- South Florida
The Company has reached an agreement in principle to acquire the properties
and operations of TCR/SF, which consist of up to 15 South Florida Communities
containing a total of 4,197 apartment homes (assuming completion of three South
Florida Communities currently under construction), and all of TCR/SF's
residential construction and development and third-party management activities
in South Florida. The South Florida Communities are located in Palm Beach
County, Broward County and Dade County and encompass the metropolitan areas of
Palm Beach, Fort Lauderdale and Miami, respectively.
The Company believes the South Florida Transaction, if successfully
completed, will facilitate the following goals:
- establish a growth platform in South Florida markets by integrating the
existing operating, acquisition, development and construction personnel
of TCR/SF into the Company's existing management team;
- allow the Company to enter into the South Florida markets with a
critical mass of multifamily apartment communities that have internal
earnings growth potential and product quality characteristics consistent
with the Company's existing portfolio;
- provide further geographic and economic diversification of the Company's
portfolio of multifamily apartment communities, thereby enhancing the
stability of the Company's cash flow;
- generate a pipeline of acquisition and development opportunities in the
South Florida markets, which are characterized by high job growth and
high barriers to entry;
- allow the Company to generate economies of scale by spreading its
corporate overhead costs over a larger portfolio and increasing its
buying power with vendors; and
- produce immediate earnings growth and accelerate long-term earnings
growth.
There can be no assurance that all South Florida Communities will be
included in the South Florida Transaction or that the South Florida Transaction
will be consummated at all. Additionally, although the Company expects that the
South Florida Transaction and the Company's entry into new markets will provide
the benefits discussed above, there can be no assurance that these benefits will
be realized. See "Additional Risk Factors."
At December 31, 1997, 12 of the South Florida Communities, which were built
between 1984 and 1997, were stabilized and had a weighted average physical
occupancy rate of approximately 94.8%, two of the South Florida Communities were
under construction and in lease-up, and one South Florida Community was under
construction but had not yet commenced leasing. All of the South Florida
Communities under construction are anticipated to be substantially completed by
September, 1998. The average unit size for all South Florida Communities is 984
square feet and the scheduled rent at December 31, 1997 was $875 per unit and
$0.89 per square foot. The Company currently expects it will also acquire from
TCR/SF third-party management contracts for approximately 8,000 apartment homes.
The South Florida Communities are located in Palm Beach County, Broward
County and Dade County and encompass the metropolitan areas of Palm Beach, Fort
Lauderdale and Miami, respectively. During the past several years these markets
have generally experienced rising rental rates and occupancies despite
additional supply of apartment units being added in response to increasing
demand. As of August 1997, all three counties had vacancy rates of less than 5%
in the multifamily residential sector with actual and projected vacancy rates as
follows:
<TABLE>
<CAPTION>
VACANCY RATES BY COUNTY
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DADE BROWARD PALM BEACH
---- ------- ----------
<S> <C> <C> <C>
August, 1997 (actual)..................................... 4.9% 4.6% 3.6%
August, 1998 (projected).................................. 4.1 5.0 2.0
August, 1999 (projected).................................. 2.8 2.0 2.0
</TABLE>
- --------------------
Source: Reinhold P. Wolff Economic Research, Inc., dated November 21, 1997.
S-10
<PAGE> 11
During the period 1990 to 1996 the metropolitan areas within these counties
experienced rental rate growth in excess of inflation while maintaining a fairly
stable vacancy rate in the multifamily residential sector. In addition, for the
period 1997 to 2002, such rates are projected to be stable to improving, as
illustrated by the following table:
<TABLE>
<CAPTION>
VACANCY RATES AND RENTAL RATE
GROWTH BY CITY
------------------------------------
MIAMI FORT LAUDERDALE PALM BEACH
----- --------------- ----------
<S> <C> <C> <C>
Vacancy Rates
1990-1996 (actual)............................... 5.1% 4.8% 5.2%
1997-2002 (projected)............................ 5.0 4.8 2.3
Average Annual Rental Rate Growth
1990-1996 (actual)............................... 3.0% 3.4% 2.9%
1997-2002 (projected)............................ 3.1 3.3 5.5
</TABLE>
--------------------
Source: The Third Quarter 1997 Apartment Rankings report by The REIS
Reports, Inc.
Under the currently anticipated terms of the proposed contribution
agreement (the "Contribution Agreement"), the Company would acquire the South
Florida Communities, the third-party management business and other properties
and assets of TCR/SF in exchange for (i) approximately $149.0 million in cash,
(ii) the assumption of approximately $135.9 million of tax-exempt debt (subject
to certain required consents) and (iii) the initial issuance of Units valued at
up to approximately $71.1 million based on an agreed upon price of $27.625 per
Unit (the "Share Price"), subject to possible decrease in certain circumstances.
In addition, approximately $12.5 million of the purchase price would be retained
by the Company until January 1, 2000, at which time the Company would issue to
the sellers a number of Units (the "Deferred Units") equal in value to such
retained amount (subject to possible decrease in certain circumstances). The
Deferred Units would be valued based on the average of the closing prices of the
Common Shares on the NYSE during a 15 trading day period preceding the date of
issuance.
The Company has not entered into a binding agreement with respect to the
South Florida Transaction and there can be no assurance that the Company will
enter into such a binding agreement upon the terms it currently anticipates or
at all, or that all of the South Florida Communities will be included in the
South Florida Transaction if it ultimately closes. In the event that the South
Florida Communities are not contributed by TCR/SF as contemplated by the
Contribution Agreement, the Company or TCR/SF may elect to terminate the
Contribution Agreement in its entirety, subject to certain payments. In
addition, if the average of the closing prices of the Common Shares on the NYSE
during a 15 trading day period preceding the closing is less than $23.50, either
TCR/SF or the Company may elect to terminate the Contribution Agreement. This
Offering is not conditioned upon the consummation of the South Florida
Transaction or any other transaction. See "Additional Risk Factors--Risk that
Pending Transactions will not be Completed."
Pending Acquisitions -- Houston
On February 18, 1998, the Company entered into contribution agreements with
four partnerships under common control pursuant to which the Company expects to
acquire the four Greystone Communities comprising a total of 913 apartment homes
located in the Houston metropolitan area, which at December 31, 1997 had a
weighted average physical occupancy rate of approximately 99.0%. In connection
with such acquisition, the Company will assume approximately $28.0 million of
indebtedness and issue Units valued at up to approximately $21.0 million, of
which approximately $2.0 million will be deferred for up to two years.
Three of the Greystone Communities, consisting of 654 apartment homes, are
located in the First Colony master-planned community in Southwest Houston. The
addition of these properties would result in the Company owning a total of five
multifamily apartment communities comprising 1,086 apartment homes in First
Colony. This would represent 84% of the multifamily product in First Colony,
where there is no more land zoned for multifamily development. The remaining
Greystone Community consists of 259 apartment homes and is located in Southeast
Houston, in close proximity to the Company's 1,508 apartment homes in Clear
Lake. The Company believes its dominant position in First Colony, which is in
the fastest growing area of Houston (based on population and job growth), would
result in continued economies of scale for operating expenses and an ability to
more aggressively seek increases in rental rates. After giving effect to the
acquisition of the Greystone Communities, the Company will own a total of 21
multifamily apartment communities comprising an aggregate of 7,004 apartment
homes in the Houston market.
S-11
<PAGE> 12
The closing of the Greystone Transaction is subject to certain conditions,
including receipt of certain third-party consents. There can be no assurance
that the Greystone Transaction will close as contemplated, that the required
conditions to closing will be met, or that the contribution agreements will not
be amended or terminated. The Offering is not conditioned upon the closing of
the Greystone Transaction or any other transaction. See "Additional Risk
Factors--Risk that Pending Transactions will not be Completed."
Financing Activities
On December 1, 1997, the Company completed a public offering of 1,700,000
Common Shares at a price to the public of $27.1875 per share. The net proceeds
from the offering of approximately $43.8 million were used primarily to reduce
borrowings under the Company's Credit Facilities. This was the Company's seventh
offering of Common Shares since its IPO.
In the normal course of business, the Company seeks to hedge interest rate
risk related to future offerings of debt securities. In connection with this
Offering the Company terminated forward seven-year treasury lock agreements for
a notional amount of $50.0 million with J.P. Morgan Securities Inc. The Company
paid approximately $1.2 million in cash in connection with such termination. The
payment, net of previously recognized losses associated therewith, will be
amortized as additional interest expense over the term of the Notes, thereby
increasing the effective interest rate for the Notes.
Recent Changes in Board of Trustees
On October 20, 1997, D. Raymond Riddle was appointed to fill a vacancy on
the Board of Trustees of the Company (the "Board"). Prior to joining the Board,
Mr. Riddle served as the Chairman and Chief Executive Officer of National
Service Industries and previously served as the President and Chief Executive
Officer of Wachovia Bank of Georgia, N.A.
On December 26, 1997, Peter D. Linneman resigned from the Board, explaining
that other commitments would keep him from devoting sufficient time to his
duties as a trustee. As a result of such resignation, the Board currently
consists of four non-employee trustees, as well as Marcus E. Bromley, Chairman
of the Board and Chief Executive Officer of the Company, and John T. Rippel,
President and Chief Operating Officer of the Company.
Upon (and subject to) consummation of the South Florida Transaction, Chris
Wheeler, Group Managing Partner of TCR/SF, will serve as Senior Vice President
of the Company and will also be appointed to the Board. Both the appointment of
Mr. Riddle and the appointment of Mr. Wheeler to the Board will be subject to
shareholder approval at the Company's annual meeting in May, 1998.
Operating Results
On January 27, 1998, the Company reported fourth quarter earnings. For the
quarter ended December 31, 1997, FFO was $16.1 million, compared to $13.1
million for the same period in 1996. On a "same store" basis, during the fourth
quarter of 1997 compared to the same period in 1996, revenues increased 5.3%
while expenses were held to a nominal 0.3% increase. For the year ended December
31, 1997, FFO was $56.9 million, compared to $46.2 million for the year ended
December 31, 1996.
The Company considers 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 Company believes that in order to facilitate a clear
understanding of its operating results, FFO should be examined in conjunction
with net income as presented in the financial statements and data included
elsewhere (or incorporated by reference) in this Prospectus Supplement. For a
more detailed discussion of FFO, including the method by which the Company
computes FFO, see footnote (2) to the selected financial data table on page
S-15.
THE COMMUNITIES
The Current Communities typically are two- and three-story garden
apartments, townhomes and higher-density apartments. Forty-two of the Current
Communities have more than 250 apartment homes, with the largest having 776
apartment homes. As of December 31, 1997, the Current Communities had an average
monthly rental rate per apartment home of approximately $812 and had a physical
occupancy rate of
S-12
<PAGE> 13
approximately 95%, excluding one Current Community in the final stages of
lease-up. Most of the Company's 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 Company
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, is used to refine and enhance management services and
community design. The Development Communities and the recently completed Current
Communities reflect the Company's continuing research of consumer preferences
for upscale multifamily rental housing and incorporate and emphasize garage
parking, high levels of privacy, higher quality interiors and private telephone
and television systems. The average age of the Current Communities is
approximately seven years.
The following charts illustrate the geographic distribution of the
Company's portfolio as of December 31, 1997 (based on the number of apartment
homes after giving effect to the completion of the Development Communities):
[Pie Chart showing the following geographic distribution: Houston-31.9%;
Dallas-10.5%; Austin-6.1%; San Antonio-2.7%; Atlanta-31.3%; Memphis-9.0%;
Nashville-5.9%; Orlando-2.6%]
[Pie Chart showing the following geographic distribution: Texas-51.2%;
Georgia-31.3%; Tennessee-14.9%; Florida-2.6%]
The following charts illustrate the geographic distribution of the
Company's portfolio as of December 31, 1997 (based on the number of apartment
homes after giving effect to the completion of the Development Communities and
the acquisition of both the South Florida Communities and the Greystone
Communities):
[Pie Chart showing the following geographic distribution: Houston-29.0%;
Dallas-8.4%; Austin-4.8%; San Antonio-2.2%; Atlanta-24.9%; Memphis-7.2%;
Nashville-4.7%; Orlando-2.0%; South Florida-16.8%]
[Pie Chart showing the following geographic distribution: Texas-44.4%;
Georgia-24.9%; Tennessee-11.9%; Florida-18.8%]
S-13
<PAGE> 14
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data on a
historical basis for the Operating Partnership. The following information should
be read in conjunction with all of the financial statements and notes thereto
incorporated herein by reference. The consolidated operating data of the
Operating Partnership for the year ended December 31, 1997 have been derived
from the Operating Partnership's unaudited financial statements. The
consolidated operating data of the Operating Partnership for the years ended
December 31, 1996 and 1995 have been derived from the financial statements
audited by Arthur Andersen LLP, independent public accountants, whose report
with respect thereto is incorporated herein by reference.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
OPERATING DATA:
Rental revenues............................................. $ 132,371 $ 104,543 $ 72,703
Other property revenues..................................... 6,322 4,928 3,268
---------- --------- ---------
Total property revenues............................. 138,693 109,471 75,971
Other revenues.............................................. 4,745 6,710 5,789
---------- --------- ---------
Total revenues...................................... 143,438 116,181 81,760
---------- --------- ---------
Property operating and maintenance expenses (exclusive of
items shown separately below)............................. 47,592 38,693 28,228
Depreciation and amortization............................... 25,194 18,892 12,669
Property management expenses (owned and third party)........ 5,696 5,617 5,348
General and administrative expenses......................... 3,248 3,045 2,869
Interest and credit enhancement fees........................ 25,313 21,688 13,798
Amortization of deferred financing costs.................... 992 1,348 932
Loss on treasury lock extension (1)......................... 1,178 0 0
---------- --------- ---------
Total expenses...................................... 109,213 89,283 63,844
---------- --------- ---------
Equity in income of joint ventures.......................... 320 280 64
Interest income............................................. 371 363 389
---------- --------- ---------
Income before gain on sale and extraordinary loss........... 34,916 27,541 18,369
Gain on sale of real estate assets.......................... 5,349 0 0
---------- --------- ---------
Income before extraordinary loss............................ 40,265 27,541 18,369
Extraordinary loss.......................................... (712) (631) (955)
---------- --------- ---------
Net income.................................................. 39,553 26,910 17,414
Dividends to preferred unitholders.......................... (4,163) 0 0
---------- --------- ---------
Net income available to common unitholders.................. $ 35,390 $ 26,910 $ 17,414
========== ========= =========
OTHER DATA:
Cash flows provided by (used in):
Operating activities.................................... $ 69,519 $ 51,629 $ 29,088
Investing activities.................................... (228,969) (213,596) (148,234)
Financing activities.................................... 158,244 157,823 123,619
Funds from operations (2)................................... 56,866 46,238 30,927
EBITDA (3).................................................. 87,832 69,701 46,017
Ratio of EBITDA to interest expense......................... 3.47x 3.21x 3.34x
Long-term debt (including current maturities) to Adjusted
Total Assets (4).......................................... 39.8% 44.4% 41.9%
Gross operating margin (5).................................. 65.7% 64.7% 62.8%
Total completed communities (period-end).................... 61 48 38
Total apartment units in completed communities
(period-end).............................................. 18,479 15,244 11,946
Average monthly revenue per apartment unit (6).............. $ 755 $ 700 $ 620
BALANCE SHEET DATA:
Real estate, before accumulated depreciation (7)............ $1,056,228 $ 784,600 $ 591,233
Total assets (7)............................................ 981,167 759,660 562,827
Adjusted Total Assets (4)................................... 1,093,661 879,242 682,409
Total debt.................................................. 435,362 390,321 286,259
Limited partners' capital interest at redemption value...... 110,866 98,482 75,314
Partners' capital........................................... 402,631 234,426 171,107
FUNDS FROM OPERATIONS RECONCILIATION:
Income before gain on sale and extraordinary loss (8)....... $ 34,916 $ 27,541 $ 18,417
Preferred dividends......................................... (4,163) 0 0
Loss on treasury lock extension (1)......................... 1,178 0 0
Real estate depreciation (8)................................ 24,935 18,697 12,510
---------- --------- ---------
Funds from operations....................................... $ 56,866 $ 46,238 $ 30,927
========== ========= =========
</TABLE>
S-14
<PAGE> 15
- ---------------
(1) The Operating Partnership extended its $75.0 million forward seven-year
treasury lock agreement in December, 1997. The loss recognized for generally
accepted accounting principles ("GAAP") purposes in connection with such
extension is added back for FFO purposes as the Operating Partnership
intends to account for such amount for FFO purposes as a finance cost which
will be amortized over the life of the debt transaction for which the
treasury lock is intended to hedge.
(2) The Operating Partnership considers 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 as presented
in the financial statements and data included elsewhere (or incorporated by
reference) in this Prospectus Supplement. The Operating Partnership computes
FFO in accordance with standards established by the National Association of
Real Estate Investment Trusts ("NAREIT"). FFO as defined represents 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. FFO should not be considered as an
alternative to net income as an indicator of the Operating Partnership's
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 shareholders and 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" in the Operating Partnership's
Registration Statement on Form 10, as amended, as filed with the Securities
and Exchange Commission on August 5, 1997, and Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 (both of which are incorporated
herein by reference) for a discussion of the Operating Partnership's cash
needs and cash flows.
(3) EBITDA is defined as net income before interest, credit enhancement fees,
preferred dividends, income taxes, depreciation, amortization, loss on
treasury lock extension and extraordinary items. EBITDA should not be
considered as a substitute for net income as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity, in
each case determined in accordance with GAAP. The Operating Partnership
believes that EBITDA provides useful information regarding the Operating
Partnership's ability to service its debt. However, investors should be
aware that EBITDA as shown above may not be comparable to similarly titled
measures presented by other companies, and comparisons could be misleading
unless all companies and analysts calculate this measure in the same
fashion.
(4) Adjusted Total Assets means the sum of (i) the amount determined by
multiplying the price at which the Company's Common Shares were offered in
the IPO by the sum of (A) the Common Shares issued in the IPO and (B) the
Units of the Operating Partnership not held by the Company that were issued
in connection with the IPO, (ii) the principal amount of outstanding debt of
the Operating Partnership immediately following the IPO and (iii) the
purchase price or cost of any real estate assets or mortgages receivable (or
interests therein) acquired (including the value of any Units issued in
connection therewith) or developed after the IPO and the amount of any
securities offering proceeds and other proceeds of debt received after the
IPO (to the extent such proceeds were not used to acquire real estate assets
or mortgages receivable or used to reduce debt), adjusted for the proceeds
of any real estate assets disposed of by the Operating Partnership. This
definition of "Adjusted Total Assets" values the assets owned by the
Operating Partnership at the time of the IPO at the market capitalization of
the Operating Partnership at that time, which the Operating Partnership
believes to be a more appropriate measure of the value of those assets than
undepreciated book value, which reflects their pre-IPO cost before
accumulated depreciation.
(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) Average monthly revenue per apartment unit is equal to the average monthly
rental revenue collected during the period, divided by the average monthly
number of apartment units occupied during the period.
(7) Real estate assets before accumulated depreciation and total assets
determined in accordance with GAAP in an UPREIT structure do not reflect the
value attributed to Units issued to controlling, continuing investors.
(8) Reflects extraordinary loss and real estate depreciation for both
wholly-owned communities and joint ventures, as applicable.
S-15
<PAGE> 16
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Operating Partnership and the predecessor to the Operating
Partnership for the periods shown:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 26- JANUARY 1- YEAR ENDED
--------------------- DECEMBER 31, JANUARY 25, DECEMBER 31,
1997 1996 1995 1994 1994(1)(2) 1993(1)
---- ---- ---- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratios................................ 1.84x 1.83x 1.40x 1.83x .89x 1.22x
</TABLE>
- ---------------
(1) Ratios for the period January 1 through January 25, 1994 and the year ended
December 31, 1993 reflect periods prior to the recapitalization and initial
public offering of the Company on January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of net income (loss) before
gain on sale of real estate assets, loss on treasury lock extension and
extraordinary items, plus fixed charges. Fixed charges consist of interest
expense, capitalized interest, credit enhancement fees and loan cost
amortization.
RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
On July 24, 1997, the Company completed an offering of 4,600,000 shares of
8.30% Series A Cumulative Redeemable Preferred Shares, par value $0.01 per share
(the "Series A Preferred Shares"). Prior to such offering, the Company had not
issued any Preferred Shares; accordingly, the consolidated ratios of earnings to
combined fixed charges and preferred dividends of the Operating Partnership and
the predecessor to the Operating Partnership are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 26- JANUARY 1- YEAR ENDED
--------------------- DECEMBER 31, JANUARY 25, DECEMBER 31,
1997 1996 1995 1994 1994(1)(2) 1993(1)
---- ---- ---- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratios................................ 1.74x 1.83x 1.40x 1.83x .89x 1.22x
</TABLE>
- ---------------
(1) Ratios for the period January 1 through January 25, 1994 and the year ended
December 31, 1993 reflect periods prior to the recapitalization and initial
public offering of the Company on January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
The ratio of earnings to combined fixed charges and preferred dividends was
computed by dividing earnings by the aggregate of fixed charges and preferred
dividends. For this purpose, earnings consist of net income (loss) before gain
on sale of real estate assets, loss on treasury lock extension and extraordinary
items, plus fixed charges and preferred dividends. Fixed charges consist of
interest expense, capitalized interest, credit enhancement fees and loan cost
amortization.
S-16
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Notes
are estimated to be approximately $98.8 million after deducting fees and
expenses of this Offering payable by the Operating Partnership. The Operating
Partnership intends to use such net proceeds to reduce borrowings under its
Credit Facilities. In the ordinary course of business, the Company borrows under
its Credit Facilities to fund its acquisition and development activities. As of
the date of this Prospectus Supplement, (i) indebtedness under the $175 million
Credit Facility bears interest at a weighted average rate of 6.3% per annum and
matures in March, 2000 and (ii) indebtedness under the $20 million Credit
Facility bears interest at a rate of 6.4% per annum and matures in October,
1998.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership on a historical basis as of December 31, 1997 and as adjusted to
give effect to (i) the sale by the Operating Partnership of the Notes at their
face value and the application of the assumed net proceeds therefrom and (ii)
the acquisition of the South Florida Communities and the Greystone Communities,
as if such events had occurred on December 31, 1997. See "Use of Proceeds." The
information set forth in the table below should be read in conjunction with the
Consolidated Financial Statements and the notes thereto incorporated by
reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT:
Notes Payable.......................................... $254,661 $ 282,661
Tax-Exempt Debt........................................ 105,080 240,955
Unsecured Credit Facilities............................ 75,621 125,795
6.80% Notes due 2005................................... -- 100,000
-------- ----------
Total Debt........................................ 435,362 749,411
-------- ----------
Limited Partners' Capital Interest (4,056,373 and 7,843,703
Common Units), at redemption value........................ 110,866 214,378
-------- ----------
PARTNERS' CAPITAL:
Preferred Partners (4,600,000 and 4,600,000 Preferred
Units), at $25.00 liquidation preference.............. 115,000 115,000
General Partner (260,470 and 298,343 Common Units)..... 3,907 3,918
Limited Partner (21,730,171 and 21,692,298 Common
Units)................................................ 283,724 284,826
-------- ----------
Total Partners' Capital........................... 402,631 403,744
-------- ----------
Total Capitalization.............................. $948,859 $1,367,533
======== ==========
</TABLE>
S-17
<PAGE> 18
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the "Senior Securities" set
forth under "Description of Debt Securities" in the accompanying Prospectus, to
which reference is hereby made.
GENERAL
The Notes constitute a separate series of Senior Securities (which are more
fully described in the accompanying Prospectus) to be issued under an Indenture,
dated as of March 23, 1998, as supplemented by Supplemental Indenture No. 1,
dated as of March 23, 1998 (the "Supplemental Indenture" and together with the
Original Indenture, the "Indenture") between the Operating Partnership and First
Union National Bank (the "Trustee"). The form of the Indenture has been filed as
an exhibit to the Registration Statement of which this Prospectus Supplement is
a part and is available for inspection at the offices of the Operating
Partnership. The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended (the "TIA"). The statements made hereunder relating to
the Indenture and the Notes are summaries of certain provisions thereof, do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Indenture and the Notes. All capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
The Notes will be limited to an aggregate principal amount of $100.0
million and will be direct, senior unsecured recourse obligations of the
Operating Partnership and will rank equally with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding, including indebtedness outstanding from time to time under the
Operating Partnership's Credit Facilities. The Notes will be effectively
subordinated to the claims of mortgage lenders and others holding secured
indebtedness of the Operating Partnership and of any Subsidiaries (as defined
below) now existing or that may be formed by the Operating Partnership in the
future as to the specific properties securing such indebtedness. As of December
31, 1997, the total amount of secured indebtedness of the Operating Partnership
and its Subsidiaries was $201.2 million. In addition, the Notes will be
effectively subordinated to unsecured indebtedness and other liabilities of any
Subsidiaries now existing or that may be formed by the Operating Partnership in
the future. As of December 31, 1997, the Subsidiaries did not have any such
unsecured indebtedness. All such secured indebtedness or unsecured indebtedness
of Subsidiaries will have to be satisfied in full before holders of the Notes
will be able to realize any value from encumbered or indirectly-held properties.
The Notes will be recourse to all of the assets of the Operating Partnership,
but will be non-recourse to any general partner or limited partner of the
Operating Partnership, including Gables Residential Trust, for the repayment of
the Notes.
As of December 31, 1997, on a pro forma basis after giving effect to (i)
the Transactions and (ii) the issuance and sale of the Notes offered hereby and
the application of the proceeds therefrom, the total outstanding indebtedness of
the Operating Partnership and its Subsidiaries would have been approximately
$749.4 million, of which approximately $365.1 million in the aggregate would
have been secured indebtedness and none would have been unsecured indebtedness
of Subsidiaries. The outstanding principal balance under the Credit Facilities
varies from time to time and as of December 31, 1997 was in the aggregate
approximately $75.6 million.
The Notes will mature on March 15, 2005 (the "Maturity Date"). The Notes
will not be subject to any sinking fund provisions and will not be convertible
into or exchangeable for any equity interest in the Operating Partnership or
Gables Residential Trust. The Notes will be issued only in fully registered
book-entry form without coupons, in denominations of $1,000 and integral
multiples thereof.
Except as described below under "Certain Covenants--Limitations on
Incurrence of Debt" and under "--Merger, Consolidation or Sale of Assets," the
Indenture does not contain any provisions that would limit the ability of the
Operating Partnership to incur indebtedness or that would afford holders of the
Notes protection in the event of: (i) a highly leveraged or similar transaction
involving the Operating Partnership or Gables Residential Trust or any affiliate
of either such party; (ii) a change of control; or (iii) a reorganization,
restructuring, merger or similar transaction involving the Operating Partnership
that may adversely affect the
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holders of the Notes. However, certain restrictions on the ownership and
transfer of the Common Shares designed to preserve Gables Residential Trust's
status as a REIT may act to prevent or hinder a change of control. The Operating
Partnership and its management have no present intention of engaging in a
transaction which would result in the Operating Partnership's being highly
leveraged or that would result in a change of control.
PRINCIPAL AND INTEREST
The Notes will bear interest at 6.80% per annum from March 15, 1998 or from
the immediately preceding Interest Payment Date (as defined below) to which
interest has been paid, payable semi-annually in arrears on March 15 and
September 15 of each year, commencing September 15, 1998 (each, an "Interest
Payment Date"), to the persons (the "Holders") in whose name the applicable
Notes are registered in the Security Register at the close of business 15
calendar days prior to such Interest Payment Date, i.e., February 28 and August
31, respectively (regardless of whether such day is a Business Day, as defined
below), as the case may be (each, a "Regular Record Date"). Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Note ("Defaulted Interest") will forthwith cease
to be payable to the Holder on the applicable Regular Record Date and may either
be paid to the person in whose name such Note is registered at the close of
business on a special record date (the "Special Record Date") for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to the Holder of such Note not less than ten days prior to such Special
Record Date, or may be paid at any time in any other lawful manner, as more
particularly described in the Indenture.
If any Interest Payment Date or Maturity falls on a day that is not a
Business Day, the required payment shall be on the next Business Day as if it
were made on the date such payment was due and no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date or
Maturity, as the case may be. "Business Day" means any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in the City of New York are required or authorized by law,
regulation or executive order to close.
The principal of (and premium or Make-Whole Amount, if any) and interest on
the Notes will be payable at the corporate trust office of the agent of the
Trustee in the City of Atlanta, Georgia, initially located at 999 Peachtree
Street, N.E., in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debt, provided
that, at the option of the Operating Partnership, payment of interest may be
made by check mailed to the address of the Person entitled thereto as it appears
in the Security Register or by wire transfer of funds to such Person at an
account maintained within the United States.
CERTAIN COVENANTS
Limitations on incurrence of debt. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
intercompany Debt (representing Debt to which the only parties are the Company,
any of its Subsidiaries, the Operating Partnership or the Management Companies
(as defined below), but only so long as such Debt is held solely by any of the
foregoing), if, immediately after giving effect to the incurrence of such
additional Debt and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Debt of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP is
greater than 60% of the sum of (without duplication) (i) the Operating
Partnership's Adjusted Total Assets (as defined below) as of the end of the
calendar quarter covered in the Operating Partnership's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed
with the Securities and Exchange Commission (or, if such filing is not permitted
under the Securities Exchange Act of 1934, as amended, filed with the Trustee)
prior to the incurrence of such additional Debt, (ii) the purchase price of any
real estate assets or mortgages receivable (or interests therein) acquired by
the Operating Partnership or any Subsidiary since the end of such calendar
quarter, including those obtained in connection with the incurrence of such
additional
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Debt and (iii) the amount of any securities offering proceeds received by the
Operating Partnership or any Subsidiary since the end of such calendar quarter
(to the extent that such proceeds were not used to acquire such real estate
assets or mortgages receivable or used to reduce Debt).
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Debt, other than intercompany Debt, if the ratio of Consolidated
Income Available for Debt Service (as defined below) to the Annual Debt Service
Charge (as defined below) for the four consecutive fiscal quarters most recently
ended prior to the date on which such additional Debt is to be incurred shall
have been less than 1.5:1, on a pro forma basis after giving effect to the
incurrence of such Debt and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt incurred by
the Operating Partnership and its Subsidiaries since the first day of such
four-quarter period and the application of the proceeds therefrom, including to
refinance other Debt, had occurred at the beginning of such period; (ii) the
repayment or retirement of any other Debt by the Operating Partnership and its
Subsidiaries since the first day of such four-quarter period had been repaid or
retired at the beginning of such period (except that, in making such
computation, the amount of Debt under any revolving credit facility shall be
computed based upon the average daily balance of such Debt during such period);
(iii) in the case of Acquired Debt (as defined below) or Debt incurred in
connection with any acquisition since the first day of such four-quarter period,
the related acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition by
the Operating Partnership or its Subsidiaries of any asset or group of assets
since the first day of such four-quarter period, whether by merger, stock
purchase or sale, or asset purchase or sale, such acquisition or disposition or
any related repayment of Debt had occurred as of the first day of such period
with the appropriate adjustments with respect to such acquisition or disposition
being included in such pro forma calculation.
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the property of the Operating
Partnership or any Subsidiary ("Secured Debt"), whether owned at the date of the
Indenture or thereafter acquired, if, immediately after giving effect to the
incurrence of such Secured Debt and the application of the proceeds therefrom,
the aggregate principal amount of all outstanding Secured Debt of the Operating
Partnership and its Subsidiaries on a consolidated basis is greater than 40% of
the sum of (without duplication) (i) the Operating Partnership's Adjusted Total
Assets as of the end of the calendar quarter covered in the Operating
Partnership's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the Securities and Exchange Commission
(or, if such filing is not permitted under the Securities Exchange Act of 1934,
as amended, filed with the Trustee) prior to the incurrence of such additional
Debt, (ii) the purchase price of any real estate assets or mortgages receivable
(or interests therein) acquired by the Operating Partnership or any Subsidiary
since the end of such calendar quarter, including those obtained in connection
with the incurrence of such additional Debt and (iii) the amount of any
securities offering proceeds received by the Operating Partnership or any
Subsidiary since the end of such calendar quarter (to the extent that such
proceeds were not used to acquire such real estate assets or mortgages
receivable or used to reduce Debt).
The Operating Partnership will at all times maintain an Unencumbered Total
Asset Value (as defined below) in an amount not less than 150% of the aggregate
principal amount of all outstanding unsecured Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis.
As used herein, and in the Indenture:
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Adjusted Total Assets" as of any date means the sum of (i) the amount
determined by multiplying the price at which the Company's Common Shares were
offered in its initial public offering (the "IPO") by the
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sum of (A) the Common Shares issued in the IPO and (B) the Units of the
Operating Partnership not held by the Company that were issued in connection
with the IPO, (ii) the principal amount of outstanding Debt of the Operating
Partnership immediately following the IPO and (iii) the purchase price or cost
of any real estate assets or mortgages receivable (or interests therein)
acquired (including the value of any Units issued in connection therewith) or
developed after the IPO and the amount of any securities offering proceeds and
other proceeds of Debt received after the IPO (to the extent such proceeds were
not used to acquire real estate assets or mortgages receivable or used to reduce
Debt), adjusted for the proceeds of any real estate assets disposed of by the
Operating Partnership. This definition of "Adjusted Total Assets" values the
assets owned by the Operating Partnership at the time of the IPO at the market
capitalization of the Operating Partnership at that time, which the Operating
Partnership believes to be a more appropriate measure of the value of those
assets than undepreciated book value, which reflects their pre-IPO cost before
accumulated depreciation.
"Annual Debt Service Charge" as of any date means the amount of any
interest expensed during the four consecutive fiscal quarters most recently
ended prior to such date.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries plus amounts which have been deducted for (i) interest on Debt of
the Operating Partnership and its Subsidiaries, (ii) provision for taxes of the
Operating Partnership and its Subsidiaries based on income, (iii) amortization
of debt discount, (iv) provisions for gains and losses on properties, (v)
depreciation and amortization, (vi) the effect of any noncash charge resulting
from a change in accounting principles in determining Consolidated Net Income
for such period and (vii) amortization of deferred charges.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Operating Partnership and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP.
"Debt" of the Operating Partnership or any Subsidiary means any
indebtedness of the Operating Partnership or any Subsidiary, whether or not
contingent, in respect of (i) borrowed money evidenced by bonds, notes,
debentures or similar instruments, (ii) indebtedness secured by any mortgage,
pledge, lien, charge, encumbrance or any security interest existing on property
owned by the Operating Partnership or any Subsidiary, (iii) reimbursement
obligations in connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase price of any
property except any such balance that constitutes an accrued expense or trade
payable or (iv) any lease of property by the Operating Partnership or any
Subsidiary as lessee which is reflected on the Operating Partnership's
consolidated balance sheet as a capitalized lease in accordance with GAAP; in
the case of items of indebtedness incurred under (i) through (iii) above to the
extent that any such items (other than letters of credit) would appear as a
liability on the Operating Partnership's consolidated balance sheet in
accordance with GAAP; and also includes, to the extent not otherwise included,
any obligation of the Operating Partnership or any Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another Person
(other than the Operating Partnership or any Subsidiary).
"Management Companies" means certain corporations, of which the Operating
Partnership owns 100% of the nonvoting stock and 1% of the voting stock, which
do not qualify as "qualified REIT subsidiaries" under the Code.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests of which are owned, directly
or indirectly, by such Person. For the purposes of this definition, "voting
equity securities" means equity securities having voting power for the election
of directors, whether at all times or only so long as no senior class of
security has such voting power by reason of any contingency.
"Unencumbered Total Asset Value" as of any date means the sum of (i) the
portion of Adjusted Total Assets allocable to the Operating Partnership's real
estate assets and (ii) the value of all other assets of the Operating
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with GAAP (but excluding intangibles and accounts receivable), in
each case which are unencumbered by any mortgage, lien, charge, pledge or
security interest.
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Compliance with the covenants described herein and with respect to the
Notes generally may not be waived by the Operating Partnership, or by the
Trustee unless the Holders of at least a majority in principal amount of all
outstanding Notes consent to such waiver; provided, however, that the defeasance
and covenant defeasance provisions of the Indenture described under "Discharge,
Defeasance and Covenant Defeasance," below, will apply to the Notes, including
with respect to the covenants described in this Prospectus Supplement.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Operating
Partnership, in whole or in part, at a redemption price equal to the sum of (i)
the principal amount of the Notes being redeemed plus accrued interest thereon
to the redemption date and (ii) the Make-Whole Amount, if any, with respect to
such Notes (the "Redemption Price").
If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any Notes called for redemption shall have been made
available on the redemption date referred to in such notice, such Notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the Holders of the Notes from and after the
redemption date will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the Security Register, not more than 60 nor less
than 30 days prior to the date fixed for redemption. The notice of redemption
will specify, among other items, the Redemption Price and the principal amount
of the Notes held by such Holder to be redeemed.
If less than all the Notes are to be redeemed at the option of the
Operating Partnership, the Operating Partnership will notify the Trustee at
least 45 days prior to giving the notice of redemption (or such shorter period
as is satisfactory to the Trustee) of the aggregate principal amount of Notes to
be redeemed and their redemption date. The Trustee shall select, in such manner
as it shall deem fair and appropriate, Notes to be redeemed in whole or in part.
Notes may be redeemed in part in the minimum authorized denomination for Notes
or in any integral multiple thereof.
Neither the Operating Partnership nor the Trustee shall be required to: (i)
issue, register the transfer of or exchange Notes during a period beginning at
the opening of business 15 days before any selection of Notes to be redeemed and
ending at the close of business on the day of mailing of the relevant notice of
redemption; (ii) register the transfer of or exchange any Note, or portion
thereof, called for redemption, except the unredeemed portion of any Note being
redeemed in part; or (iii) issue, register the transfer of or exchange any Note
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Note not to be so repaid.
As used herein and in the Indenture:
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of such dollar if such redemption or accelerated
payment had not been made, determined by discounting, on a semi-annual basis,
such principal and interest at the Reinvestment Rate (determined on the third
Business Day preceding the date such notice of redemption is given or
declaration of acceleration is made) from the respective dates on which such
principal and interest would have been payable if such redemption or accelerated
payment had not been made, over (ii) the aggregate principal amount of the Notes
being redeemed or paid.
"Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to stated maturity of the principal being redeemed
(the "Treasury Yield"), plus 0.25%. For purposes hereof, the Treasury Yield
shall be equal to the arithmetic mean of the yields published in the Statistical
Release (as defined below) under the heading "Week Ending" for the "U.S.
Government Securities -- Treasury Constant Maturities" with a maturity equal to
such remaining life; provided, that if no published maturity exactly corresponds
to such remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the
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arithmetic means of the yields for the next shortest and next longest published
maturities. For purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used. If the format or content of the Statistical
Release changes in a manner that precludes determination of the Treasury Yield
in the above manner, then the Treasury Yield shall be determined in the manner
that most closely approximates the above manner, as reasonably determined by the
Operating Partnership.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination of the Make-Whole Amount, then
such other reasonably comparable index which shall be designated by the
Operating Partnership.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Operating Partnership may, without the
consent of the holders of any outstanding Debt Securities, consolidate with, or
sell, lease or convey all or substantially all of its assets to, or merge with
or into, any other entity provided that (a) either the Operating Partnership
shall be the continuing entity, or the successor entity (if other than the
Operating Partnership) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets is organized
under the laws of any domestic jurisdiction and assumes the Operating
Partnership's obligations to pay principal of (and premium or Make-Whole Amount,
if any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Operating
Partnership or any Subsidiary as a result thereof as having been incurred by the
Operating Partnership or such Subsidiary at the time of such transaction, no
Event of Default under the Indenture, and no event which, after notice or the
lapse of time, or both, would become such an Event of Default, shall have
occurred and be continuing; and (c) an officers' certificate and legal opinion
covering such conditions shall be delivered to the Trustee.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to the Notes: (a) default in the payment of any interest on any
Notes when such interest becomes due and payable that continues for a period of
30 days; (b) default in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Notes when due and payable that continues for
a period of 5 days; (c) default in the performance, or breach, of any other
covenant or warranty of the Operating Partnership in the Indenture with respect
to the Notes and continuance of such default or breach for a period of 60 days
after there has been given to the Operating Partnership by the Trustee, or to
the Operating Partnership and the Trustee by the Holders of at least 25% in
principal amount of the Notes, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" under the Indenture; (d) default under any bond, debenture, note,
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the
Operating Partnership (or by any Subsidiary, the repayment of which the
Operating Partnership has guaranteed or for which the Operating Partnership is
directly responsible or liable as obligor or guarantor), having an aggregate
principal amount outstanding of at least $10,000,000, whether such indebtedness
now exists or shall hereafter be created, which default shall have resulted in
such indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been rescinded
or annulled, within a period of 10 days after there shall have been given, by
registered or certified mail, to the Operating Partnership by the Trustee, or to
the Operating Partnership and the Trustee by the Holders of at least 10% in
principal amount of the outstanding Notes, a written notice specifying such
default and requiring the Operating Partnership to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and stating
that such notice is a "Notice of Default" under the Indenture, provided,
however, that such a default on indebtedness which constitutes tax-exempt
financing having an aggregate principal amount outstanding not
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exceeding $25,000,000 that results solely from a failure of an entity providing
credit support for such indebtedness to honor a demand for payment on a letter
of credit shall not constitute an Event of Default; or (e) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership or any Significant Subsidiary
or for all or substantially all of either of its property.
See "Description of Debt Securities--Events of Default, Notice and Waiver"
in the accompanying Prospectus for a description of rights, remedies and other
matters relating to Events of Default.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance which are described in the accompanying Prospectus will
apply to the Notes, including without limitation the covenants described under
"Description of Notes--Certain Covenants."
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of one or more fully registered global
notes ("Global Notes") which will be deposited with, or on behalf of DTC, and
registered in the name of DTC's nominee, Cede & Co. Except under the
circumstance described below, the Notes will not be issuable in definitive form.
Unless and until it is exchanged in whole or in part for the individual Notes
represented thereby, a Global Note may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC
or by DTC or any nominee of DTC to a successor depository or any nominee of such
successor.
Upon the issuance of a Global Note, DTC or its nominee will credit on its
book-entry registration and transfer system the respective principal amounts of
the individual Notes represented by such Global Note to the accounts of persons
that have accounts with DTC ("Participants"). Such accounts shall be designated
by the underwriters, dealers or agents with respect to the Notes. Ownership of
beneficial interests in a Global Note will be limited to Participants or persons
that may hold interests through Participants. Ownership of beneficial interests
in such Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with respect
to beneficial interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and laws may impair the
ability to own, pledge or transfer any beneficial interest in a Global Note.
So long as DTC or its nominee is the registered owner of such Global Note,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Note for all purposes under the
Indenture and the beneficial owners of the Notes will be entitled only to those
rights and benefits afforded to them in accordance with DTC's regular operating
procedures. Except as provided below, owners of beneficial interest in a Global
Note will not be entitled to have any of the individual Notes registered in
their names, will not receive or be entitled to receive physical delivery of any
such notes in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Payments of principal of and any interest on, individual Notes represented
by a Global Note registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the registered owner of the Global
Note representing such Notes. None of the Operating Partnership, the Trustee,
any Paying Agent or the Security Registrar will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Note for such Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Operating Partnership expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of a permanent Global Note
representing any Notes, immediately will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records to DTC or its
nominee. The Operating Partnership also expects that payments by Participants to
owners of beneficial interests in such Global Note held through such
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Participants will be governed by standing instructions and customary practices,
as is the case with securities held for the account of customers in bearer form
or registered in "street name." Such payments will be the responsibility of such
Participants.
If DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by the Operating
Partnership within 90 days, the Operating Partnership will issue individual
Notes in exchange for the Global Note or Notes representing the Notes. In
addition, the Operating Partnership may, at any time and in its sole discretion,
determine not to have any Notes represented by one or more Global Notes and, in
such event, will issue individual Notes in exchange for the Global Note or Notes
representing the Notes.
DTC has advised the Operating Partnership of the following information
regarding DTC: DTC is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its Participants
deposit with DTC. DTC also facilitates the settlement among its Participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry charges in its Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of DTC include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations and
certain other organizations. DTC is owned by a number of its direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and
the National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
Participant of DTC, either directly or indirectly. The rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest in respect of the Notes
will be made by the Operating Partnership in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Notes are issued in certificated form, and secondary market trading activity in
the Notes will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the Notes.
GOVERNING LAW
The Indenture is governed by and shall be construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
entirely in such state.
NO PERSONAL LIABILITY OR RECOURSE
No recourse under or upon any obligation, covenant or agreement contained
in the Indenture or the Notes, or because of any indebtedness evidenced thereby,
shall be had (i) against the Company or any other past, present or future
partner in the Operating Partnership, (ii) against any other person or entity
which owns an interest, directly or indirectly, in any partner of the Operating
Partnership, or (iii) against any past, present or future shareholder, employee,
officer or director, as such, of the Company or any successor, either directly
or through the Company or the Operating Partnership or any successor, under any
rule of law, statute or constitutional provision or by the enforcement of any
assessment or by any legal or equitable proceeding or otherwise. Each holder of
Notes waives and releases all such liability by accepting such Notes. The waiver
and release are part of the consideration for the issue of the Notes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes, subject to the limitations set forth
below, the material U.S. Federal income tax consequences of the acquisition,
ownership and disposition of the Notes. The discussion is based upon provisions
of the Code, its legislative history, judicial authority, current administrative
rulings and practice, and existing and proposed Treasury Regulations, all as in
effect and existing on the date hereof. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
validity of the statements and conclusions set forth below. Any such changes or
interpretations may be retroactive and could adversely affect a holder of the
Notes. Except as otherwise described herein, this discussion applies both to a
person who is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (iii) an estate or trust the income of which is subject
to U.S. Federal income taxation regardless of its source, (iv) a trust if (a) a
U.S. court may exercise primary supervision over its administration and (b) one
or more U.S. persons have authority to control all substantial decisions of the
trust, or (v) any other person whose income or gain in respect of a Note is
effectively connected with the conduct of a United States trade or business (a
"U.S. Holder") and a person who is not a U.S. Holder (a "Non-U.S. Holder"). This
discussion deals only with the Notes held as capital assets (within the meaning
of Section 1221 of the Code) by holders and does not purport to deal with all
aspects of U.S. Federal income taxation that might be relevant to particular
holders in light of their personal investment circumstances or status, nor does
it discuss the U.S. Federal income tax consequences to certain types of holders
subject to special treatment under the U.S. Federal income tax laws, such as
certain financial institutions, insurance companies, dealers in securities or
foreign currency, tax-exempt organizations, or persons that hold Notes that are
a hedge against, or that are hedged against, currency risk or that are part of a
straddle, a constructive sale transaction, conversion transaction, or persons
whose functional currency is not the U.S. Dollar. Moreover, the effect of any
applicable state, local or foreign tax laws, or any estate or gift tax laws, is
not discussed.
Goodwin, Procter & Hoar LLP, counsel to the Operating Partnership, has
reviewed the following discussion and is of the opinion that, to the extent that
it constitutes matters of law or legal conclusions or purports to describe
certain provisions of the U.S. Federal tax laws, the following discussion is a
correct summary in all material respects of the matters discussed therein.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH INVESTOR IS
URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH
INVESTOR'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES.
U.S. HOLDERS: INTEREST, ORIGINAL ISSUE DISCOUNT
A U.S. Holder of a Note will be required to report as ordinary interest
income for U.S. Federal income tax purposes interest earned with respect to a
Note in accordance with the U.S. Holder's regular method of tax accounting.
Although the Notes may be issued at a price that is less than their stated
principal amount, the discount is not expected to exceed 0.25% of the stated
redemption price at maturity multiplied by the number of whole years to
maturity. Therefore, for U.S. Federal income tax purposes, the amount of
original issue discount on the Notes that is attributable to the difference
between their purchase price and their stated redemption price is considered to
be de minimis and is treated as zero.
U.S. HOLDERS: MARKET DISCOUNT, ACQUISITION PREMIUM
If a U.S. Holder acquires a Note for an amount that is less than the sum of
all payments (other than payments with respect to stated interest) due with
respect to such Note at the time of acquisition, the amount of such difference
will be treated as "market discount" for U.S. Federal income tax purposes,
unless such difference is less than a specified de minimis amount. Under the
market discount rules, a U.S. Holder will be required to treat any principal
payment on, or any gain on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent that such gain does not exceed the
accrued market discount on
S-26
<PAGE> 27
such Note. If a U.S. Holder makes a gift of a Note, accrued market discount, if
any, will be recognized as if such U.S. Holder had sold such Note for a price
equal to its fair market value. In addition, the U.S. Holder may be required to
defer, until the maturity of the Note or the earlier disposition of the Note in
a taxable transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue such market discount on a constant yield
to maturity basis. Such an election is applicable only to the Note with respect
to which it is made and is irrevocable. A U.S. Holder of a Note may elect to
include market discount in income currently as it accrues (on either a
straight-line basis or constant yield to maturity basis), in which case the
rules described above regarding the deferral of interest deductions will not
apply. This election to include market discount in income currently, once made,
applies to all market discount obligations acquired on or after the first day of
the first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service.
A U.S. Holder that purchases a Note for an amount in excess of the sum of
all payments (other than payments with respect to stated interest) due with
respect to such Note will be considered to have purchased the Note at a
"premium." A U.S. Holder generally may elect to amortize the premium over the
remaining term of the Note on a constant yield to maturity basis. The amount
amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from the Note. A U.S. Holder that elects to amortize such
premium must also reduce its tax basis in a Note by the amount of premium
amortized during its holding period. Bond premium on a Note held by a U.S.
Holder that does not make an election will decrease the gain or increase the
loss otherwise recognized on disposition of the Note. The election to amortize
premium on a constant yield to maturity basis once made applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies
(other than debt instruments the interest on which is excludable from gross
income) and may not be revoked without the consent of the Internal Revenue
Service.
U.S. HOLDERS: SALE OR REDEMPTION
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Operating Partnership) or other
disposition of a Note will be a taxable event for U.S. Federal income tax
purposes. In such event, a U.S. Holder will recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of any
property received upon such sale, exchange, redemption or other taxable
disposition and (ii) the U.S. Holder's adjusted tax basis therein. A U.S.
Holder's adjusted tax basis for a Note generally will be the U.S. Holder's
purchase price for the Note increased by amounts includible in income by the
U.S. Holder as market discount and reduced by any amortized premium. Except with
respect to accrued market discount or accrued and unpaid interest (which will
constitute ordinary income), such gain or loss generally will constitute capital
gain or loss and will be long-term capital gain or loss if the Note has been
held by the U.S. Holder for more than 12 months at the time of such sale,
exchange, redemption or other disposition (or, if the U.S. Holder is an
individual, trust or estate, will be taxed as long-term capital gain if the Note
has been held for more than 18 months, and as mid-term capital gain if the Note
has been held for more than 12 months). The distinction between capital gain or
loss and ordinary income or loss is also relevant for purposes of, among other
things, limitations on the deductibility of capital losses.
NON-U.S. HOLDER
A Non-U.S. Holder will not be subject to U.S. Federal income taxes on
payments of principal, premium (if any) or interest (including original issue
discount and market discount, if any) on a Note, unless such Non-U.S. Holder is
a direct or indirect 10% or greater security holder of the Operating
Partnership, a controlled foreign corporation related to the Operating
Partnership or a bank receiving interest described in Section 881(c)(3)(A) of
the Code. To qualify for the exemption from taxation, the last United States
payor in the chain of payment prior to payment to a Non-U.S. Holder (the
"Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding
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<PAGE> 28
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The New
Withholding Regulations generally will be effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective Non-U.S.
Holders are strongly urged to consult their own tax advisors with respect to the
New Withholding Regulations.
Generally, a Non-U.S. Holder will not be subject to Federal income taxes on
any amount that constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the Non-U.S. Holder. Certain other
exceptions may be applicable, and a Non-U.S. Holder should consult its tax
advisor in this regard.
S-28
<PAGE> 29
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Operating Partnership, the Company
and the Underwriters named below (the "Underwriters"), the Operating Partnership
has agreed to sell to the Underwriters, and each of such Underwriters has agreed
to purchase from the Operating Partnership, the respective principal amount of
Notes set forth opposite its name. Pursuant to the terms of the Underwriting
Agreement, the Underwriters are obligated to purchase the entire aggregate
principal amount of such Notes if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
PaineWebber Incorporated................... $ 60,000,000
Lehman Brothers Inc........................ 40,000,000
------------
Total................................... $100,000,000
============
</TABLE>
The Underwriters have advised the Operating Partnership that they propose
to offer the Notes in part to the public at the public offering price set forth
on the cover page of this Prospectus Supplement, and in part to certain
securities dealers (who may include the Underwriters) at such price less a
concession not in excess of 0.375% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.250% of the principal amount of the Notes to certain other dealers,
including the Underwriters. Following completion of the initial offering of the
Notes, the public offering price, concession and reallowance may change.
The Notes are a new issue of securities with no established trading market.
The Operating Partnership has been advised by the Underwriters that the
Underwriters intend to make a market in the Notes but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.
Pursuant to the Underwriting Agreement, the Company and the Operating
Partnership have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
Until the distribution of the Notes is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriters to bid for and
purchase the Notes. As an exception to these rules, the Underwriters are
permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids and purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection with
this Offering, i.e., if they sell a greater aggregate principal amount of Notes
than is set forth on the cover page of this Prospectus Supplement, the
Underwriters may reduce that short position by purchasing Notes in the open
market. In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Operating Partnership nor the Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Operating Partnership nor the Underwriters make any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
In the ordinary course of business, the Underwriters and their affiliates
have engaged, and may in the future engage, in commercial banking and investment
banking transactions with the Company, the Operating Partnership and their
affiliates.
S-29
<PAGE> 30
LEGAL MATTERS
Certain legal matters, including the legality of the Notes being offered
hereby, are being passed upon for the Operating Partnership by Goodwin, Procter
& Hoar LLP, Boston, Massachusetts. Certain legal matters related to this
Offering are being passed upon for the Underwriters by O'Melveny & Myers LLP,
San Francisco, California.
S-30
<PAGE> 31
PROSPECTUS
$300,000,000
GABLES RESIDENTIAL TRUST
PREFERRED SHARES
COMMON SHARES
WARRANTS
$200,000,000
GABLES REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
---------------------
Gables Residential Trust ("Gables" or the "Company") may offer from time to
time in one or more series, (i) preferred shares of beneficial interest, $.01
par value per share ("Preferred Shares"), (ii) common shares of beneficial
interest, $.01 par value per share ("Common Shares"), and (iii) warrants or
other rights to purchase Preferred Shares or Common Shares ("Warrants"). Gables
Realty Limited Partnership (the "Operating Partnership") may offer from time to
time in one or more series unsecured, non-convertible investment grade debt
securities (the "Debt Securities"). The aggregate public offering price of the
Preferred Shares, Common Shares and Warrants shall be up to $300,000,000 and the
aggregate public offering price of the Debt Securities shall be up to
$200,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of offering. The Debt Securities, Preferred Shares, Common Shares and
Warrants (collectively, the "Securities") may be offered separately or together,
in separate series, in amounts, at prices and on terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Preferred Shares, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; (ii)
in the case of Common Shares, any initial public offering price; (iii) in the
case of Warrants, the duration, offering price, exercise price and
detachability; and (iv) in the case of Debt Securities, the specific title,
aggregate principal amount, ranking, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Operating Partnership or repayment at the option
of the holder, terms for sinking fund payments, covenants and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be consistent with the Company's Amended and Restated
Declaration of Trust, as then in effect, or otherwise appropriate to preserve
the status of the Company as a real estate investment trust ("REIT") for Federal
income tax purposes. See "Restrictions on Transfers of Shares of Beneficial
Interest."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Preferred Shares, Common Shares and Warrants may be offered by the
Company and the Debt Securities may be offered by the Operating Partnership
directly to one or more purchasers, through agents designated from time to time
by the Company or the Operating Partnership, respectively, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" ON PAGE 4 FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------
The date of this Prospectus is August 11, 1997.
<PAGE> 32
AVAILABLE INFORMATION
The Company and the Operating Partnership have filed with the Securities
and Exchange Commission (the "SEC" or "Commission") a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities. This Prospectus,
which constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits thereto on
file with the Commission pursuant to the Securities Act and the rules and
regulations of the Commission thereunder. The Registration Statement, including
exhibits thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and copies may be obtained at
the prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company and the Operating Partnership file information electronically
with the Commission, and the Commission maintains a Web Site that contains
reports, proxy and information statements and other information regarding
registrants (including the Company and the Operating Partnership) that file
electronically with the Commission. The address of the Commission's Web Site is
(http://www.sec.gov).
The Company and the Operating Partnership (effective August, 1997) are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith the Company
and the Operating Partnership file reports and proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the locations described above. Copies
of such materials can be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. In addition, the Common Shares are listed on the New York
Stock Exchange (the "NYSE"), and such materials can be inspected and copied at
the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, filed
with the Commission pursuant to the Exchange Act (File No. 1-12590), and the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
filed with the Commission pursuant to the Exchange Act (File No. 1-12590); (ii)
the Company's Current Report on Form 8-K dated July 24, 1997 filed with the
Commission pursuant to the Exchange Act (File No. 1-12590); (iii) the
description of the Company's Common Shares contained in its Registration
Statement on Form 8-A filed with the Commission pursuant to the Exchange Act,
including all amendments and reports updating such description (File No.
1-12590); (iv) the description of the Company's 8.30% Series A Cumulative
Redeemable Preferred Shares on Form 8-A filed with the Commission pursuant to
the Exchange Act (File No. 1-12590); (v) the Proxy Statement prepared by the
Company in connection with its 1997 Annual Meeting of Shareholders (File No.
1-12590); and (vi) the Operating Partnership's Registration Statement on Form
10, as filed June 11, 1997 with the Commission pursuant to the Exchange Act,
including all amendments and reports updating such Registration Statement (File
No. 000-22683).
All other documents filed with the Commission by the Company or the
Operating Partnership pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities are to be incorporated herein by
reference and such documents shall be deemed to be a part hereof from the date
of filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by
2
<PAGE> 33
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS. WRITTEN REQUESTS
SHOULD BE MAILED TO GABLES RESIDENTIAL TRUST, 2859 PACES FERRY ROAD, OVERLOOK
III, SUITE 1450, ATLANTA, GEORGIA, ATTENTION: DIRECTOR OF INVESTOR RELATIONS.
TELEPHONE REQUESTS MAY BE DIRECTED TO (770) 436-4600.
3
<PAGE> 34
RISK FACTORS
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995: This Prospectus, including the information incorporated by reference
herein, and the applicable Prospectus Supplement contain 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 could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below, and
prospective investors should carefully consider such risk factors in conjunction
with the other information contained or incorporated by reference in this
Prospectus and the applicable Prospectus Supplement before making a decision to
purchase any Securities. Unless the context otherwise requires, the "Company"
shall also hereinafter refer to the Operating Partnership and its subsidiaries.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
The Company intends to actively continue development and construction of
multifamily apartment communities. There can be no assurance that the Company
will undertake to develop any particular site or that it will be able to
complete such development if it is undertaken. Risks associated with the
Company's development and construction activities include: development
opportunities may be abandoned; construction costs of a community may exceed
original estimates, possibly making the community uneconomical; occupancy rates
and rents at a newly completed community may not be sufficient to make the
community profitable; financing may not be available on favorable terms for
development of a community; and construction and lease-up may not be completed
on schedule, resulting in increased debt service and construction costs.
Development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy, and other required governmental permits and authorizations.
The Company intends to continue to acquire multifamily apartment
communities on a select basis. Acquisitions of multifamily communities entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate.
The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under existing credit facilities or loan
commitments or other lines of credit or other forms of secured or unsecured
financing or through the issuance of additional equity by the Company. The use
of equity financing, rather than debt, for future developments or acquisitions
could have a dilutive effect on the interest of existing shareholders of the
Company. If new developments are financed under existing lines of credit, there
is a risk that, unless substitute financing is obtained, further availability
under the lines of credit for new development may not be available or may be
available only on disadvantageous terms. In addition there is a risk that upon
the maturity of such existing lines of credit, the lines of credit will not be
able to be refinanced or that the terms of such refinancing will not be as
favorable as the terms of the existing indebtedness.
REAL ESTATE FINANCING RISKS
No limitation on debt. The Company currently has a policy of incurring
debt only if upon such incurrence the ratio of debt to total market
capitalization (i.e., the total consolidated debt of the Company as a percentage
of the market value of issued and outstanding equity securities plus total
consolidated debt) would be 60% or less, but the organizational documents of the
Company do not contain any limitation on the amount of indebtedness the Company
may incur. Accordingly, the Company's Board of Trustees could alter or eliminate
this policy. In addition, except as may be set forth in any Prospectus
Supplement, the Debt Securities will not contain any provision that would afford
holders of the Debt Securities protection in the event of a highly leveraged
transaction or change in control of the Operating Partnership or the Company.
Existing debt maturities, balloon payments and refinancing risks. The
Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. Because the Company anticipates
that only a small portion of the principal of the Company's mortgage
indebtedness will be repaid prior to maturity, it will
4
<PAGE> 35
be necessary for the Company to refinance debt. Accordingly, there is a risk
that existing indebtedness on the Communities will not be able to be refinanced
or that the terms of such refinancing will not be as favorable as the terms of
the existing indebtedness.
Risk of Rising Interest Rates. The Company incurred and expects in the
future to incur floating rate indebtedness in connection with the construction
of multifamily apartment communities, as well as for other purposes. In
addition, additional indebtedness that the Company incurs under the Company's
unsecured revolving credit facility also bears interest at a floating rate.
Accordingly, increases in interest rates would increase the Company's interest
costs (to the extent that the related indebtedness was not protected by the
Company's interest rate protection arrangements).
Bond Compliance Requirements. Certain of the Company's multifamily
apartment communities are or may be financed with obligations issued by various
local government agencies or instrumentalities, the interest on which is exempt
from Federal income taxation. These obligations are commonly referred to as
"tax-exempt bonds." Under the terms of such bonds, the Company must comply with
various restrictions on the use of the Company's multifamily apartment
communities including the restriction that a percentage of apartments be made
available to low and middle income households. The bond compliance requirements
in effect, and the requirements of any future tax-exempt bond financing utilized
by the Company, may have the effect of limiting the Company's income from the
Company's multifamily apartment communities subject to the financing. In
addition, certain of the tax-exempt bond financing documents require that a
financial institution (the "credit enhancer") guarantee payment of principal of,
and interest on, the bonds, which may take the form of a letter of credit,
surety bond, guarantee agreement or other additional collateral. If the credit
enhancer defaults in its credit enhancement obligations, or the Company is
unable to renew the applicable credit enhancement or otherwise post satisfactory
collateral, a default will occur under the applicable tax-exempt bonds and the
property could be foreclosed upon.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. If the Company's communities do not generate revenues sufficient to meet
operating expenses, including debt service and capital expenditures, the
Company's cash flow and ability to make distributions to its shareholders will
be adversely affected. A multifamily community's revenues and value may be
adversely affected by the general economic climate; the local economic climate
(including the fiscal condition of the relevant governmental bodies); local real
estate conditions (such as oversupply of or reduced demand for apartment homes);
the perceptions by prospective residents of the safety, convenience and
attractiveness of the communities or neighborhoods in which they are located and
the quality of local schools and other amenities; the ability of the owner to
provide adequate management, maintenance and insurance; and increased operating
cost (including real estate taxes and utilities). Certain significant
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment.
Dependence on Primary Markets. The Company's multifamily apartment
communities are located in various metropolitan areas in the Southeastern and
Southwestern United States, particularly Atlanta, Houston and Dallas, and the
Company's performance and its ability to make distributions to shareholders
could be adversely affected by economic and social conditions in these
geographic areas.
Market Illiquidity. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Internal Revenue Code (the "Code") limits the Company's ability
to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.
Operating Risks. The Company's multifamily apartment communities are
subject to all operating risks common to multifamily apartment communities in
general, any and all of which might adversely affect apartment occupancy or
rental rates. Increases in unemployment in the areas in which the communities
owned or managed by the Company are located might adversely affect multifamily
occupancy or rental rates.
5
<PAGE> 36
Increases in operating costs due to inflation and other factors may not
necessarily be offset by increased rents. Residents may be unable or unwilling
to pay rent increases. Future enactment of rent control or rent stabilization
laws or other laws regulating multifamily housing may reduce rental revenue or
increase operating costs. If operating expenses increase, the local rental
market may limit the extent to which rents may be increased to meet increased
expenses without decreasing occupancy rates.
Competition. There are numerous housing alternatives that compete with the
Company's multifamily apartment communities in attracting residents. The
Company's multifamily apartment communities compete directly with other
multifamily rental apartments and single family homes that are available for
rent or purchase in the markets in which the Company's multifamily apartment
communities are located. In addition, other competitors for development and
acquisitions of properties, including other REITs, may have greater resources
than the Company. Increased supply of apartment homes in the Company's principal
markets over the past few years and the next few years may adversely affect the
current favorable demand environment for apartment homes, including occupancy
and rental rates.
Affordable Housing Laws. Certain of the Company's multifamily apartment
communities are, and will be in the future, subject to federal, state and local
statutes or other restrictions requiring that a percentage of apartments be made
available to low and middle income households. These laws and obligations, as
well as any changes thereto making it more difficult to meet such requirements,
or a reduction in or elimination of certain financing advantages available to
those persons satisfying such requirements, could adversely affect the Company's
profitability and its ability to develop certain communities in the future.
RISK OF FEE MANAGEMENT BUSINESS
The Company manages properties owned by third parties for a fee. Risks
associated with the management of properties owned by third parties include the
risk that the management contracts will be terminated and/or that the rental
revenues upon which management fees are based will decline, resulting in
decreased management fee income.
LIMITS ON CHANGES IN CONTROL
Certain provisions contained in the Company's Amended and Restated
Declaration of Trust (the "Declaration of Trust") and Second Amended and
Restated Bylaws and under Maryland law may have the effect of discouraging a
third party from making an acquisition proposal for the Company and may thereby
inhibit a change in control of the Company. For example, such provisions may (i)
deter tender offers for Common Shares, which offers may be attractive to the
shareholders, or (ii) deter purchases of large blocks of Common Shares, thereby
limiting the opportunity for shareholders to receive a premium for their Common
Shares over then-prevailing market prices.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES OF BENEFICIAL
INTEREST
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly, by five or fewer persons. In order to protect the
Company against the risk of losing its status as a REIT due to a concentration
of ownership among its shareholders, the Company has limited ownership of shares
of beneficial interest by any single shareholder to 9.8% of the outstanding
shares of beneficial interest. Although the Board of Trustees presently has no
intention of doing so, the Board of Trustees could waive this restriction if it
were satisfied, based upon the advice of tax counsel, that ownership in excess
of this limit would not jeopardize the Company's status as a REIT and the Board
of Trustees otherwise decided such action would be in the best interest of the
Company. This restriction also does not apply with respect to an offeror in the
event of an all-cash tender offer by it which has been accepted by shareholders
representing at least two-thirds of the Company's outstanding shares. Shares
acquired or transferred in breach of the limitation will be automatically
exchanged for shares not entitled to vote or to participate in dividends or
other distributions. In addition, shares acquired or transferred in breach of
the limitation may be purchased by the Company for the lesser of the price paid
and the market price (as determined in the manner set forth in the Declaration
of Trust).
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COST 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. Although management of the
Company believes that the Company's communities are substantially in compliance
with the present requirements of the ADA, the Company may incur additional costs
of complying with the ADA. A number of additional federal, state and local laws
exist which also may require modifications to the Company's communities, or
restrict certain further renovations thereof, with respect to access thereto by
disabled persons. For example, the Fair Housing 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. 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 Company, such costs could be
substantial.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
The Company intends at all times to operate so as to qualify as a REIT
under the Code. Although management of the Company believes that the Company is
organized and operates in such a manner, no assurance can be given that the
Company qualifies or will remain qualified as a REIT. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect the Company's ability to qualify as a REIT. If
the Company fails to qualify as a REIT, it will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. In addition, unless entitled to relief under certain
statutory provisions, the Company will be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax would significantly reduce the cash flow available for
distribution to shareholders.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Securities could be substantially affected by
general market conditions, including changes in interest rates. An increase in
market interest rates would lead purchasers of the Debt Securities and may lead
purchasers of the Common Shares, Preferred Shares and Warrants to demand a
higher annual yield, which could adversely affect the market price of the
outstanding Common Shares and other Securities. Moreover, numerous other factors
such as government regulatory action and changes in tax laws could have a
significant impact on the future market price of the Common Shares or other
Securities.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local environmental laws, a current or
previous owner or operator of real estate may be required (typically regardless
of knowledge or responsibility) 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, which may be substantial. The presence of such substances (or the
failure to properly remediate the contamination) may adversely affect the
owner's ability to borrow against, sell or rent such property.
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THE COMPANY AND THE OPERATING PARTNERSHIP
GENERAL
Gables is one of the largest managers, developers and owners of multifamily
apartment communities in the Southeastern and Southwestern United States. The
Company is a self-administered and self-managed real estate investment trust (a
"REIT") and has elected to be treated as a REIT under the Internal Revenue Code
of 1986, as amended, beginning with its taxable year ending December 31, 1994.
The Company's Common Shares are listed on the New York Stock Exchange under the
symbol "GBP."
The Company currently engages in the multifamily apartment community
management, development, construction and acquisition businesses, including the
provision of related brokerage and corporate rental housing services.
Substantially all of the Company's business is conducted through, and
substantially all of the Company's interests in its properties are held by or
through, the Operating Partnership. Through its ownership of Gables GP, Inc.
("GGPI"), a Texas corporation and wholly-owned subsidiary of the Company that is
the sole general partner of the Operating Partnership, and its ownership of a
direct limited partnership interest in the Operating Partnership, 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
issued in connection with the Company's sale of 4,600,000 shares of 8.30% Series
A Cumulative Redeemable Preferred Shares on July 24, 1997)(this structure is
commonly referred to as an umbrella partnership REIT or "UPREIT").
At March 31, 1997, the Company owned 48 completed multifamily apartment
communities and had an indirect 25% interest in two multifamily apartment
communities, collectively comprising 15,480 apartment homes. The Company also
had seven multifamily apartment communities under development as of March 31,
1997 which are expected to comprise 2,025 apartment homes. In addition, the
Company owns four sites on which it intends to develop apartment communities and
has rights to acquire six additional sites. Although there is no assurance that
the Company will develop multifamily apartment communities at any sites or
pursuant to any such development rights, an estimated 2,771 apartment homes
could be added to its portfolio from the successful development of all such
locations. In May, 1997, the Company acquired an existing multifamily apartment
community comprising 438 apartment homes. The Company also has rights to acquire
an existing multifamily apartment community comprising 82 apartment homes.
The Company was organized as a REIT under the laws of the State of Maryland
in 1993 to continue and expand the operations of its privately owned predecessor
organization. The Operating Partnership was organized as a limited partnership
under the laws of Delaware in 1993. The Company's Common Shares have been traded
on the New York Stock Exchange since the completion of the Company's initial
public offering on January 26, 1994 (the "Initial Offering"). The Company's and
the Operating Partnership's executive offices are located at 2859 Paces Ferry
Road, Atlanta, Georgia 30339 and their telephone number is (770) 436-4600.
USE OF PROCEEDS
The Company is required by the terms of the partnership agreement of the
Operating Partnership to invest the net proceeds of any sale of Common Shares or
Preferred Shares in the Operating Partnership in exchange for additional units
of limited partnership of the Operating Partnership ("Units") or preferred
Units, as the case may be. As will be more fully described in the applicable
Prospectus Supplement, the Company and the Operating Partnership intend to use
the net proceeds from the sale of Securities for one or more of the following:
repayment of indebtedness, acquisition of or investment in new properties and
developments, maintenance of currently owned properties and general corporate
purposes.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
The Company conducts its business principally through the Operating
Partnership. Consequently, the Operating Partnership, and not the Company, will
issue the Debt Securities. The Debt Securities will be direct unsecured
obligations of the Operating Partnership and may be either senior Debt
Securities ("Senior Securities") or subordinated Debt Securities ("Subordinated
Securities"). The Debt Securities will be issued under one or more indentures,
each dated as of a date prior to the issuance of the Debt Securities to which it
relates. Senior Securities and Subordinated Securities may be issued pursuant to
separate indentures (respectively, a "Senior Indenture" and a "Subordinated
Indenture"), in each case between the Operating Partnership and First Union
National Bank (a "Trustee"), and in the form that has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part, subject to
such amendments or supplements as may be adopted from time to time. The Trustee
is one of the lenders to the Company's revolving line of credit, and may, from
time to time, enter into other commercial relationships with the Company and the
Operating Partnership. The Senior Indenture and the Subordinated Indenture, as
amended or supplemented from time to time, are sometimes hereinafter referred to
collectively as the "Indentures." The Indentures will be subject to and governed
by the Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
under this heading relating to the Debt Securities and the Indentures are
summaries of the material provisions thereof, do not purport to be complete and
are qualified in their entirety by reference to the Indentures and such Debt
Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Operating
Partnership. The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior Debt
of the Operating Partnership as described under "-- Subordination." The
particular terms of the Debt Securities offered by a Prospectus Supplement will
be described in the applicable Prospectus Supplement, along with any applicable
modifications of or additions to the general terms of the Debt Securities as
described herein and in the applicable Indenture and any applicable Federal
income tax considerations. Accordingly, for a description of the terms of any
series of Debt Securities, reference must be made to both the Prospectus
Supplement relating thereto and the description of the Debt Securities set forth
in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Operating Partnership or as
set forth in the applicable Indenture or in one or more indentures supplemental
to such Indenture. All Debt Securities of one series need not be issued at the
same time and, unless otherwise provided, a series may be reopened, without the
consent of the holders of the Debt Securities of such series, for issuance of
additional Debt Securities of such series.
Each Indenture provides that the Operating Partnership may, but need not,
designate more than one Trustee thereunder, each with respect to one or more
series of Debt Securities. Any Trustee under an Indenture may resign or be
removed with respect to one or more series of Debt Securities and a successor
Trustee may be appointed to act with respect to such series. In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.
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The following summaries set forth the material terms and provisions of the
Indentures and the Debt Securities. The Prospectus Supplement relating to the
series of Debt Securities being offered will contain further terms of such Debt
Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof;
(4) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(7) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for registration of transfer or exchange
and where notices or demands to or upon the Operating Partnership in
respect of such Debt Securities and the applicable Indenture may be served;
(8) The period or periods, if any, within which, the price or prices
at which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Operating
Partnership;
(9) The obligation, if any, of the Operating Partnership to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the period or
periods within which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(10) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(12) Whether such Debt Securities will be issued in certificated or
book-entry form and, if in book entry form, the identity of the depository
for such Debt Securities;
(13) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(14) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
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(15) Whether and under what circumstances the Operating Partnership
will pay any additional amounts on such Debt Securities in respect of any
tax, assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem such Debt Securities in lieu of
making such payment;
(16) Any deletions from, modifications of or additions to the events
of default or covenants of the Operating Partnership, to the extent
different from those described herein or set forth in the applicable
Indenture with respect to such Debt Securities, and any change in the right
of any Trustee or any of the holders to declare the principal amount of any
of such Debt Securities due and payable;
(17) With respect to any Debt Securities that provide for optional
redemption or prepayment upon the occurrence of certain events (such as a
change of control of the Operating Partnership), (i) the possible effects
of such provisions on the market price of the Operating Partnership's or
the Company's securities or in deterring certain mergers, tender offers or
other takeover attempts, and the intention of the Operating Partnership to
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other applicable securities laws in connection with such provisions; (ii)
whether the occurrence of the specified events may give rise to
cross-defaults on other indebtedness such that payment on such Debt
Securities may be effectively subordinated; and (iii) the existence of any
limitation on the Operating Partnership's financial or legal ability to
repurchase such Debt Securities upon the occurrence of such an event
(including, if true, the lack of assurance that such a repurchase can be
effected) and the impact, if any, under the Indenture of such a failure,
including whether and under what circumstances such a failure may
constitute an event of default;
(18) The name of the applicable trustee and the nature of any material
relationship with the Operating Partnership or with any of its affiliates,
and the percentage of Debt Securities of the class necessary to require the
trustee to take action; and
(19) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, all material U.S. Federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as described under "-- Merger, Consolidation or Sale of Assets" or
as may be set forth in any Prospectus Supplement, the Debt Securities will not
contain any provisions that would limit the ability of the Operating Partnership
to incur indebtedness or that would afford holders of Debt Securities protection
in the event of (i) a highly leveraged or similar transaction involving the
Operating Partnership, the management of the Operating Partnership or the
Company, or any affiliate of any such party, (ii) a change of control, or (iii)
a reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the holders of the Debt
Securities. In addition, subject to the limitations set forth under "-- Merger,
Consolidation or Sale of Assets," the Operating Partnership may, in the future,
enter into certain transactions, such as the sale of all or substantially all of
its assets or the merger or consolidation of the Operating Partnership, that
would increase the amount of the Operating Partnership's indebtedness or
substantially reduce or eliminate the Operating Partnership's indebtedness or
substantially reduce or eliminate the Operating Partnership's assets, which may
have an adverse effect on the Operating Partnership's ability to service its
indebtedness, including the Debt Securities. Neither Maryland General
Corporation Law nor the governing instruments of the Company and the Operating
Partnership define the term "substantially all" in connection with the sale of
assets. Additionally, Maryland cases interpreting the words "substantially all"
all rely heavily upon the facts and circumstances of the particular case.
Consequently, to determine whether a sale of "substantially all" of the
Operating Partnership's assets has occurred, a holder of Debt Securities must
review the financial and other information disclosed by the Operating
Partnership to the public. Restrictions on ownership and transfers of the Common
Shares and Preferred Shares are designed to preserve the Company's status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"Limits on
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Ownership of Shares of Beneficial Interest." Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of, or additions to, the events of default or covenants that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Operating Partnership for such purpose. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent designated by the
Operating Partnership for such purpose. Every Debt Security surrendered
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by the Operating Partnership with respect to any series of Debt
Securities, the Operating Partnership may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Operating Partnership will be required
to maintain a transfer agent in each place of payment for such series. The
Operating Partnership may at any time designate additional transfer agents with
respect to any series of Debt Securities.
Neither the Operating Partnership nor any Trustee shall be required (i) to
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before the day of mailing
of a notice of redemption of any Debt Securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures provide that the Operating Partnership may, without the
consent of the holders of any outstanding Debt Securities, consolidate with, or
sell, lease or convey all or substantially all of its assets to, or merge with
or into, any other entity provided that (i) either the Operating Partnership
shall be the continuing entity, or the successor entity (if other than the
Operating Partnership) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets, and which is
organized under the laws of any domestic jurisdiction and assumes (A) the
Operating Partnership's obligations to pay principal of (and premium, if any)
and interest on all of the Debt Securities and (B) the due and punctual
performance and observance of all of the covenants and conditions contained in
each Indenture; (ii) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Operating
Partnership or any subsidiary as a result thereof as having been incurred by the
Operating Partnership or such subsidiary at the time of such transaction, no
event of default under the Indentures, and no event which, after notice or the
lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and (iii) an officers' certificate and legal opinion
covering such conditions shall be delivered to each Trustee.
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CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures require the Operating Partnership to do or cause to be
done all things necessary to preserve and keep in full force and effect its
existence, rights and franchises; provided, however, that the Operating
Partnership shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business.
Maintenance of Properties. The Indentures require the Operating
Partnership to cause all of its material properties used or useful in the
conduct of its business or the business of any subsidiary to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Operating Partnership may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Operating Partnership and its subsidiaries shall not
be prevented from selling or otherwise disposing of their properties for value
in the ordinary course of business.
Insurance. The Indentures require the Operating Partnership to cause each
of its and its subsidiaries' insurable properties to be insured against loss or
damage at least equal to their then full insurable value with insurers of
recognized responsibility and, if described in the applicable Prospectus
Supplement, having a specified rating from a recognized insurance rating
service.
Payment of Taxes and Other Claims. The Indentures require the Operating
Partnership to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon it or any subsidiary or upon the income, profits
or property of the Operating Partnership or any subsidiary and (ii) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Operating Partnership or any subsidiary; provided,
however, that the Operating Partnership shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith.
Additional Covenants. Any additional covenants of the Operating
Partnership with respect to any series of Debt Securities will be set forth in
the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture provides that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (ii) default for 5 days in the payment of principal of (or premium, if
any, on) any Debt Security of such series at its maturity; (iii) default for 5
days in making any sinking fund payment as required for any Debt Security of
such series; (iv) default in the performance or breach of any other covenant or
warranty of the Operating Partnership contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) a default
under any bond, debenture, note, mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Operating Partnership (or by any of its
subsidiaries, the repayment of which the Operating Partnership has guaranteed or
for which the Operating Partnership is directly responsible or liable as obligor
or guarantor) having an aggregate principal amount outstanding of at least
$25,000,000, whether such indebtedness exists on the date of such Indenture or
shall thereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after there shall have been given, by registered or
certified mail, to the Operating Partnership by the Trustee or to the Operating
Partnership and the Trustee by the holders of at least 10% in principal amount
of the outstanding Debt Securities of that series a written notice specifying
such default and requiring the Operating Partnership to cause such indebtedness
to
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be discharged or cause such acceleration to be rescinded or annulled and stating
that such notice is a "Notice of Default" under such Indenture; provided,
however, that such a default on indebtedness which constitutes tax-exempt
financing that results solely from a failure of an entity providing credit
support for such indebtedness to honor a demand for payment on a letter of
credit shall not constitute an Event of Default; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Operating Partnership or any Significant Subsidiary
of the Operating Partnership; and (vii) any other event of default provided with
respect to a particular series of Debt Securities. The term "Significant
Subsidiary" has the meaning ascribed to such term in Regulation S-X promulgated
under the Securities Act.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Operating Partnership (and to the applicable Trustee if given by
the holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under any Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the holders of not less than a majority in principal amount
of outstanding Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may rescind and
annul such declaration and its consequences if (i) the Operating Partnership
shall have deposited with the applicable Trustee all required payments of the
principal of (and premium, if any) and interest on the Debt Securities of such
series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee; and (ii) all events of default, other than
the non-payment of accelerated principal (or specified portion thereof), with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) have been cured
or waived as provided in such Indenture. The Indentures also provide that the
holders of not less than a majority in principal amount of the outstanding Debt
Securities of any series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) may waive any past default with
respect to such series and its consequences, except a default (i) in the payment
of the principal of (or premium, if any) or interest on any Debt Security of
such series; or (ii) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security affected thereby.
The Indentures require each Trustee to give notice to the holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such holders.
The Indentures provide that no holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to such Indenture
or for any remedy thereunder, except in the case of failure of the applicable
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof.
The Indentures provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders
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of not less than a majority in principal amount of the outstanding Debt
Securities of any series (or of all Debt Securities then outstanding under an
Indenture, as the case may be) shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
applicable Trustee, or of exercising any trust or power conferred upon such
Trustee. However, a Trustee may refuse to follow any direction which is in
conflict with any law or the applicable Indenture, which may involve such
Trustee in personal liability or which may be unduly prejudicial to the holders
of Debt Securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Operating
Partnership will be required to deliver to each Trustee a certificate, signed by
one of several specified officers of GGPI, as general partner of the Operating
Partnership, stating whether or not such officer has knowledge of any default
under the applicable Indenture and, if so, specifying each such default and the
nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of any outstanding Debt Securities necessary to modify
or amend the applicable Indenture with respect to such Debt Securities, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
applicable Indenture; or (vi) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Operating Partnership with certain restrictive covenants of the applicable
Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Operating Partnership and the respective Trustee thereunder without the
consent of any holder of Debt Securities for any of the following purposes: (i)
to evidence the succession of another person to the Operating Partnership as
obligor under such Indenture; (ii) to add to the covenants of the Operating
Partnership for the benefit of the holders of all or any series of Debt
Securities or to surrender any right or power conferred upon the Operating
Partnership in such Indenture; (iii) to add events of default for the benefit of
the holders of all or any series of Debt Securities; (iv) to add or change any
provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, provided that such action
shall not adversely affect the interests of the holders of the Debt Securities
of any series in any material respect; (v) to change or eliminate any provisions
of an Indenture, provided that any such change or elimination shall become
effective only when there are no Debt Securities outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series, (viii) to provide for the acceptance of appointment by
a successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in an Indenture, provided that such action shall not adversely
affect the interests of holders of Debt Securities of any series issued under
such Indenture; or (x) to supplement any of the provisions of an
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<PAGE> 46
Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action shall
not adversely affect the interests of the holders of the outstanding Debt
Securities of any series.
The Indentures provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above); (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture; and (iv) Debt Securities owned by the Operating Partnership or any
other obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of such other obligor shall be disregarded.
The Indentures contain provisions for convening meetings of the holders of
Debt Securities of a series. A meeting will be permitted to be called at any
time by the applicable Trustee, and also, upon request, by the Operating
Partnership or the holders of at least 10% in principal amount of the
outstanding Debt Securities of such series, in any such case upon notice given
as provided in such Indenture. Except for any consent that must be given by the
holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with an Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures provide that if
any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting; and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Securities will be subject to the following subordination
provisions.
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Upon any distribution to creditors of the Operating Partnership in a
liquidation, dissolution or reorganization, the payment of the principal of and
interest on any Subordinated Securities will be subordinated to the extent
provided in the applicable Indenture in right of payment to the prior payment in
full of all Senior Debt (as defined below), but the obligation of the Operating
Partnership to make payments of the principal of and interest on such
Subordinated Securities will not otherwise be affected. No payment of principal
or interest will be permitted to be made on Subordinated Securities at any time
if a default on Senior Debt exists that permits the holders of such Senior Debt
to accelerate its maturity and the default is the subject of judicial
proceedings or the Operating Partnership receives notice of the default. After
all Senior Debt is paid in full and until the Subordinated Securities are paid
in full, holders will be subrogated to the rights of holders of Senior Debt to
the extent that distributions otherwise payable to holders have been applied to
the payment of Senior Debt. The Subordinated Indenture will not restrict the
amount of Senior Debt or other indebtedness of the Operating Partnership and its
subsidiaries. As a result of these subordination provisions, in the event of a
distribution of assets upon insolvency, holders of Subordinated Securities may
recover less, ratably, than general creditors of the Operating Partnership.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Operating
Partnership in respect of, the following, whether outstanding at the date of
execution of the applicable Indenture or thereafter incurred, created or
assumed: (i) indebtedness of the Operating Partnership for money borrowed or
represented by purchase-money obligations; (ii) indebtedness of the Operating
Partnership evidenced by notes, debentures, bonds, or other securities issued
under the provisions of an indenture, fiscal agency agreement or other
agreement; (iii) obligations of the Operating Partnership as lessee under leases
of property either made as part of any sale and leaseback transaction to which
the Operating Partnership is a party or otherwise; (iv) indebtedness,
obligations and liabilities of others in respect of which the Operating
Partnership is liable contingently or otherwise to pay or advance money or
property or as guarantor, endorser or otherwise or which the Operating
Partnership has agreed to purchase or otherwise acquire; and (v) any binding
commitment of the Operating Partnership to fund any real estate investment or to
fund any investment in any entity making such real estate investment, in each
case other than (A) any such indebtedness, obligation or liability referred to
in clauses (i) through (iv) above as to which, in the instrument creating or
evidencing the same pursuant to which the same is outstanding, it is provided
that such indebtedness, obligation or liability is not superior in right of
payment to the Subordinated Securities or ranks pari passu with the Subordinated
Securities; (B) any such indebtedness, obligation or liability which is
subordinated to indebtedness of the Operating Partnership to substantially the
same extent as or to a greater extent than the Subordinated Securities are
subordinated; and (C) the Subordinated Securities. There will not be any
restrictions in any Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Operating Partnership's
most recent fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership will be permitted, at its option, to discharge certain
obligations to holders of any series of Debt Securities issued under any
Indenture that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
The Indentures provide that, unless otherwise indicated in the applicable
Prospectus Supplement, the Operating Partnership may elect either (i) to defease
and be discharged from any and all obligations with
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respect to such Debt Securities (except for the obligation to pay additional
amounts, if any, upon the occurrence of certain events of tax, assessment or
governmental charge with respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities, to hold moneys
for payment in trust) ("defeasance"), or (ii) to be released from its
obligations with respect to such Debt Securities under the applicable Indenture
(being the restrictions described under "-- Certain Covenants") or, if provided
in the applicable Prospectus Supplement, its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Operating
Partnership with the applicable Trustee, in trust, of an amount, in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities, which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such Debt Securities, and
any mandatory sinking fund or analogous payments thereon, on the scheduled due
dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership has delivered to the applicable Trustee an
opinion of counsel (as specified in the applicable Indenture) to the effect that
the holders of such Debt Securities will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service (the "IRS") or
a change in applicable United States Federal income tax law occurring after the
date of the Indenture. In the event of such defeasance, the holders of such Debt
Securities would thereafter be able to look only to such trust fund for payment
of principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged; or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided,
however that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security; or (ii) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such
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cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community; (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities; or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any event of default other than the event
of default described in clause (iv) under "-- Events of Default, Notice and
Waiver" with respect to specified sections of an Indenture (which sections would
no longer be applicable to such Debt Securities) or described in clause (vii)
under "-- Events of Default, Notice and Waiver" with respect to any other
covenant as to which there has been covenant defeasance, the amount in such
currency, currency unit or composite currency in which such Debt Securities are
payable, and Government Obligations on deposit with the applicable Trustee, will
be sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such event of default.
However, the Operating Partnership would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
shares of beneficial interest of the Company or any equity interest in the
Operating Partnership.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Operating Partnership, payment of interest
may be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such Debt Securities or by wire transfer
of funds to such person at an account maintained within the United States.
All moneys paid by the Operating Partnership to a paying agent or a Trustee
for the payment of the principal of or any premium or interest on any Debt
Security which remain unclaimed at the end of two years after such principal,
premium or interest has become due and payable will be repaid to the Operating
Partnership, and the holder of such Debt Security thereafter may look only to
the Operating Partnership for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED SHARES
The description of the Company's Preferred Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Amended and Restated Declaration of Trust (the "Declaration of Trust")
and Second Amended and Restated Bylaws (the "Bylaws"), as in effect.
GENERAL
Under the Declaration of Trust, the Company has authority to issue up to
161,000,000 shares of beneficial interest, consisting of 100,000,000 Common
Shares, par value $.01 per share, 51,000,000 excess shares of beneficial
interest, par value $.01 per share ("Excess Shares"), and 10,000,000 Preferred
Shares, par value $.01 per share. At July 24, 1997, the Company had outstanding
4,600,000 shares of 8.30% Series A Cumulative Redeemable Preferred Shares. No
other Preferred Shares were outstanding as of the date of this Prospectus.
Preferred Shares may be issued from time to time, in one or more series, as
authorized by the Board of Trustees of the Company. Prior to issuance of shares
of each series, the Board of Trustees is required by the Maryland General
Corporation Law ("MGCL") and the Company's Declaration of Trust to fix for each
series, subject to the provisions of the Company's Declaration of Trust
regarding Excess Shares, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Preferred Shares will, when issued, be fully paid and
nonassessable and will have no preemptive rights. The Board of Trustees could
authorize the issuance of Preferred Shares with terms and conditions that could
have the effect of discouraging a takeover or other transaction that holders of
Common Shares might believe to be in their best interests or in which holders of
some, or a majority, of the Common Shares might receive a premium for their
shares over the then market price of such Common Shares.
TERMS
The following description of the Preferred Shares sets forth the material
terms and provisions of the Preferred Shares to which any Prospectus Supplement
may relate. The statements below describing the Preferred Shares are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Declaration of Trust and Bylaws and any
applicable amendment to the Declaration of Trust designating terms of a series
of Preferred Shares (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of Preferred Shares offered, the liquidation preference
per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred
Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares, including the conversion
price or rate (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
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(11) A discussion of Federal income tax considerations applicable to
such Preferred Shares;
(12) The relative ranking and preference of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares of the Company, and to all equity securities ranking
junior to such Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company, the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Shares with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company,
the terms of which specifically provide that such equity securities rank senior
to the Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Trustees of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any shares of beneficial interest
of the Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Shares of such series for any period unless (i) if such
series of Preferred Shares has a cumulative dividend, full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Shares of such series for all past dividend periods and the then
current dividend period; or (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends for the then current dividend period
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of Preferred
Shares ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per share of
Preferred Shares of such series and such other series of Preferred Shares shall
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in all cases bear to each other the same ratio that accrued dividends per share
on the Preferred Shares of such series (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Shares does not have a cumulative dividend) and such other series of Preferred
Shares bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on Preferred
Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) shall be declared or paid or set aside for payment nor
shall any other distribution be declared or made upon the Common Shares, or any
other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation, nor shall any Common Shares, or any other shares of beneficial
interest of the Company ranking junior to or on a parity with the Preferred
Shares of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of beneficial interest of the Company, the
terms of such Preferred Shares may provide that, if no such shares of beneficial
interest shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
the applicable shares of beneficial interest of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
such series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period; and (ii) if a
series of Preferred Shares does not have a cumulative dividend, full dividends
on all of the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
such series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not
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prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of such
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period; and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation); provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by any other equitable manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the Preferred Shares of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of shares
of beneficial interest of the Company ranking junior to the Preferred Shares in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus Supplement,
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid noncumulative dividends for
prior dividend periods). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Shares will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Shares and
the corresponding amounts payable on all other classes or series of shares of
beneficial interest of the Company ranking on a parity with the Preferred Shares
in the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of shares of beneficial interest shall
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share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of shares of beneficial interest
ranking junior to the Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the Preferred Shares of such series outstanding at the time, given in person or
by proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of shares of beneficial interest ranking prior to such
series of Preferred Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of beneficial interest of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Company's Declaration of Trust or the Designating
Amendment for such series of Preferred Shares, whether by merger, consolidation
or otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of such series of Preferred Shares or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as the Preferred Shares remain
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Shares, and provided further that (A) any increase in the amount of
the authorized Preferred Shares or the creation or issuance of any other series
of Preferred Shares, or (B) any increase in the amount of authorized shares of
such series or any other series of Preferred Shares, in each case ranking on a
parity with or junior to the Preferred Shares of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Common Shares
into which the Preferred Shares are convertible, the conversion price or rate
(or manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders of the Preferred Shares
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Shares.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares of beneficial interest may be owned, directly or
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indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Shares of the
Company. Therefore, the Designating Amendment for each series of Preferred
Shares may contain provisions restricting the ownership and transfer of the
Preferred Shares. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Shares. See
"Limits on Ownership of Shares of Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON SHARES
The description of the Company's Common Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Declaration of Trust and Bylaws, as in effect.
GENERAL
Under the Declaration of Trust, the Company has authority to issue
100,000,000 Common Shares, par value $.01 per share. At July 24, 1997, the
Company had outstanding 19,433,076 Common Shares. In addition, on such date
3,528,232 Units were outstanding (other than those held directly or indirectly
by the Company) and may be exchanged for Common Shares on a one-for-one basis.
All Common Shares offered hereby will, when issued, be duly authorized, fully
paid and nonassessable.
TERMS
The following description of the Company's Common Shares sets forth the
material terms and provisions of the Common Shares to which any Prospectus
Supplement may relate. Subject to the preferential rights of any other shares or
series of shares of beneficial interest and to the provisions of the Company's
Declaration of Trust regarding Excess Shares, holders of Common Shares will be
entitled to receive distributions on Common Shares if, as and when authorized
and declared by the Board of Trustees of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its shareholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, each outstanding Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election, and the holders of the remaining Common Shares will not
be able to elect any trustee.
Holders of Common Shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, all Common Shares will have equal dividend, distribution,
liquidation and other rights, and will have no preference, appraisal or exchange
rights.
The Company's Declaration of Trust provides that the Company cannot merge
with or sell all or substantially all of the assets of the Company, except
pursuant to a resolution approved by shareholders holding a majority of the
shares entitled to vote on the resolution. In addition, the partnership
agreement of
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the Operating Partnership requires that any merger or sale of all or
substantially all of the assets of the Operating Partnership be approved by
partners holding 75% of the Units.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "Limits on Ownership of Shares of
Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is BankBoston, N.A.,
Boston, Massachusetts.
DESCRIPTION OF WARRANTS
The Company has no Warrants or other share purchase rights outstanding
(other than options issued under the Company's Second Amended and Restated 1994
Share Option and Incentive Plan, as amended). The Company may issue Warrants for
the purchase of Preferred Shares or Common Shares. Warrants may be issued
independently, together with any other Securities offered by any Prospectus
Supplement or through a dividend or other distribution to the Company's
shareholders and may be attached to or separate from such Securities. Warrants
may be issued under a warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Warrants of a particular
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, number and terms of the Preferred
Shares or Common Shares purchasable upon exercise of such Warrants; (5) the
designation and terms of the other Securities, if any, with which such Warrants
are issued and the number of such Warrants issued with each such Security: (6)
the date, if any, on and after which such warrants and the related Preferred
Shares or Common Shares, if any, will be separately transferable; (7) the price
at which each Preferred Share or Common Share purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; (10) information with respect to book-entry procedures, if any; (11) a
discussion of certain Federal income tax considerations; and (12) any other
terms of such Warrants, including terms, procedures and limitations relating to
the transferability, exchange and exercise of such Warrants.
LIMITS ON OWNERSHIP OF SHARES OF BENEFICIAL INTEREST
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (defined in the
Code to include certain entities) during the last half of a taxable year (other
than the first year), and such shares of beneficial interest must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year) or during a proportionate part of
a shorter taxable year. In order to protect the Company against the risk of
losing its status as a REIT due to a concentration of ownership among its
shareholders, the Declaration of Trust provides that no holder (other
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than persons approved by the trustees at their option and in their discretion)
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% (the "Ownership Limit") of the Company's shares of
beneficial interest. The Board of Trustees does not expect that it would waive
the Ownership Limit in the absence of the ruling from the IRS or an opinion of
counsel satisfactory to it that the changes in ownership will not then or in the
future jeopardize the Company's status as a REIT. Any transfer of shares of
beneficial interest (including warrants) or any security convertible into shares
of beneficial interest that would create a direct or indirect ownership of
shares of beneficial interest in excess of the Ownership Limit or that would
result in the disqualification of the Company as a REIT, including any transfer
that results in the shares of beneficial interest being owned by fewer than 100
persons or that results in the Company being "closely held" within the meaning
of Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares of beneficial interest. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Trustees determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT. In
addition, the foregoing restrictions do not apply with respect to an offeror in
the event of an all cash tender offer by it which has been accepted by at least
two-thirds of the Company's outstanding shares.
Shares of beneficial interest owned, or deemed to be owned, or transferred
to a shareholder in excess of the Ownership Limit will automatically be
exchanged for Excess Shares that will be transferred, by operation of law, to
the Company as trustee of a trust for the exclusive benefit of the transferees
to whom such shares of beneficial interest may be ultimately transferred without
violating the Ownership Limit. While the Excess Shares are held in trust, they
will not be entitled to vote, they will not be considered for purposes of any
shareholder vote or the determination of a quorum for such vote, and, except
upon liquidation, they will not be entitled to participate in dividends or other
distributions. Any dividend or distribution paid to a proposed transferee of
Excess Shares prior to the discovery by the Company that shares of beneficial
interest have been transferred in violation of the provisions of the Company's
Declaration of Trust shall be repaid to the Company upon demand. The Excess
Shares are not treasury shares, but rather constitute a separate class of issued
and outstanding shares of beneficial interest of the Company. The original
transferee-shareholder may, at any time the Excess Shares are held by the
Company in trust, transfer the interest in the trust representing the Excess
Shares to any individual whose ownership of the shares of beneficial interest
exchanged into such Excess Shares would be permitted under the Ownership Limit,
at a price not in excess of the price paid by the original
transferee-shareholder for the shares of beneficial interest that were exchanged
for Excess Shares. Immediately upon the transfer to the permitted transferee,
the Excess Shares will automatically be exchanged for shares of beneficial
interest of the class from which they were converted. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring the Excess Shares and to hold the
Excess Shares on behalf of the Company.
In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Shares are held by
the Company in trust, to purchase all or any portion of the Excess Shares from
the original transferee-shareholder for the lesser of the price paid for the
shares of beneficial interest by the original transferee-shareholder or the
market price (as determined in the manner set forth in the Declaration of Trust)
of the shares of beneficial interest on the date the Company exercises its
option to purchase. The 90-day period begins on the date of the violative
transfer if the original transferee-shareholder gives notice to the Company of
the transfer or, if no such notice is given, the date the Board of Trustees
determines that a violative transfer has been made.
Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding Common Shares must
file a written notice with the Company containing the information specified in
the Declaration of Trust no later than January 30 of each year. Each shareholder
shall upon demand be required to disclose to the Company in writing any
information with respect to the direct, indirect and constructive ownership of
beneficial interests as the Board of Trustees deems necessary to comply with the
provisions of the Code applicable to REITs, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
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This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Board of Trustees determines that maintenance
of REIT status is no longer in the best interests of the Company.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and the
Company's Declaration of Trust and Bylaws does not purport to be complete and is
qualified by reference to Maryland law and the Company's Declaration of Trust
and Bylaws.
MARYLAND BUSINESS COMBINATION STATUTE
The MGCL establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested shareholders" unless
exemptions are applicable. Among other things, the law prohibits for a period of
five years a merger and other specified or similar transactions between a
company and an interested shareholder and requires a supermajority vote for such
transactions after the end of the five-year period.
"Interested shareholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of the Maryland
corporation. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested shareholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an interested shareholder
or its affiliates for a period of five years after the date on which the
shareholder first became an interested shareholder. Thereafter, the transaction
may not be consummated unless recommended by the Board of Trustees and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding voting shares and 66 2/3% of the votes entitled to be
cast by all holders of outstanding voting shares other than the interested
shareholder. A business combination with an interested shareholder that is
approved by the Board of Trustees of a Maryland corporation at any time before
an interested shareholder first becomes an interested shareholder is not subject
to the special voting requirements. An amendment to a Maryland corporation's
charter electing not to be subject to the foregoing requirements must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding voting shares and 66 2/3% of the votes
entitled to be cast by holders of outstanding voting shares who are not
interested shareholders. Any such amendment is not effective until 18 months
after the vote of shareholders and does not apply to any business combination of
a corporation with a shareholder who was an interested shareholder on the date
of the shareholder vote.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
The MGCL provides that "control shares" of a Maryland REIT acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of beneficial interest owned by the acquiror or by officers of
trustees who are employees of the trust. "Control shares" are voting shares of
beneficial interest which, if aggregated with all other such shares of
beneficial interest previously acquired by the acquiror or in respect of which
the acquiror is able to exercise or direct the exercise of voting power (except
solely by revocable proxy), would entitle the acquiror to exercise voting power
in electing trustees within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority of all voting power. Control shares do not
include shares of beneficial interest the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees to call a special
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meeting of shareholders to be held within 50 days of demand to consider voting
rights for the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares of beneficial interest
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares of beneficial interest as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust.
The business combination statute and the control share acquisition statute
could have the effect of discouraging offers to acquire the Company and of
increasing the difficulty of consummating any such offer.
LIMITATION OF SHAREHOLDER'S LIABILITY
Under Maryland law, shareholders generally are not responsible for the
corporation's debts or obligations, and the Company's Declaration of Trust
specifically provides that no shareholder of the Company will be personally
liable for any obligations of the Company. The Company's Bylaws further provide
that the Company shall indemnify each shareholder against any claim or liability
to which the shareholder may become subject by reason of his or her being or
having been a shareholder, and that the Company shall reimburse each shareholder
for all legal and other expenses reasonably incurred by him or her in connection
with any such claim or liability. However, with respect to tort claims,
contractual claims where shareholder liability is not so negated, claims for
taxes and certain statutory liability, the shareholder may, in some
jurisdictions, including Texas, be personally liable to the extent that such
claims are not satisfied by the Company. Inasmuch as the Company will carry
public liability insurance which it considers adequate, any risk of personal
liability to shareholders is limited to situations in which the Company's assets
plus its insurance coverage would be insufficient to satisfy the claims against
the Company and its shareholders.
LIMITATION OF TRUSTEES' AND OFFICERS' LIABILITY
Under Maryland law a REIT 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 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
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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.
INDEMNIFICATION AGREEMENTS
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 Indemnitees seeking to enforce their rights
under the indemnification agreements, and cover the 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 Declaration of Trust and the 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.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in the Securities. The following
discussion is not exhaustive of all possible tax considerations and is not tax
advice. Moreover, this summary does not deal with all tax aspects that might be
relevant to a particular prospective shareholder in light of his/her personal
circumstances; nor does it deal with particular types of shareholders that are
subject to special treatment under the Code, such as insurance companies,
financial institutions and broker-dealers. The Code provisions governing the
Federal income tax treatment of REITs are highly technical and complex, and this
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof. The following discussion is based on current law and on
certain representations from the Company concerning its compliance with the
requirements for qualification as a REIT.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR,
WITH RESPECT TO SUCH INVESTOR'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF THE SECURITIES IN
THE COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
In the opinion of Goodwin, Procter & Hoar LLP, tax counsel to the Company,
commencing with the Company's first taxable year ended December 31, 1994, the
Company has been organized in conformity with the requirements for qualification
as a "real estate investment trust" under the Code, and its method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a "real estate investment trust" under the Code, provided that the
Company operated and continues to operate in accordance with various assumptions
and factual representations made by the Company concerning its business,
properties and operations. No assurance can be given, however, that such
requirements have been or will continue to be met. Such qualification depends
upon the Company's having met and continuing to meet
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the various requirements imposed under the Code through actual operating
results, as discussed below. Goodwin, Procter & Hoar LLP has relied on the
Company's representations regarding its operations and has not and will not
review these operating results. Accordingly, no assurance can be given that
actual operating results will meet these requirements.
If the Company has qualified and continues to qualify for taxation as a
REIT, it generally will not be subject to federal corporate income taxes on that
portion of its ordinary income or capital gain that is currently distributed to
shareholders. The REIT provisions of the Code generally allow a REIT to deduct
dividends paid to its shareholders. This deduction for dividends paid to
shareholders substantially eliminates the federal "double taxation" on earnings
(once at the corporate level when earned and once again at the shareholder level
when distributed) that usually results from investments in a corporation.
Even if the Company qualifies for taxation as a REIT, however, the Company
will be subject to Federal income tax, as follows: First, the Company will be
taxed at regular corporate rates on its undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain circumstances,
the Company may be subject to the "alternative minimum tax." Third, if the
Company has net income from the sale or other disposition of "foreclosure
property" that is held primarily for sale to customers in the ordinary course of
business or other non-qualifying income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property other than foreclosure property
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy either the 75% or 95% gross income test (discussed below) but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability. Sixth, if the Company fails to distribute during each year at
least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year and (iii) any undistributed taxable income
from prior periods, the Company will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. Seventh, if
the Company should acquire any asset from a C corporation (i.e., a corporation
generally subject to full corporate-level tax) in a carryover-basis transaction
and the Company subsequently recognizes gain on the disposition of such asset
during the ten-year period (the "Recognition Period") beginning on the date on
which the asset was acquired by the Company, then, to the extent of the excess
of (a) the fair market value of the asset as of the beginning of the applicable
Recognition Period over (b) the Company's adjusted basis in such asset as of the
beginning of such Recognition Period (the "Built-In Gain"), such gain will be
subject to tax at the highest regular corporate rate, pursuant to guidelines
issued by the IRS (the "Built-in Gain Rules").
REQUIREMENTS FOR QUALIFICATION
The Company elected to be taxable as a REIT for its taxable year ended
December 31, 1994, and in order to have so qualified, it must have met and
continued to meet the requirements discussed below, relating to the Company's
organization, sources of income, nature of assets and distributions of income to
shareholders.
Organizational Requirements. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest, (iii) that would be taxable as
a domestic corporation but for the REIT requirements, (iv) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code, (v) the beneficial ownership of which is held by 100 or more persons,
and (vi) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly through the
application of certain attribution rules, by five or fewer individuals (as
defined in the Code to include certain entities). In addition, certain other
tests, described below, regarding the nature of its income and assets also must
be satisfied. The Code provides that conditions (i) through (iv), inclusive,
must be met during the entire taxable year and that condition (v) must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (v) and
(vi) (the "100 shareholder" and "five or fewer" requirements) will
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not apply until after the first taxable year for which an election is made to be
taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
The Company's Declaration of Trust currently includes certain restrictions
regarding transfers of Common Shares and Preferred Shares, which restrictions
are intended (among other things) to assist the Company in continuing to satisfy
conditions (v) and (vi) above. In rendering its opinion that the Company is
organized and operated in a manner that has allowed the Company to qualify as a
REIT, Goodwin, Procter & Hoar LLP is relying on representations of the Company
that the ownership of its Common Shares and Preferred Shares will satisfy the
"five or fewer" requirement. There can be no assurance, however, that the
restrictions in the Declaration of Trust will, as a matter of law, preclude the
Company from failing to satisfy these conditions or that a transfer in violation
of these restrictions would not cause the Company to fail these conditions.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.
If a REIT owns a "qualified REIT subsidiary," the Code provides that the
qualified REIT subsidiary is disregarded for Federal income tax purposes, and
all assets, liabilities, and items of income, deduction and credit of the
qualified REIT subsidiary are treated as assets, liabilities and such items of
the REIT itself. A "qualified REIT subsidiary" is a corporation all of the
shares of beneficial interest of which have been owned by the REIT from the
commencement of such corporation's existence. GGPI, the general partner of the
Operating Partnership and certain other entities organized to serve as the
general partner of special purpose limited partnerships are "qualified REIT
subsidiaries". Thus, all of the assets, liabilities, and items of income,
deduction and credit of GGPI and the other "qualified REIT subsidiaries" will be
treated as assets and liabilities and items of income, deduction and credit of
the Company. Unless the context requires otherwise, all references to the
"Company" in this "Federal Income Tax Considerations" section refer to Gables
Residential Trust and its qualified REIT subsidiaries, GGPI, Candlewood Gen Par,
Inc. and GRT Villas Gen Par, Inc., the successor to Candle Creek, Inc.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership (as determined based on the REIT's capital
interest in the partnership) and will be deemed to be entitled to the income of
the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership (including the Operating Partnership's share of the assets
and liabilities and items of income with respect to any partnership in which it
holds an interest, and any other entity taxable as a partnership for federal
income tax purposes in which it holds an interest) will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein.
Income Tests. To maintain qualification as a REIT, three gross income
requirements must be satisfied annually.
- First, at least 75% of the Company's gross income, excluding gross income
from certain dispositions of property held primarily for sale to customers
in the ordinary course of a trade or business ("prohibited transactions"),
for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments.
- Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from such real property investments and from dividends, interest and gain
from the sale or disposition of stock or securities or from any
combination of the foregoing.
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- Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain from the sale or
other disposition of real property held for less than four years (apart
from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income (including gross
income from prohibited transactions) for each taxable year.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met.
- First, the amount of rent generally must not be based in whole or in part
on the income or profits of any person.
- Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests
if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
- Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the
personal property will not qualify as "rents from real property."
- Finally, for rents to qualify as "rents from real property" the REIT must
not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor who is adequately
compensated and from whom the REIT does not derive any income; provided,
however, that a REIT may provide services with respect to its properties
and the income will qualify as "rents from real property" if the services
are "usually or customarily rendered" in connection with the rental of
room or other space for occupancy only and are not otherwise considered
"rendered to the occupant."
The Company has not charged, and does not anticipate charging rent that is
based in whole or in part on the income or profits of any person. The Company
has not derived, and does not anticipate deriving, rent attributable to personal
property leased in connection with real property that exceeds 15% of the total
rents.
The Company has provided and will provide certain services with respect to
the Communities. The Company believes that the services with respect to the
Communities that have been and will be provided by it are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and therefore that the provision of
such services has not and will not cause rents received with respect to the
Communities to fail to qualify as rents from real property. The Company believes
that services with respect to the Communities that the Company believes may not
be provided by the Company directly without jeopardizing the qualification of
rent as "rents from real property" have been and will be performed by
independent contractors (which do not include the Management Companies, as
defined below).
Generally the Management Company receives fees in consideration of the
performance of property management services with respect to properties owned by
third parties. Any such fee income is taxable to the Management Company.
The Operating Partnership has received and may continue to receive certain
types of income with respect to the properties it owns that will not qualify for
the 30%, 75% or 95% gross income tests, including rent with respect to certain
apartment units leased to certain of the Management Companies (as defined
below), which constitutes non-qualifying rent from Related Party Tenants and
which does not qualify for the 75% and 95% gross income tests. In addition,
interest payments on the certain notes of the Management Companies held by the
Operating Partnership and dividends on the Operating Partnership's stock in the
Management Companies will not qualify under the 75% gross income test. The
Company believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the REIT gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
test for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code.
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These relief provisions will be generally available if (i) the Company's failure
to meet these tests was due to reasonable cause and not due to willful neglect,
(ii) the Company attaches a schedule of the sources of its income to its Federal
income tax return and (iii) any incorrect information on the schedule is not due
to fraud with intent to evade tax. It is not possible, however, to state
whether, in all circumstances, the Company would be entitled to the benefit of
these relief provisions. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limits on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause. As discussed above
in "Federal Income Tax Considerations -- Federal Income Taxation of the
Company," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income. No similar mitigation provision provides
relief if the Company fails the 30% income test, and in such case, the Company
will cease to qualify as a REIT.
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy three tests relating to the nature and diversification of its
assets.
- First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government
securities.
- Second, no more than 25% of the Company's total assets may be represented
by securities other than those in the 75% asset class.
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets (the "5% test"), and the Company may
not own more than 10% of any one issuer's outstanding voting securities.
The Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of certain corporations (the "Management Companies") which do not
qualify as "qualified REIT subsidiaries." By virtue of its ownership of limited
partnership units of the Operating Partnership ("Units"), the Company will be
considered to own its pro rata share of such stock. Neither the Company nor the
Operating Partnership, however, owns more than 1% of the voting securities of
any Management Company. In addition, the Company and its senior management do
not believe that the Company's pro rata share of the value of the securities of
any of the Management Companies exceeds 5% of the total value of the Company's
assets. The Company's belief is based in part upon its analysis of the estimated
value of the securities of the Management Companies owned by the Operating
Partnership relative to the estimated value of the other assets owned by the
Operating Partnership. No independent appraisals have been obtained to support
this conclusion. There can be no assurance that the IRS might not contend that
the value of such securities of a Management Company held by the Company
(through the Operating Partnership) exceeds the 5% value limitation.
The 5% test referred to above generally must be met for any quarter in
which the Company acquires securities of an issuer. Thus, the 5% value
requirement must be satisfied not only on the date the Company acquires equity
and debt securities of the Management Companies, but also each time the Company
increases its ownership of such securities of the Management Companies
(including as a result of increasing its interest in the Operating Partnership
as limited partners exercise their redemption rights). Although the Company
plans to take steps to ensure that it satisfies the 5% value test for any
quarter with respect to which retesting is to occur, there can be no assurance
that such steps will always be successful or will not require a reduction in the
Company's overall interest in a Management Company.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain and believes that it has
maintained adequate records of the value of its assets to ensure compliance with
the asset tests and to take such other actions within 30 days after the close of
any quarter as may be required to cure any noncompliance.
Annual Distribution Requirements. In order to be taxed as a REIT, the
Company is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to
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(a) the sum of (i) 95% of the Company's "REIT taxable income" (computed without
regard to the dividends-paid deduction and the Company's capital gain) and (ii)
95% of the net income, if any, from foreclosure property in excess of the
special tax on income from foreclosure property, minus (b) the sum of certain
items of non-cash income. Such distribution must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its Federal income tax return for such year and if paid on
or before the first regular dividend payment after such declaration. Even if the
Company satisfies the foregoing distribution requirements, to the extent that
the Company does not distribute all of its net capital gain or "REIT taxable
income" as adjusted, it will be subject to tax thereon at regular capital gains
or ordinary corporate tax rates. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (a) 85% of its ordinary
income for that year, (b) 95% of its capital gain net income for that year and
(c) any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. In addition, during its Recognition Period, if the
Company disposes of any asset subject to the Built-In Gain Rules, the Company
will be required, pursuant to guidance issued by the IRS, to distribute at least
95% of the Built-In Gain (after tax), if any, recognized on the disposition of
the asset.
The Company believes it has made and intends to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, the Operating Partnership's partnership agreement authorizes GGPI,
as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income has been and will be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to distribute such greater amount as
may be necessary to avoid income and excise taxation, due to timing differences
between (i) the actual receipt of income and the actual payment of deductible
expenses and (ii) the inclusion of such income and the deduction of such
expenses in arriving at taxable income of the Company, or as a result of
nondeductible expenses such as principal amortization or capital expenditures in
excess of noncash deductions. In the event that such timing differences occur,
the Company may find it necessary to arrange for borrowings or, if possible, pay
taxable stock dividends in order to meet the dividend requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Earnings and Profits. Under recent final Treasury Regulations, the
existence of undistributed earnings and profits of a non-REIT predecessor
corporation at the close of the taxable year generally will preclude a successor
corporation from qualifying to be taxed as a REIT. In connection with the
Initial Offering, the Company acquired the assets of Wood Properties, Inc.
("Wood Properties"). The Company believes that as of the time of the acquisition
of the assets of Wood Properties by the Company, Wood Properties had no earnings
and profits for Federal income tax purposes. The Company's belief is based upon
a review of Wood Properties' tax returns, as well as a review of the minute
books of Wood Properties for such periods. Nothing came to the Company's
attention during the course of such reviews that would cause the Company to
believe that Wood Properties had undistributed C corporation earnings and
profits. If, as a result of an examination of Wood Properties' returns by the
IRS, it were determined that Wood Properties had undistributed earnings and
profits at the time of the Company's acquisition of its assets, the Company
believes that distributions to shareholders in 1994 in excess of current
earnings and profits likely would have been sufficient to distribute any such
accumulated earnings and profits that carried over from Wood Properties. In the
event that 1994 distributions were insufficient to distribute any such earnings
and profits, and the Company were unable to
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utilize the certain "deficiency dividend" procedures in the Treasury
Regulations, the Company would fail to qualify as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to shareholders will be dividends,
taxable as ordinary income, and subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless the Company is entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause.
TAXATION OF U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
and Preferred Shares that (for United States Federal income tax purposes) (a) is
a citizen or resident of the United States, (b) is a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof or (c) is an estate or trust, the income of
which is subject to United States Federal income taxation regardless of its
source. For any taxable year for which the Company qualifies for taxation as a
REIT, amounts distributed to taxable U.S. Shareholders will be taxed as follows.
Distributions Generally. Distributions to U.S. Shareholders (other than
capital gain dividends) will be taxable as dividends to the extent of the
Company's current or accumulated earnings and profits as determined for federal
income tax purposes. For purposes of determining whether distributions are out
of current or accumulated earnings and profits, the earnings and profits of the
Company will be allocated first to any of the Company's outstanding Preferred
Stock and then to the Company's Common Stock. Such dividends will be taxable to
the holders as ordinary income and will not be eligible for the
dividends-received deduction for corporations. To the extent that the Company
makes a distribution to a U.S. Shareholder in excess of current or accumulated
earnings and profits, the distribution will be treated first as a tax-free
return of capital with respect to the shares, reducing the U.S. Shareholder's
tax basis in the shares, and the distribution in excess of a U.S. Shareholder's
tax basis in the shares will be taxable as gain realized from the sale of the
shares. Dividends declared by the Company in October, November or December of
any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of the year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include on their own Federal income tax returns any tax losses of the
Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"Federal Income Tax Considerations -- Federal Income Taxation of the Company"
above. Moreover, any "deficiency dividend" will be treated as an ordinary or
capital gain dividend, as the case may be, regardless of the Company's earnings
and profits. As a result, shareholders may be required to treat certain
distributions that would otherwise result in a tax-free return of capital as
taxable dividends.
Capital Gain Dividends. Dividends to U.S. Shareholders that are properly
designated by the Company as capital gain dividends will be treated as long-term
capital gains (to the extent they do not exceed the Company's actual net capital
gain) for the taxable year without regard to the period for which the
shareholder has held his stock. However, corporate shareholders may be required
to treat up to 20% of certain capital gain
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<PAGE> 67
dividends as ordinary income. Capital gain dividends are not eligible for the
dividends-received deduction for corporations.
Passive Activity Loss and Investment Interest Limitations. Distributions
from the Company and gain from the disposition of the Securities will not be
treated as passive activity income, and therefore shareholders may not be able
to apply any "passive losses" against such income. Dividends from the Company
(to the extent they do not constitute a return of capital) will generally be
treated as investment income for purposes of the investment income limitation on
the deductibility of investment interest; provided, however, that net capital
gain from the disposition of the Securities or capital gain dividends generally
will be excluded from investment income.
Sale of the Securities. Upon the sale or exchange of the Securities, the
holder will generally recognize gain or loss equal to the difference between the
amount realized on such sale and the tax basis of such Securities. Assuming such
Securities are held as a capital asset, such gain or loss will be a long-term
capital gain or loss if the Securities have been held for more than one year.
However, any loss recognized by a holder on the sale of Common Shares or
Preferred Shares held for not more than six months and with respect to which a
capital gain dividend was received will be treated as a long-term capital loss
to the extent of the amount of distributions from the Company required to be
treated by such holder as long-term capital gain.
Treatment of Tax-Exempt Securityholders. Distributions from the Company to
a tax-exempt employee pension trust or other domestic tax-exempt shareholder
generally will not constitute "unrelated business taxable income"("UBTI") unless
the shareholder has borrowed to acquire or carry its Common Shares or Preferred
Shares. However, qualified trusts that hold more than 10% (by value) of the
shares of certain REITs may be required to treat a certain percentage of such a
REIT's distributions as UBTI. This requirement will apply only if (i) the REIT
would not qualify as such for Federal income tax purposes but for the
application of a "look-through" exception to the "five or fewer" requirement
applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held by
qualified trusts if either (i) a single qualified trust holds more than 25% by
value of the REIT interests or (ii) one or more qualified trusts, each owning
more than 10% by value of the REIT interests, hold in the aggregate more than
50% of the REIT interests. The percentage of any REIT dividend treated as UBTI
is equal to the ratio of (a) the UBTI earned by the REIT (treating the REIT as
if it were a qualified trust and therefore subject to tax on UBTI) to (b) the
total gross income (less certain associated expenses) of the REIT. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year. For these purposes, a qualified trust is any trust
described in section 401(a) of the Code and exempt from tax under section 501(a)
of the Code. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the
"five or fewer" requirement without relying upon the "look-through" exception.
Distributions by the Operating Partnership to a tax exempt holder of Debt
Securities will generally not constitute UBTI unless the acquisition of such
Debt Securities is debt financed within the meaning of Section 514(c) of the
Code.
TAXATION OF HOLDERS OF DEBT SECURITIES
Stated Interest and Market Discount
Holders of Debt Securities will be required to include stated interest on
the Debt Securities in gross income for federal income tax purposes in
accordance with their methods of accounting for tax purposes. Purchasers of Debt
Securities should be aware that the holding and disposition of Debt Securities
may be affected by the market discount provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). These rules generally provide that, subject to
a statutorily-defined de minimis exception, if a holder of a debt instrument
purchases it at a market discount and thereafter recognizes gain on a
disposition of the debt instrument (including a gift or payment on maturity),
the lesser of such gain (or appreciation, in the case of a gift) or the portion
of the market discount that accrued while the debt instrument was held by such
holder will be treated as ordinary interest income at the time of the
disposition. For this purpose, a purchase at a market discount includes a
purchase after original issuance at a price below the debt instrument's stated
principal amount. The market discount rules also provide that a holder who
acquires a debt instrument at a market
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<PAGE> 68
discount (and who does not elect, as described below, to include such market
discount in income on a current basis) may be required to defer a portion of any
interest expense that may otherwise be deductible on any indebtedness incurred
or maintained to purchase or carry such debt instrument until the holder
disposes of the debt instrument in a taxable transaction.
A Holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Internal Revenue Service ("IRS"). If a holder of a Note elects to
include market discount in income in accordance with the preceding sentence, the
foregoing rules with respect to the recognition of ordinary income on a sale or
certain other dispositions of such Note and the deferral of interest deductions
on indebtedness related to such Note would not apply.
Amortizable Bond Premium
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess may
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest rate method and deduct over the period from his
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult his tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
Disposition
In general, a holder of a Note will recognize gain or loss upon the sale,
exchange, redemption, payment upon maturity or other taxable disposition of the
Note measured by the difference between (i) the amount of cash and the fair
market value of property received (except to the extent that such cash or other
property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income) and (ii)
the holder's tax basis in the Note (as increased by any market discount
previously included in income by the holder and decreased by any amortizable
bond premium deducted over the term of the Note). Subject to the market discount
and amortizable bond premium rules above, any such gain or loss will generally
be long-term capital gain or loss, provided the Note was a capital asset in the
hands of the holder and had been held for more than one year.
BACKUP WITHHOLDING ON SECURITIES
Under the backup withholding rules, a domestic holder of Securities may be
subject to backup withholding at the rate of 31% with respect to interest or
dividends paid on, and gross proceeds from the sale of, the Securities unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of Securities who does not provide the Company with
his current taxpayer identification number may be subject to penalties imposed
by the Internal Revenue Service. Any amount paid as backup withholding will be
creditable against the holder's income tax liability.
The Company will report to Holders of Securities and the IRS the amount of
any "reportable payments" (including any interest or dividends paid) and any
amount withheld with respect to the Securities during the calendar year.
The backup withholding and information reporting rules are under review by
the United States Treasury, and their applications to the Securities could be
changed prospectively by future Treasury regulations.
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<PAGE> 69
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Operating Partnership on REIT Qualification.
Substantially all of the Company's investments are through the Operating
Partnership. The Operating Partnership may involve special tax considerations.
Such considerations include (i) the allocations of income and expense items of
the Operating Partnership, which could affect the computation of taxable income
of the Company, (ii) the status of the Operating Partnership as a partnership
(as opposed to an association taxable as a corporation) for income tax purposes,
and (iii) the taking of actions by the Operating Partnership that could
adversely affect the Company's qualifications as a REIT. In addition, the
Operating Partnership owns certain properties through subsidiary partnerships.
These partnerships have been structured in a manner that is intended to qualify
them for taxation as "partnerships" for Federal income tax purposes. If the
Operating Partnership or any other partnership in which the Operating
Partnership has an interest were treated as an association taxable as a
corporation, the Company would fail to qualify as a REIT for a number of
reasons.
Tax Allocations with Respect to the Properties. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution. Pursuant to section 704(c) of the Code, income, gain, loss and
deduction attributable to such contributed property must be allocated in a
manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed by way of contributions
of appreciated property (including certain of the Communities or interests
therein). Consequently, the Operating Partnership's partnership agreement
requires tax allocations to be made in a manner consistent with section 704(c)
of the Code. The Regulations under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences for property contributed on or after December 21, 1993, including
the retention of the "traditional method" that was available under prior law or
the election of certain alternative methods. The Operating Partnership has
elected the "traditional method" of Section 704(c) allocations. Under the
traditional method, which is the least favorable method from the Company's
perspective, the carryover basis of contributed interests in the Communities in
the hands of the Operating Partnership could cause the Company (i) to be
allocated lower amounts of depreciation deductions for tax purposes than would
be allocated to the Company if all Communities were to have a tax basis equal to
their fair market value at the time of the contribution and (ii) to be allocated
taxable gain in the event of a sale of such contributed interests in the
Communities in excess of the economic or book income allocated to the Company as
a result of such sale, with a corresponding benefit to the other partners in the
Operating Partnership. These allocations possibly could cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with REIT distribution requirements,
although the Company does not anticipate that this will occur.
Interests in the Communities purchased by the Operating Partnership (other
than in exchange for interests in the Operating Partnership) simultaneously with
or subsequent to the admission of the Company to the Operating Partnership
acquired an initial tax basis equal to their fair market value. Thus, Section
704(c) of the Code will not apply to such interests.
Management Companies. A portion of the amounts to be used to fund
distributions to shareholders is expected to come from the Management Companies,
through dividends on stock of the Management Companies held by the Operating
Partnership and interest on the Contribution Notes held by the Operating
Partnership. In general, the Management Companies conduct activities, such as
property management for third parties, that generate nonqualifying income for
purposes of the REIT income tests described above. The Management Companies will
not qualify as REITs and will pay Federal, state and local income taxes on their
taxable incomes at normal corporate rates. The Company anticipates that,
initially, deductions for interest and
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amortization will largely offset the otherwise taxable income of the Management
Companies, but there can be no assurance that this will be the case or that the
IRS will not challenge such deductions. Moreover, such deductions may not be
available for any additional Management Companies, if any, established by the
Company. Any federal, state or local income taxes that the Management Companies
are required to pay will reduce the cash available for distribution by the
Company to its shareholders.
As described above, the value of the equity and debt securities of a
Management Company held by the Company (or to be held by the Company in the case
of any additional Management Companies) cannot exceed 5% of the value of the
Company's assets at a time when a holder of Units in the Operating Partnership
exercises his redemption right (or the Company otherwise is considered to
acquire additional securities of a Management Company). See "Federal Income Tax
Considerations -- Requirements for Qualification." This limitation may restrict
the ability of a Management Company to increase the size of its respective
business unless the value of the assets of the Company is increasing at a
commensurate rate.
SPECIAL TAX CONSIDERATIONS OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE SECURITIES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Common Shares or Preferred Shares
is treated as effectively connected with the Non-U.S. Shareholder's conduct of a
U.S. trade or business, the Non-U.S. Shareholder generally will be subject to
federal income tax at graduated rates, in the same manner as U.S. shareholders
are taxed with respect to such distributions (and also may be subject to the 30%
branch profits tax in the case of a Non-U.S. Shareholder that is a non-U.S.
corporation). The Company expects to withhold U.S. income tax at the rate of 30%
on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected income. Distributions in excess of current
and accumulated earnings and profits of the Company will not be taxable to a
shareholder to the extent that such distributions do not exceed the adjusted
basis of the shareholder's Common Shares or Preferred Shares, but rather will
reduce the adjusted basis of such shares. To the extent that such distributions
in excess of current and accumulated earnings and profits exceed the adjusted
basis of a Non-U.S. Shareholder's shares of Common Shares or Preferred Shares,
such distributions will give rise to tax liability if the Non-U.S. Shareholder
would otherwise be subject to tax on any gain from the sale or disposition of
his Common Shares or Preferred Shares, as described below. Because it generally
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of any distribution normally will be subject to withholding at
the same rate as a dividend. However, a Non-U.S. Shareholder can file a claim
for refund with the U.S. Internal Revenue Service for the overwithheld amount to
the extent it is determined subsequently that a distribution was, in fact, in
excess of current and accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with U.S. business. Non-U.S. Shareholders thus would
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<PAGE> 71
be taxed at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). Distributions subject to
FIRPTA also may be subject to a 30% branch profits tax in the hands of a
non-U.S. corporate shareholder not entitled to treaty relief or exemption. The
Company is required to withhold 35% of any distribution that is designated by
the Company as a capital gains dividend. The amount withheld is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Shares
or Preferred Shares generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by non-U.S. persons. It is currently anticipated
that the Company will be a "domestically controlled REIT," and, therefore, sales
of Common Shares or Preferred Shares will not be subject to taxation under
FIRPTA. However, because the Common Shares or Preferred Shares will be traded
publicly, no assurance can be given that the Company will continue to be a
"domestically controlled REIT." Furthermore, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the Common Shares or
Preferred Shares is effectively connected with the Non-U.S. Shareholder's U.S.
trade or business, in which case the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain, or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and certain other
conditions apply, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. If the gain on the sale of
Common Shares or Preferred Shares were to be subject to taxation under FIRPTA,
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals, and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations). IN ADDITION, NON-U.S. SHAREHOLDERS SHOULD BE
AWARE THAT, IN THE PAST, LEGISLATIVE PROPOSALS HAVE BEEN MADE THAT WOULD HAVE
SUBJECTED NON-U.S. PERSONS TO U.S. TAX IN CERTAIN CIRCUMSTANCES ON THEIR GAINS
FROM THE SALE OF STOCK IN U.S. CORPORATIONS. THERE CAN BE NO ASSURANCE THAT A
SIMILAR PROPOSAL WILL NOT BE ENACTED INTO LAW IN A FORM DETRIMENTAL TO FOREIGN
HOLDERS OF THE COMMON SHARES OR PREFERRED SHARES.
STATE AND LOCAL TAX
The Company and its shareholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
shareholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Securities of the Company.
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RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Company, the Operating Partnership and the predecessor to the
Company and the Operating Partnership for the periods shown:
<TABLE>
<CAPTION>
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
THREE MONTHS ENDED ------------- JANUARY 26- JANUARY 1- -----------------
MARCH 31, 1997 1996 1995 DECEMBER 31, 1994 JANUARY 25, 1994(1)(2) 1993(1) 1992(1)
------------------ ----- ----- ----------------- ---------------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios............... 1.81x 1.83x 1.40x 1.83x .89x 1.22x 1.17x
</TABLE>
- ---------------
(1) Ratios for the period January 1 -- January 25, 1994 and the years ended
December 31, 1993 and 1992 reflect periods prior to the recapitalization and
initial public offering of the Company on January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of net income (loss) before
minority interest, gain on sale of real estate assets and extraordinary items,
plus fixed charges. Fixed charges consist of interest expense, capitalized
interest, credit enhancement fees and loan cost amortization. To date, the
Company has not issued any Preferred Shares; therefore, the ratios of earnings
to combined fixed charges and Preferred Shares dividend requirements are the
same as the ratios of earnings to fixed charges presented above.
PLAN OF DISTRIBUTION
The Company may sell Preferred Shares, Common Shares and Warrants and the
Operating Partnership may sell Debt Securities to or through one or more
underwriters or dealers for public offering and sale by or through them,
directly to one or more individual, institutional or other purchasers, through
agents or through a combination of any such methods of sale. Direct sales to
investors may also be accomplished through subscription rights distributed to
the Company's shareholders on a pro rata basis, which may or may not be
transferrable. In connection with any distribution of subscription rights to
shareholders, if all of the underlying Securities are not subscribed for, the
Company may sell the unsubscribed Securities directly to third parties or may
engage the services of one or more underwriters, dealers or agents, including
standby underwriters, to sell the unsubscribed Securities to third parties.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices (any of which may represent a discount
from the prevailing market prices).
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or the Operating Partnership or from
purchasers of Securities, for whom they may act as agents, in the form of
discounts, concessions or commissions. Underwriters may sell Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Underwriters, dealers, and
agents that participate in the distribution of Securities may be deemed to be
underwriters under the Securities Act, and any discounts or commissions they
receive from the Company or the Operating Partnership and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company or the Operating
Partnership will be described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Shares which are listed on the NYSE. Any Common Shares
sold pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official notice of issuance. The Operating Partnership or the Company may elect
to list any series of Debt Securities
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<PAGE> 73
or Preferred Shares, respectively, on an exchange, but are not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, any series of Debt Securities,
Preferred Shares or Warrants.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of any underwriters and selling group members
to bid for and purchase the Securities. As an exception to these rules,
underwriters are permitted to engage in certain transactions that stabilize the
price of the Securities. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Securities.
If any underwriters create a short position in the Securities in connection
with an offering, i.e., if they sell more Securities than are set forth on the
cover page of the applicable Prospectus Supplement, the underwriters may reduce
that short position by purchasing Securities in the open market.
The lead underwriters may also impose a penalty bid on certain other
underwriters and selling group members participating in an offering. This means
that if the lead underwriters purchase Securities in the open market to reduce
the underwriters' short position or to stabilize the price of the Securities,
they may reclaim the amount of any selling concession from the underwriters and
selling group members who sold those Securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
Neither the Company nor the Operating Partnership makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above might have on the price of the Securities. In
addition, neither the Company nor the Operating Partnership makes any
representation that underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Under agreements into which the Company or the Operating Partnership may
enter, underwriters, dealers and agents who participate in the distribution of
Securities may be entitled to indemnification by the Company or the Operating
Partnership against certain liabilities, including liabilities under the
Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company or the Operating Partnership
in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Company Contracts") providing the payment and
delivery on the date or dates stated in such Prospectus Supplement. Institutions
with which such contracts, when authorized, may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contracts will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
If so indicated in the applicable Prospectus Supplement, the Operating
Partnership will authorize underwriters or other persons acting as the Operating
Partnership's agents to solicit offers by certain institutions to purchase Debt
Securities from the Operating Partnership at the public offering price set forth
in such Prospectus Supplement pursuant to delayed delivery contracts ("Operating
Partnership Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Operating Partnership Contract will
be for an amount no less than, and the aggregate principal amounts of
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Debt Securities sold pursuant to Operating Partnership Contracts shall be not
less nor more than, the respective amounts stated in the applicable Prospectus
Supplement. Institutions with which such contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others, but
will in all cases be subject to the approval of the Operating Partnership. The
obligations of any purchaser under any such contract will be subject to the
conditions that (i) the purchase of the Debt Securities shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such purchaser is subject, and (ii) if the Debt Securities are being
sold to underwriters, the Operating Partnership shall have sold to such
underwriters the total principal amount of the Debt Securities less the
principal amount thereof covered by the Operating Partnership Contracts. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for the Company and the Operating Partnership by Goodwin, Procter &
Hoar LLP, Boston, Massachusetts.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus and elsewhere in the Registration Statement of which this Prospectus
is a part to the extent and for the periods indicated in their reports have been
audited by Arthur Andersen LLP, independent public accountants, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
44
<PAGE> 75
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE OPERATING PARTNERSHIP OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH
THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR
IN THE AFFAIRS OF THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Supplement Summary......... S-3
Additional Risk Factors............... S-8
The Company........................... S-9
Selected Financial Data............... S-14
Ratios of Earnings to Fixed Charges... S-16
Ratios of Earnings to Combined Fixed
Charges and Preferred Dividends..... S-16
Use of Proceeds....................... S-17
Capitalization........................ S-17
Description of Notes.................. S-18
Certain Federal Income Tax
Consequences........................ S-26
Underwriting.......................... S-29
Legal Matters......................... S-30
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Risk Factors.......................... 4
The Company and the Operating
Partnership......................... 8
Use of Proceeds....................... 8
Description of Debt Securities........ 9
Description of Preferred Shares....... 20
Description of Common Shares.......... 25
Description of Warrants............... 26
Limits on Ownership of Shares of
Beneficial Interest................. 26
Certain Provisions of Maryland Law and
of the Company's Declaration of
Trust and Bylaws.................... 28
Federal Income Tax Considerations..... 30
Ratios of Earnings to Fixed Charges... 42
Plan of Distribution.................. 42
Legal Matters......................... 44
Experts............................... 44
</TABLE>
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$100,000,000
[GABLES LOGO]
GABLES REALTY
LIMITED PARTNERSHIP
6.80% SENIOR NOTES DUE 2005
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
PAINEWEBBER INCORPORATED
LEHMAN BROTHERS
March 18, 1998
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