<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-38613
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 21, 1997)
3,000,000 SHARES
COMMON SHARES OF BENEFICIAL INTEREST
--------------
Colonial Properties Trust (the "Company"), a real estate investment trust (a
"REIT"), is one of the largest owners, developers and operators of multifamily,
retail and office properties in the Sunbelt region of the United States. It is a
fully-integrated and self-administered real estate company, whose activities
include the ownership and operation of a diversified portfolio of 95 properties
located in Alabama, Florida, Georgia, Mississippi, North Carolina, South
Carolina, Tennessee and Virginia, development of new properties and acquisitions
of existing properties.
All of the common shares of beneficial interest, par value $.01 per share
(the "Common Shares"), offered hereby (the "Offering") are being sold by the
Company. The Common Shares are listed on the New York Stock Exchange (the
"NYSE") under the symbol "CLP." The reported last sale price of the Common
Shares on the NYSE on April 21, 1998 was $30 1/8 per share. See "Price Range of
Common Shares and Distribution History."
Ownership of more than 5% of the Common Shares generally is restricted in
order to preserve the Company's status as a REIT for federal income tax
purposes. See "Description of Common Shares of Beneficial Interest--Restrictions
on Transfer" in the accompanying Prospectus.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share......................................... $30.125 $1.51 $28.615
Total (3)......................................... $90,375,000 $4,530,000 $85,845,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at approximately
$250,000.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
450,000 additional Common Shares on the same terms and conditions as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $103,931,250, $5,209,500 and $98,721,750,
respectively. See "Underwriting."
-------------------
The Common Shares are offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, subject to
approval of certain legal matters by counsel for the Underwriter and certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York on or about
April 27, 1998.
-------------------
MERRILL LYNCH & CO.
------------
The date of this Prospectus Supplement is April 21, 1998.
<PAGE>
[MAP APPEARS HERE]
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Common Shares.
Such transactions include stabilizing, the purchase of Common Shares to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR
INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, THE
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES THAT THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED. AS USED HEREIN, THE TERM
"COMPANY" INCLUDES COLONIAL PROPERTIES TRUST, AN ALABAMA REAL ESTATE INVESTMENT
TRUST, AND ONE OR MORE OF ITS SUBSIDIARIES (INCLUDING COLONIAL PROPERTIES
HOLDING COMPANY, INC. ("CPHC"), COLONIAL REALTY LIMITED PARTNERSHIP (THE
"OPERATING PARTNERSHIP"), COLONIAL PROPERTIES SERVICES LIMITED PARTNERSHIP (THE
"MANAGEMENT PARTNERSHIP"), AND COLONIAL PROPERTIES SERVICES, INC. (THE
"MANAGEMENT CORPORATION")) AND, WHERE APPROPRIATE, COLONIAL PROPERTIES, INC.,
THE COMPANY'S PREDECESSOR ENTITY, OR, AS THE CONTEXT MAY REQUIRE, COLONIAL
PROPERTIES TRUST ONLY OR THE OPERATING PARTNERSHIP ONLY.
THE COMPANY
The Company is one of the largest owners, developers and operators of
multifamily, retail and office properties in the Sunbelt region of the United
States. The Company has been engaged in the multifamily, retail and office
property business for over 27 years. The Company is a fully-integrated real
estate company whose activities include the ownership and operation of a
diversified portfolio of 95 properties located in Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia, development
of new properties and acquisitions of existing properties. The Company's primary
markets in the Sunbelt region are generally characterized by high population and
employment growth rates.
The Company is a self-administered equity REIT that owns 43 garden-style
multifamily apartment communities containing a total of 13,759 apartment units
(the "Multifamily Properties"), 37 retail properties (including 12 regional
malls, two "power centers" and 23 neighborhood shopping centers) containing a
total of approximately 10.6 million square feet of retail space (the "Retail
Properties"), 15 office properties containing a total of approximately 2.2
million square feet of office space (the "Office Properties") and parcels of
land adjacent to or near certain of these properties (the "Land"). (The
Multifamily Properties, the Retail Properties, the Office Properties and the
Land are referred to collectively as the "Properties"). As of December 31, 1997,
the Multifamily Properties, the Retail Properties and the Office Properties were
93.8%, 93.3% and 95.5% leased, respectively.
The Company's trustees and executive officers, together with members of the
Lowder family, own an aggregate of 7,596,940 Common Shares and units of limited
partnership interest of the Operating Partnership (the "Units"). Upon completion
of the Offering, these Common Shares and Units will represent approximately
21.2% of the total number of Common Shares and Units outstanding.
During 1997, the Company completed acquisitions for an aggregate purchase
price of $430.4 million (including $72.8 million of tax-deferred exchange
transactions) and completed development of four Properties for an aggregate cost
of $99.7 million. To date in 1998, the Company has completed two acquisitions
for an aggregate purchase price of $27.0 million, has completed development of
four multifamily projects for an aggregate cost of approximately $43.7 million
and is currently developing seven multifamily projects with an expected
aggregate cost of approximately $111.6 million. As a result of the Company's
recent acquisitions of Retail and Office Properties, the Multifamily Properties,
the Retail Properties and the Office Properties account for approximately 41%,
47% and 12%, respectively, of annualized pro forma net operating income from the
Properties for the fourth quarter of 1997. The
S-3
<PAGE>
following table sets forth certain information with respect to the Company's
revenues and occupancy rates by property type as of and for December 31, 1997:
<TABLE>
<CAPTION>
TOTAL 1997
PROPERTY PERCENT OF
REVENUE TOTAL 1997 PERCENTAGE
NUMBER OF UNITS/GLA/ (IN PROPERTY OCCUPANCY AT
TYPE OF PROPERTY PROPERTIES NRA (1) THOUSANDS) (2) REVENUE (2) DEC. 31, 1997 (3)
- ------------------------------------ --------------- ------------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Multifamily......................... 43 13,759 $ 95,503 51.8% 93.8%
Retail.............................. 37 10,558,000 71,179 38.6% 93.3%
Office.............................. 15(4) 2,198,000(4) 17,761(5) 9.6%(5) 95.5%(5)
--
-------- -----
Total........................... 95 $ 184,443 100.0%
--
--
-------- -----
-------- -----
</TABLE>
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(1) Units (in this table only) refers to multifamily apartment units, GLA refers
to gross leasable area of retail space and NRA refers to net rentable area
of office space.
(2) Includes the Company's proportionate share of revenue from those Office
Properties accounted for under the equity method.
(3) Excludes 1,972 units of expansion phases of five Multifamily Properties that
had not achieved stabilized occupancy as of December 31, 1997.
(4) Includes two Office Properties acquired in January 1998.
(5) Excludes two Office Properties acquired in January 1998.
The following table reflects the amount of the Company's net operating
income for the fourth quarter of 1997, as a percentage of total net operating
income of the Properties for the quarter, contributed by the Properties in the
eight states in which the Properties are located. Net operating income for
Properties acquired or developed during the fourth quarter of 1997 has been
adjusted to reflect a full quarter of operation.
<TABLE>
<CAPTION>
ADJUSTED PERCENT OF TOTAL
NET OPERATING 4TH QUARTER 1997
STATE INCOME NET OPERATING INCOME
- -------------------------------------------------------- ------------- --------------------
<S> <C> <C>
Alabama................................................. $15,810,881 37%
Florida................................................. 9,790,000 23%
Georgia................................................. 10,692,450 25%
North Carolina.......................................... 2,810,500 7%
South Carolina.......................................... 1,912,000 4%
Other (3 States)........................................ 2,062,500 4%
------------- --------------------
Total............................................... $43,078,331 100%
------------- --------------------
------------- --------------------
</TABLE>
RECENT DEVELOPMENTS
1997 FINANCIAL RESULTS
For the year ended December 31, 1997, the Company reported net income
available to common shareholders, before extraordinary items, of $33.9 million,
or $1.66 per share, compared to $28.0 million, or $1.60 per share, for the year
ended December 31, 1996. Net income available to common shareholders after
extraordinary items (consisting of a loss resulting from early extinguishment of
debt) totaled $30.3 million, or $1.53 per share, for 1997, compared to $27.5
million, or $1.58 per share, for 1996. For 1997, property revenues and property
operating income totaled $184.4 million and $127.0 million, respectively,
representing increases of 34.9% and 36.2%, respectively, over 1996. Funds from
operations ("FFO") for 1997 amounted to $77.5 million, compared to $63.0 million
for 1996, representing an increase of 23%. The weighted average Common Shares
and Units outstanding for 1997 and 1996 were 28,718,804 and 25,710,160,
respectively. The growth in the Company's FFO in 1997 is attributable to the
operating results of Properties that were acquired and developed during 1996 and
1997 (see "Acquisition and Development Activity" below) and increases in
same-property performance in the multifamily, retail and office divisions.
S-4
<PAGE>
For 1997, property revenues and property operating income totalled $183.4
million and $127.0 million, respectively, representing increases of 34.9% and
36.2%, respectively, over 1996. The multifamily, retail and office divisions
reported increases in same-property operating income of 3.6%, 2.1% and 3.9%,
respectively, for 1997 compared to 1996. Overall, same-property operating income
increased by 3.1% for the year.
ACQUISITION AND DEVELOPMENT ACTIVITY
Since the Company's initial public offering in September 1993 (the "IPO"),
the Company has invested over $1.0 billion in new property development and
acquisitions. The following is a summary of the Company's acquisition and
development activity since December 31, 1996.
ACQUISITION ACTIVITY
MULTIFAMILY. The Company acquired five Multifamily Properties, including
one in Alabama, one in Florida, one in Georgia, one in Mississippi and one in
South Carolina, containing 1,434 apartment units for a total purchase price of
$82.7 million. In connection with a regional mall acquisition in Alabama, the
Company sold, in a tax-deferred exchange transaction, two multifamily properties
located in Florida containing 368 apartment units and having a net book value of
$14.0 million. In connection with the acquisitions of three malls in Georgia,
the Company sold to a third party, in a tax-deferred exchange transaction, four
multifamily properties in Alabama containing a total of 2,096 apartment units
for a total sale price of $54.8 million, which resulted in a net gain of $2.6
million. The purchaser of the multifamily properties paid the sale price by
assuming an existing mortgage of $10.0 million and paying the remainder in cash.
This transaction is consistent with the Company's strategy of selling
non-strategic Multifamily Properties and further balancing its portfolio.
RETAIL. The Company acquired nine retail shopping centers, including one in
Alabama, one in Florida, two in Georgia, three in North Carolina, one in
Tennessee and one in Virginia, containing approximately 1.1 million square feet
of gross leasable area ("GLA") for a total purchase price of $70.0 million. The
Company also acquired seven regional malls, including one in Alabama, three in
Georgia, two in North Carolina and one in Virginia, containing approximately 3.2
million square feet of GLA for a total purchase price of $180.6 million.
OFFICE. The Company acquired six Office Properties, including five in
Alabama and one in Georgia, containing approximately 1.3 million square feet of
net rentable area ("NRA") for a total purchase price of $124.1 million. In
connection with the acquisition of one of these Office Properties, the Company
sold, in a tax-deferred exchange transaction, a 25,000 square foot office
building located in Alabama having a net book value of $2.0 million.
Also in 1997, the Company purchased a 62.5% interest in two multi-tenant
office buildings at International Park in Birmingham. The purchase of this
outside interest made the Company the sole owner of the two buildings, which
total 93,000 square feet of NRA. At the same time, the Company sold its 25%
interest in a 129,000 square foot building in the same office complex. The
Company also purchased a 50% interest in Colonial Plaza, a 168,000 square foot
Office Property in Birmingham, increasing the Company's ownership to 100%.
DEVELOPMENT ACTIVITY
MULTIFAMILY. During 1997, the Company completed construction of two
multifamily communities containing an aggregate of 524 apartment units and
acquired land on which it intends to develop additional multifamily communities
during 1998. The aggregate cost of these completed multifamily communities was
$32.1 million, and the aggregate cost of the land was $15.9 million.
S-5
<PAGE>
As of December 31, 1997, the Company had 1,170 apartment units in 11
multifamily communities under development and expansion. Four of the multifamily
projects were completed during the first quarter of 1998, and management
anticipates that four others will be completed during 1998. The three remaining
multifamily projects are expected to be completed during the first half of 1999.
Management expects the aggregate cost of these 11 projects to be approximately
$155.3 million.
RETAIL. During 1997 the Company also completed its 422,000 square foot
expansion of its regional mall in Macon, Georgia and completed a 239,000 square
foot expansion of a community shopping center in Montgomery, Alabama. The
aggregate cost of this retail development activity was $28.6 million.
The table below provides an overview of the Company's acquisition and
development activity since December 31, 1996:
SUMMARY OF ACQUISITION AND DEVELOPMENT ACTIVITY
SINCE DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST OR
COMPLETION OR TYPE OF UNITS (M)/ ANTICIPATED
ANTICIPATED PROPERTY GLA(R)/NRA(O) COST (IN
COMPLETION DATE NAME OF PROPERTY (1) LOCATION (2) (3) THOUSANDS)
- ---------------- ----------------------------------- ---------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
ACQUISITIONS:
1st Qtr 97.... Riverchase Center Birmingham, AL O 306,000 $ 24,200
1st Qtr 97.... Heatherbrooke Center Birmingham, AL R 28,000 3,000
1st Qtr 97.... Beechwood Shopping Center Athens, GA R 336,000 22,200
2nd Qtr 97.... CV at Trussville Birmingham, AL M 376 20,500
2nd Qtr 97.... Brookwood Village Birmingham, AL R 694,000 32,500
2nd Qtr 97.... Lakeside Office Park Huntsville, AL O 121,000 8,800
2nd Qtr 97.... Progress Center Huntsville, AL O 225,000 15,600
3rd Qtr 97.... CV at Timothy Woods Athens, GA M 204 12,800
3rd Qtr 97.... CV at Oakleigh Pensacola, FL M 176 10,500
3rd Qtr 97.... Mansell Office Park Atlanta, GA O 352,000 48,500
3rd Qtr 97.... CG at Natchez Trace Jackson, MS M 328 17,600
4th Qtr 97.... Lakewood Plaza Jacksonville, FL R 195,000 14,400
4th Qtr 97.... CV at Caledon Wood Greenville, SC M 350 21,300
4th Qtr 97.... Georgia Malls Portfolio (3 Brunswick, R 1,428,200 97,000
Properties) Gainesville, and
Valdosta, GA
4th Qtr 97.... Retail Portfolio (8 Properties) NC/VA/TN R 1,490,500 78,500
4th Qtr 97.... Village at Roswell Summit Atlanta, GA R 25,000 3,000
1st Qtr 98.... Perimeter Corporate Park Huntsville, AL O 233,000 19,500
1st Qtr 98.... Independence Plaza Birmingham, AL O 106,000 7,500
DEVELOPMENTS:
1st Qtr 97.... CG at Heathrow Orlando, FL M 312 20,500
1st Qtr 97.... CG at Bayshore Bradenton, FL M 212 11,600
1st Qtr 97.... Macon Mall (expansion), including Macon, GA R 422,000(4) 59,500
food court
4th Qtr 97.... Montgomery Promenade (expansion) Montgomery, AL R 239,000(5) 8,100
1st Qtr 98.... CV at River Hills (expansion) Tampa, FL M 276 14,200
1st Qtr 98.... CV at Inverness (expansion) Birmingham, AL M 84 6,700
1st Qtr 98.... CG at Bayshore II (expansion) Bradenton, FL M 164 9,300
1st Qtr 98.... CG at Wesleyan Macon, GA M 240 13,500
2nd Qtr 98.... CG at Hunter's Creek Orlando, FL M 496 33,300
3rd Qtr 98.... CG at Inverness Lakes (expansion) Mobile, AL M 132 8,000
4th Qtr 98.... CG at Wesleyan II (expansion) Macon, GA M 88 6,200
4th Qtr 98.... CG at Edgewater (expansion) Huntsville, AL M 192 11,500
1st Qtr 99.... CV at Citrus Park Tampa, FL M 176 12,300
1st Qtr 99.... CG at Cypress Crossing Orlando, FL M 250 20,000
2nd Qtr 99.... CG at Lakewood Ranch Sarasota, FL M 288 20,300
-----------
Total $ 712,400
-----------
-----------
</TABLE>
- ------------
(1) In the listing of Multifamily Property names, CG has been used as an
abbreviation for Colonial Grand and CV has been used as an abbreviation for
Colonial Village.
(2) M refers to Multifamily Properties, R refers to Retail Properties, and O
refers to Office Properties.
(3) Units (in this table only) refers to multifamily apartment units, GLA refers
to gross leasable area of retail space, and NRA refers to net rentable area
of office space.
(4) Includes 249,000 square feet of GLA and 173,000 square feet of space owned
by an anchor.
(5) Includes 109,000 square feet of GLA and 130,000 square feet of space owned
by an anchor.
S-6
<PAGE>
FINANCING ACTIVITY
LINE OF CREDIT. In July 1997, the Company increased its borrowing capacity
under its unsecured line of credit (the "Line of Credit") from $125 million to
$200 million and reduced the interest rate payable on outstanding balances under
the Line of Credit from 125 basis points over LIBOR to 110 basis points over
LIBOR. At the same time, the Line of Credit was amended to add a competitive bid
feature that allows the Company to convert up to $100 million of borrowings
under the Line of Credit to a fixed rate, for a fixed term not to exceed 90
days.
The Company uses the Line of Credit primarily to finance additional property
investments, including acquisition, expansion and development activities. As of
April 20, 1998, the balance outstanding under the Line of Credit was $107.9
million, bearing interest at a rate of 6.61%. The Company anticipates that, upon
completion of the Offering and the application of the estimated net proceeds
therefrom, the amount outstanding under the Line of Credit will be $22.3
million.
MEDIUM TERM NOTES. During 1997, the Company issued, in four registered
public offerings, medium term notes having an aggregate face amount of $175.0
million (resulting in aggregate net proceeds to the Company of $173.9 million).
The medium term notes issued during 1997 carry a weighted average interest rate
of 7.02% and have a weighted average maturity of 7.0 years.
PREFERRED SHARE OFFERING. In November 1997, the Company issued, in an
underwritten public offering, 5,000,000 shares of 8 3/4% Series A Cumulative
Redeemable Preferred Shares (the "Series A Shares") for $25.00 per share,
resulting in net proceeds to the Company of approximately $120.5 million.
Dividends on the Series A Shares are payable quarterly at a rate of 8.75% per
annum. The Series A Shares are redeemable by the Company at any time on or after
November 6, 2006.
COMMON SHARE OFFERINGS. In two underwritten public offerings completed in
January and July of 1997, the Company issued a total of 3,200,000 Common Shares
for aggregate net proceeds of approximately $93.0 million. During the fourth
quarter of 1997 and the first quarter of 1998, the Company issued a total of
1,728,670 Common Shares in four separate offerings to unit investment trusts for
aggregate net proceeds of approximately $50.1 million. The Company believes that
sales of its Common Shares to unit investment trusts permit the Company to raise
relatively small amounts of equity capital on an efficient basis and have the
added advantage of broadening the Company's shareholder base.
BUSINESS STRATEGY
The Company seeks to diversify its property portfolio by owning properties
in the multifamily, retail and office property segments. The Company's current
objective is to adjust its property portfolio, primarily through acquisitions,
such that by 2002 the Company will derive approximately 40% of its property
operating income from multifamily properties, 40% from retail properties and 20%
from office properties. The Company anticipates that the portfolio will vary
from year-to-year within these guidelines as the Company takes advantage of
opportunities within the three property segments. There can be no assurance that
the Company will continue to pursue this strategy or that the Company will be
able to achieve its objective. Regardless of whether this portfolio allocation
is achieved, however, the Company believes that its strategy of maintaining a
diversified portfolio of property types provides the Company with more in-depth
knowledge of local real estate markets, creates cross-marketing opportunities
between divisions, minimizes the potential negative impact of downturns in the
market for a particular property type and provides the Company with a broad
range of investment alternatives in seeking acquisition opportunities. Product
diversification also permits the Company to take advantage of opportunities to
acquire, at favorable prices, properties in product segments that may be
undervalued, and to finance such acquisitions by exchanging or otherwise
leveraging the value of properties in higher-valued product segments.
S-7
<PAGE>
The Company also seeks to maintain a geographic focus as a super-regional
REIT within the Sunbelt region of the United States. During 1997, the Company
expanded into four new states within the Sunbelt region by acquiring Properties
in Mississippi, North Carolina, Tennessee and Virginia. The Company believes
that its regional focus permits it to develop and maintain an in-depth
understanding of the Company's primary markets and better enables the Company to
identify and respond to acquisition opportunities within those markets. In
addition, the Company's strong market presence in the region provides brand
recognition that enhances the Company's ability to attract new tenants to its
Properties.
The Properties are located primarily in growth-oriented markets within the
Sunbelt region, with emphasis on mid-sized markets, which provide better
opportunities to develop or take advantage of brand recognition and generally
involve less competition for tenants and acquisition and development
opportunities than larger, more developed markets. The Company believes that its
access to the public capital markets provides it with a lower cost of capital
than many property owners and developers in the markets in which the Properties
are located and therefore gives the Company an additional competitive advantage
in these markets. During 1997, the Company expanded its operations into a major
metropolitan area of the Sunbelt region by acquiring a portfolio of Office
Properties in Atlanta. The Company believes that strategic acquisitions of
properties in larger markets within the Sunbelt region will permit the Company
to continue its geographic focus while providing the Company with added revenue
growth potential.
THE OFFERING
<TABLE>
<S> <C>
Common Shares Offered Hereby(1).............. 3,000,000
Common Shares Outstanding After the
Offering(2)................................ 25,804,399
Common Shares and Units Outstanding After the
Offering(2)(3)............................. 35,846,243
Use of Proceeds.............................. To repay outstanding indebtedness under the
Company's Line of Credit.
</TABLE>
- ---------
(1) See "Price Range of Common Shares and Distribution History" herein and
"Description of Common Shares of Beneficial Interest" in the accompanying
Prospectus.
(2) Excludes 226,743 Common Shares subject to options granted under the
Company's First Amended and Restated Employee Share Option and Restricted
Share Plan (the "Employee Plan"), and 118,333 Common Shares subject to
options granted under the Company's Non-Employee Trustee Share Option Plan
(the "Trustee Plan").
(3) The total shown includes 10,041,844 Units not owned by the Company (which
are redeemable by the Unitholder for cash or, at the option of the Company,
Common Shares).
RISK FACTORS
See "Risk Factors" beginning on page 4 of the accompanying Prospectus for
certain factors relating to an investment in the Common Shares.
S-8
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement, including information incorporated by reference,
contains statements that may be deemed to be "forward-looking" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Any statement contained in this Prospectus
Supplement which is not a historical fact, or which might be otherwise
considered an opinion or projection concerning the Company or its business,
whether express or implied, is meant as, and should be considered, a
forward-looking statement. Forward-looking statements are based upon assumptions
and opinions concerning a variety of known and unknown risks, including but not
limited to changes in market conditions, the supply and demand for leasable real
estate, interest rates, increased competition, changes in governmental
regulations, and national and local economic conditions generally, as well as
other risks more completely described in the Company's filings with the
Securities and Exchange Commission. If any of these assumptions or opinions
prove incorrect, any forward-looking statements made on the basis of such
assumptions or opinions may also prove materially incorrect in one or more
respects. Certain other factors that might cause actual results to differ from
those set forth in forward-looking statements are discussed in the section
entitled "Risk Factors" beginning on page 4 of the accompanying Prospectus.
S-9
<PAGE>
THE COMPANY
The Company is one of the largest owners, developers and operators of
multifamily, retail and office properties in the Sunbelt region of the United
States. The Company has been engaged in the multifamily, retail and office
property business for over 27 years. It is a fully-integrated real estate
company, whose activities include the ownership and operation of a diversified
portfolio of 95 properties located in Alabama, Florida, Georgia, Mississippi,
North Carolina, Tennessee, South Carolina and Virginia, development of new
properties, and acquisitions of existing properties. The Company's primary
markets in the Sunbelt region are generally characterized by high population and
employment growth rates.
The Company, through CPHC, is the sole general partner of the Operating
Partnership and, as of April 21, 1998, held approximately 69% of the outstanding
Units. The Company conducts all of its business through CPHC, the Operating
Partnership, the Management Partnership and the Management Corporation. The
Operating Partnership owns all of the Properties (or interests therein). The
Management Partnership provides management services for the Company's
Properties, and the Management Corporation provides management services for
properties owned by third parties. As sole general partner of the Operating
Partnership, the Company, through CPHC, has the exclusive power to manage and
conduct the business of the Operating Partnership, subject to certain limited
exceptions.
Through the Operating Partnership, the Company has significantly expanded
its property holdings through acquisitions and development. Additional
information regarding the Company's operating and business strategies is
provided below.
BUSINESS STRATEGY
The general business strategy of the Company is to generate stable and
increasing cash flow and portfolio value for its shareholders. The Company has
implemented this strategy principally by (i) realizing growth in income from its
existing portfolio of Properties, (ii) developing, expanding, and selectively
acquiring additional multifamily, retail and office properties in growth markets
located in the Sunbelt region of the United States where the Company has
first-hand knowledge of growth patterns and local economic conditions and
primarily in mid-sized markets where the Company has a competitive advantage due
to its size and access to lower-cost capital, (iii) managing its own Properties,
which has enabled it to better control operating expenses and establish
long-term relationships with its retail and office tenants, (iv) maintaining its
third-party property management business, which has increased cash flow and
established additional relationships with tenants and (v) employing a
comprehensive capital maintenance program to maintain Properties in first-class
condition. The Company plans to continue the implementation of these business
strategies while capitalizing on what it believes are its competitive advantages
in the real estate marketplace. These competitive advantages include the
following:
REGIONAL FOCUS. The Company seeks to maintain a geographic focus within the
Sunbelt region of the United States. During 1997, the Company expanded its
portfolio to include, in addition to Properties located in its existing markets
in Alabama, Georgia, Florida and South Carolina, Properties located in
Mississippi, North Carolina, Tennessee and Virginia. The Company believes that
its regional focus permits it to develop and maintain an in-depth understanding
of the Company's primary markets and better enables the Company to identify and
respond to acquistion opportunities within those markets. In addition, the
Company's strong market presence in the region provides brand recognition that
enhances the Company's ability to attract new tenants to its Properties.
DIVERSITY OF PRODUCT. Throughout its 27-year history, the Company has
strived to create superior value for its shareholders by diversifying its
product offerings among three major real estate industry segments-- multifamily,
retail and office. The Company's operations in these three segments are
conducted through three distinct divisions, each of which is independently
operated and staffed with management and staff personnel that have specialized
experience in that industry segment. See "The Company--Operating
S-10
<PAGE>
Strategy." The Company's current objective is to adjust its Property portfolio,
primarily through acqusitions and development, such that by 2002 the Company
will derive approximately 40% of its property operating income from multifamily
properties, 40% from retail properties and 20% from office properties. The
Company anticipates that the portfolio will vary from year-to-year within these
guidelines as the Company takes advantage of opportunities within the three
property segments. There can be no assurance that the Company will continue to
pursue this strategy or that the Company will be able to achieve its objective.
Regardless of whether this portfolio allocation is achieved, however, the
Company believes that its strategy of maintaining a diversified portfolio of
property types provides the Company with more in-depth knowledge of local real
estate markets, creates cross-selling opportunities between divisions, minimizes
the potential negative impact of downturns in the market for a particular
property type and provides the Company with a broad range of investment
alternatives in seeking acquisition opportunities. Product diversification also
permits the Company to take advantage of opportunities to acquire, at favorable
prices, properties in product segments that may be undervalued and to finance
such acquisitions by exchanging or otherwise leveraging the value of properties
in higher-valued product segments.
GROWTH-ORIENTED AND MID-SIZED MARKETS. The Properties are located primarily
in growth-oriented markets within the Sunbelt region with emphasis on mid-sized
markets, which provide better opportunities to develop or take advantage of
brand recognition and generally involve less competition for tenants and
acquisition and development opportunites than larger, more developed markets.
The Company believes that its access to the public capital markets provides it
with a lower cost of capital than many property owners and developers in the
markets in which the Properties are located and therefore gives the Company an
additional competitive advantage in these markets. During 1997, the Company
expanded its operations into a major metropolitan area of the Sunbelt region by
acquiring a portfolio of office properties in Atlanta. The Company believes that
strategic acquisitions of properties in larger markets within the Sunbelt region
will permit the Company to continue its geographic focus while providing the
Company with added revenue growth potential.
EXPERIENCED MANAGEMENT. The Company believes that strong, experienced
leadership, particularly in the management and leasing area, is critical to the
success of a fully-integrated real estate company. The Company's chief executive
officer and other executive officers have extensive experience (an average of
15.2 years) in the real estate industry in the Sunbelt region of the United
States, and have established numerous contacts throughout the industry through
leadership of various local and national chapters of real estate associations.
The Company believes that the experience of its management team gives it an
advantage over less experienced competitors in its primary markets. In addition,
the Company is committed to a continuing education program that encourages its
employees to attain recognized, professional designations. The Company's
trustees and executive officers, together with members of the Lowder family,
will own 21.2% of the issued and outstanding Common Shares and Units upon
completion of this Offering.
LONG-TERM RELATIONSHIPS. The Company has been actively engaged in the real
estate business in the Sunbelt region of the United States for over 27 years.
Thomas Lowder and his brother, James, have close ties to this region and are
established members of the local and regional business communities. Through
their extensive business dealings in the region, the Company and the Lowder
family have developed a number of long-term business relationships with tenants
and real estate owners, as well as contractors, suppliers, professionals and
lenders, in the Sunbelt region. The Company believes that these relationships
result in cost savings due to reduced tenant turnover and fewer management
terminations, enable the Company to obtain favorable terms for services, goods
and loans and provide the Company with access to additional business
opportunities.
OPERATING STRATEGY
Consistent with its diversified strategy, the Company manages its business
with three separate and distinct operating divisions: Multifamily, Retail, and
Office. Each division has an executive vice president
S-11
<PAGE>
that oversees growth and operations and has a separate management team that is
responsible for acquiring, developing, and leasing properties within each
division. This structure allows the Company to utilize specialized management
personnel for each operating division. Although these divisions operate
independently from one another, constant communication among the executive vice
presidents provides the Company with synergy allowing the Company to take
advantage of a variety of investment opportunities.
The Company is experienced in the management and leasing of multifamily,
retail and office properties and believes that the management and leasing of its
own portfolio has helped the Properties maintain consistent income growth and
has resulted in reduced operating expenses relating to the Properties. In
addition, the third-party management, leasing and brokerage businesses have
provided the Company both with a source of cash flow that is relatively stable
and with the benefits of economies of scale in conjunction with the management
and leasing of its own properties. These businesses also allow the Company to
establish additional relations with tenants that may require additional retail
or office space and to identify potential acquisitions. Additional information
with respect to each of the operating divisions is set forth below.
MULTIFAMILY DIVISION. The multifamily division of the Company is
responsible for all aspects of the Company's multifamily operations, including
day-to-day management and leasing of the 43 Multifamily Properties, as well as
development and acquisition of additional multifamily properties. The
multifamily division also is responsible for the provision of third-party
management services for apartment communities in which the Company does not have
an interest. The multifamily division currently has approximately 328 employees,
most of whom are located at the Multifamily Property sites and a small number of
whom are located in Birmingham, Alabama and in regional offices in Mobile and
Montgomery, Alabama, Orlando and Tampa, Florida, and Stockbridge, Georgia.
RETAIL DIVISION. The Company's retail division is responsible for all
aspects of the Company's retail operations, including the provision of
management, leasing, and brokerage services for the 37 Retail Properties, as
well as the development and acquisition of additional retail properties. The
retail division also is responsible for the provision of third-party management
services for retail properties in which the Company does not have an interest.
The retail division has regional offices in Birmingham, Alabama, Orlando,
Florida, Macon, Georgia and Burlington, North Carolina. The retail division
currently has approximately 342 employees.
OFFICE DIVISION. The Company's office division is responsible for all
aspects of the Company's commercial office operations, including the provision
of management, leasing, and brokerage services for the 15 Office Properties, as
well as the development and acquisition of additional office properties. The
office division also is responsible for the provision of third-party management
services for office properties in which the Company does not have an interest.
The office division has a regional office located in Atlanta, Georgia and
currently has approximately 56 employees.
FINANCING STRATEGY
The Company intends to maintain a ratio of debt to total market
capitalization (I.E., the total debt divided by the market value of issued and
outstanding Common Shares, Preferred Shares and Units plus total debt) in the
range of 30% to 45%. The Company's total market capitalization as of December
31, 1997, was $1.8 billion, and its ratio of debt to total market capitalization
was 39.8%. Following the Offering the Company's ratio of debt to total market
capitalization will be 33.3%. The Company intends to maintain a conservative
payout ratio (I.E., distributions as a percentage of FFO). In 1997 the Company's
payout ratio was 77%.
The Company may from time to time reevaluate its borrowing policies in light
of then current economic conditions, relative costs of debt and equity capital,
market values of properties, growth and
S-12
<PAGE>
acquisition opportunities, and other factors. The Company may modify its
borrowing policy and may increase or decrease its ratio of debt to total market
capitalization. To the extent that the Board of Trustees of the Company
determines to seek additional capital, the Company may raise such capital
through additional equity offerings, debt financings, or retention of cash flow
(subject to provisions in the Internal Revenue Code, as amended, requiring the
distribution by a REIT of a certain percentage of taxable income and taking into
account taxes that would be imposed on undistributed taxable income) or a
combination of these methods.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Shares offered
hereby are estimated to be approximately $85.6 million ($98.5 million if the
Underwriter's over-allotment option is exercised in full). The Company will use
the net proceeds of the Offering to repay outstanding balances under the Line of
Credit. Pending such application, the Company may invest the net proceeds in
short-term investments that are consistent with the Company's qualification for
taxation as a REIT, such as commercial paper, government securities or money
market funds that invest in government securities. The Company anticipates that,
upon completion of the Offering and the application of the estimated net
proceeds therefrom, the amount outstanding under the Line of Credit will be
$22.3 million.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the NYSE under the symbol "CLP." As of March
9, 1998, the Company's transfer agent reported 460 record holders of Common
Shares. The reported last sale price for the Common Shares on the NYSE on April
21, 1998 was $30 1/8 per share. The following table sets forth the high and low
closing sales prices per Common Share for the periods indicated as reported on
the NYSE and the distributions per share paid by the Company during such
periods.
<TABLE>
<CAPTION>
CALENDAR PERIOD HIGH LOW DISTRIBUTION
- ------------------------------------------------------- ----------- ---------- ---------------
<S> <C> <C> <C>
1996:
First Quarter........................................ $ 26.0000 $ 23.0000 $ .50
Second Quarter....................................... $ 24.7500 $ 22.0000 $ .50
Third Quarter........................................ $ 26.3750 $ 23.7500 $ .50
Fourth Quarter....................................... $ 30.3750 $ 25.8750 $ .50
1997:
First Quarter........................................ $ 31.8750 $ 28.1250 $ .52
Second Quarter....................................... $ 30.1250 $ 26.6250 $ .52
Third Quarter........................................ $ 31.3750 $ 27.5000 $ .52
Fourth Quarter....................................... $ 30.7500 $ 27.7500 $ .52
1998:
First Quarter........................................ $ 31.3750 $ 29.4375 $ .55
Second Quarter (through April 21).................... $ 32.1250 $ 30.1250 --
</TABLE>
The Company's current indicated annualized distribution is $2.20 per Common
Share. The Company has made consecutive quarterly distributions since its IPO
and has increased its annual distribution each year. The amount of the indicated
annualized distribution for 1998 represents a 5.8% increase over the Company's
total distributions for 1997. A portion of the Company's distribution may
represent a non-taxable return of capital and/or a capital gain dividend.
Approximately 26% of the 1997 distribution of $2.08 per Common Share was a
non-taxable return of capital. There were no capital gain dividends in 1997. The
Company's ability to make distributions depends on a number of factors,
including its net cash provided by operating activities, capital commitments and
debt repayment schedules. If the Common Shares offered hereby are outstanding on
the applicable record date, the holders of such Common Shares
S-13
<PAGE>
on the record date will be entitled to receive any distribution that may be
declared by and at the discretion of the Company's Board of Trustees for the
first quarter of 1998.
Holders of Common Shares are entitled to receive distributions when, as and
if declared by the Board of Trustees out of any funds legally available for that
purpose. The Company, as a REIT, is required to distribute annually to its
shareholders at least 95% of its "real estate investment trust taxable income,"
which, as defined by the relevant tax statutes and regulations, is generally
equivalent to net taxable ordinary income. See "Federal Income Tax
Considerations--Taxation of the Company" in the accompanying Prospectus.
The Company offers a dividend reinvestment and share purchase plan under
which holders of Common Shares are permitted to reinvest their dividends in
additional Common Shares and to make voluntary cash payments for the purchase of
additional Common Shares, at a 5% discount and without payment of any brokerage
commissions or service charges. The plan is administered by The First National
Bank of Boston.
S-14
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of December 31, 1997, and on a Pro Forma basis to give effect to the
completion of three public offerings of equity securities to unit investment
trusts completed during the first quarter of 1998, the Offering and the use of
the estimated net proceeds therefrom. The information set forth in the following
table should be read in conjunction with the financial information and notes
thereto incorporated herein and in the accompanying Prospectus by reference, and
the discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
HISTORICAL PRO FORMA
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Notes and mortgages payable......................................................... $ 702,044 $ 584,958
MINORITY INTEREST IN OPERATING PARTNERSHIP............................................ 174,281 191,229
SHAREHOLDERS' EQUITY:
Preferred Shares, $.01 par value, 10,000,000 authorized and 5,000,000 issued and
outstanding....................................................................... 50 50
Common Shares, $.01 par value, 65,000,000 authorized, 21,152,754 and 25,804,399 (Pro
Forma), respectively, issued and outstanding (1).................................. 212 258
Additional paid-in capital.......................................................... 524,605 663,034
Cumulative earnings................................................................. 82,716 82,716
Cumulative distributions............................................................ (116,768) (116,768)
Deferred compensation on restricted shares.......................................... (396) (396)
------------ ------------
Total shareholders' equity........................................................ 490,419 628,894
------------ ------------
Total capitalization.............................................................. $ 1,366,744 $ 1,405,081
------------ ------------
------------ ------------
</TABLE>
- ---------
(1) Does not include 10,041,844 shares reserved for possible issuance upon
redemption of issued and outstanding Units, 226,743 shares subject to
options granted under the Employee Plan, and 118,333 shares subject to
options granted under the Trustee Plan.
S-15
<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following selected historical financial and operating information for
the years ended December 31, 1997, 1996, 1995 and 1994 have been derived from
the audited historical Consolidated and Combined Financial Statements of the
Company. Such information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this Prospectus Supplement and the financial statements included in
the documents incorporated by reference into the accompanying Prospectus.
The Company believes that the book value of its real estate assets, which
reflects the historical costs of such assets less accumulated depreciation, is
not indicative of the current market value of the Properties.
<TABLE>
<CAPTION>
1997 1996 1995 1994
------------- ------------- ------------- -------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenue....................................... $ 184,126 $ 134,881 $ 110,890 $ 64,031
Expenses:
Depreciation and amortization..................... 33,278 23,533 20,490 13,061
Other operating................................... 63,581 46,819 41,772 24,026
Income from operations.............................. 87,267 64,529 48,628 26,944
Interest expense.................................... 40,496 24,584 24,060 10,877
Other income, net................................... 3,187 1,303 736 578
Income before extraordinary items and minority
interest.......................................... 49,958 41,248 25,479 16,767
Dividends to preferred shareholders................. 1,671 -- -- --
Net income available to common shareholders......... 30,277 27,506 14,936 11,317
Per share--basic and diluted:
Income before extraordinary items................. $ 1.66 $ 1.60 $ 1.29 $ 1.18
Extraordinary loss from early extinguishment of
debt............................................ (0.13) (0.02) -- --
Net income........................................ 1.53 1.58 1.29 1.18
Dividends declared................................ 2.08 2.00 1.90 1.73
BALANCE SHEET DATA:
Land, buildings, and equipment, net................. $ 1,268,432 $ 801,800 $ 624,517 $ 555,581
Total assets........................................ 1,397,078 948,105 681,122 620,413
Total debt.......................................... 702,044 506,435 354,100 362,134
OTHER DATA:
Funds from operations(1)............................ $ 77,493 $ 62,999 $ 44,015 $ 28,123
Weighted average number of Common Shares (and share
equivalents) outstanding.......................... 28,718,804 25,710,160 19,701,385 14,278,000
Total market capitalization(2)...................... 1,764,810 1,298,946 894,342 759,313
Ratio of debt to total market capitalization........ 39.8% 39.0% 39.6% 47.7%
Cash flow provided by (used in):
Operating activities.............................. $ 72,065 $ 62,873 $ 47,004 $ 27,970
Investing activities.............................. (346,379) (224,076) (95,592) (119,162)
Financing activities.............................. 275,503 162,957 29,443 84,689
Total properties (at end of year)................... 93 73 62 55
</TABLE>
- ---------
(1) The Company generally considers FFO a widely used and appropriate measure of
performance for an equity REIT that provides a relevant basis for comparison
among REITs. FFO, as defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), means income (loss) before
S-16
<PAGE>
minority interest (determined in accordance with GAAP), excluding gains
(losses) from debt restructuring and sales of property, plus real estate
depreciation and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing the Company's
performance. The Company's method of calculating FFO may be different from
methods used by other REITs and, accordingly, may not be comparable to such
other REITs. FFO (i) does not represent cash flows from operations as
defined by GAAP, (ii) is not indicative of cash available to fund all cash
flow needs and liquidity, including its ability to make distributions, and
(iii) should not be considered as an alternative to net income (as
determined in accordance with GAAP) for purposes of evaluating the Company's
operating performance.
(2) Total market capitalization is the market value of all outstanding Common
Shares and Preferred Shares of the Company plus total debt. This amount was
calculated assuming the conversion of 9,976,419, 8,431,198, 8,141,023, and
8,070,159 Units into Common Shares for 1997, 1996, 1995, and 1994
respectively.
S-17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
Consolidated and Combined Financial Statements and Notes thereto incorporated by
reference in the accompanying Prospectus.
GENERAL
The Company is a REIT engaged in the ownership, development, management, and
leasing of multifamily communities, retail malls and shopping centers, and
office buildings in eight states in the Sunbelt region of the United States. As
of March 31, 1998, the Company's real estate portfolio consisted of 43
Multifamily Properties, 37 Retail Properties, and 15 Office Properties, making
the Company one of the largest diversified REITs in the United States.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements incorporated
by reference in the accompanying Prospectus.
RESULTS OF OPERATIONS--1997 VS. 1996
In 1997, the Company experienced growth in revenues, operating expenses, and
net income which resulted from the acquisition and development of 43 Properties
during 1997 and 1996. As a result of the acquisitions and developments, the
Company's net income before dividends to preferred shareholders increased by
$5.0 million, or 18%, for 1997 when compared to 1996. On a per share basis, net
income available to common shareholders was $1.53 for 1997, a 3.2% decrease,
compared to $1.58 for 1996. The decrease in net income available to common
shareholders, on a per share basis, is directly attributable to the
extraordinary loss from early extinguishment of debt and the dividends paid to
the preferred shareholders.
REVENUES. Total revenues increased by $49.2 million, or 36.5% during 1997
when compared to 1996. Of this increase, $43.4 million relates to revenues
generated by Properties that were acquired or developed during 1997 and 1996.
The remaining increase primarily relates to increases in rental rates at
existing Properties.
OPERATING EXPENSES. Total operating expenses increased by $26.5 million, or
37.7%, during 1997 when compared to 1996. The majority of this increase, $21.5
million, relates to additional operating expenses associated with Properties
that were acquired or developed during 1997 and 1996. Depreciation expense at
existing Properties increased by $1.8 million during 1997 when compared to 1996.
The remaining increase primarily relates to the resolution of prior year
reserves for certain tax contingencies, increases in operating expenses at
existing properties, and overall increases in corporate overhead and personnel
costs associated with the Company's continued growth.
OTHER INCOME AND EXPENSES. Interest expense increased by $15.9 million, or
64.7%, during 1997 when compared to 1996. The increase in interest expense is
primarily attributable to the assumption of $75 million of debt, the issuance of
$175 million in Medium Term Notes, and the increased usage of the Company's line
of credit in conjunction with the financing of acquisitions and developments.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1998, the Company invested approximately $36.1
million in the acquisition and development of properties. The Company financed
this acquisition and development activity through net proceeds from public
offerings of equity securities totalling $45.5 million ($131.1 million including
the net proceeds from this Offering), advances under the Line of Credit and cash
from operations. The Company anticipates that, upon completion of the Offering
and the application of the estimated net proceeds therefrom, the amount
available under the Line of Credit will be $177.7 million.
During 1997, the Company invested $523.0 million in the acquisition and
development of properties. This acquisition and development activity increased
the Company's Multifamily, Retail, and Office
S-18
<PAGE>
Property holdings. The Company financed this growth through proceeds from public
offerings of equity and debt totaling $403.0 million during 1997, advances on
its Line of Credit, the issuance of Units, and cash from operations. In
connection with the acquisition activity, the Company sold or exchanged six
multifamily properties and one office property through tax-deferred
transactions. The Company also used these sources of funds, along with
exchanging or selling properties, to repay or transfer $120 million on 17
mortgage loans.
At December 31, 1997, the Company's total outstanding debt balance was
$702.0 million. The outstanding balance includes fixed-rate debt of $531.3
million, or 75.7%, and floating-rate debt of $170.7 million, or 24.3%. Of this
floating rate debt, $53.0 million is tax-exempt floating-rate debt bearing a
weighted average interest rate of 4.74%. The Company has obtained interest rate
protection for $67.8 million of the floating-rate debt under two agreements. One
agreement, protecting $17.8 million, limits the debt to an interest rate of
5.96% through September 30, 1998, and the other agreement, protecting $50.0
million, limits the debt to an interest rate of 8.00% through May 2, 2000. The
Company's total market capitalization as of December 31, 1997 was $1.76 billion
and its ratio of debt to total market capitalization was 39.8%. Following the
Offering the Company's ratio of debt to total market capitalization will be
33.3%. Certain loan agreements of the Company contain restrictive covenants
which, among other things, require maintenance of various financial ratios. At
December 31, 1997, the Company was in compliance with these covenants.
ACQUISITION AND DEVELOPMENT ACTIVITIES
MULTIFAMILY PROPERTIES. During 1997, the Company added 1,434 apartment
units through the acquisition of five multifamily communities at an aggregate
cost of $84.0 million. In a continuing effort to diversify its portfolio, the
Company sold or exchanged six multifamily communities, which had a net book
value of $68.0 million and consisted of 2,464 apartments units. The Company also
completed construction of two multifamily communities containing an aggregate of
524 apartment units and acquired land on which it intends to develop additional
multifamily communities during 1998. The aggregate cost of these completed
multifamily communities was $32.1 million and the aggregate cost of the land was
$15.9 million.
As of December 31, 1997, the Company had 1,170 apartment units in 11
multifamily communities under development or expansion. Four of the multifamily
projects were completed during the first quarter of 1998, and management
anticipates that four others will be completed during 1998. The three remaining
multifamily projects are expected to be completed during the first half of 1999.
Management expects the aggregate cost of these 11 projects to be approximately
$155.3 million.
RETAIL PROPERTIES. During 1997, the Company added 4.9 million square feet
of retail shopping space through the acquisition of nine community shopping
centers and seven enclosed malls at an aggregate cost of $250.6 million. The
Company also completed a 422,000 square foot expansion of a regional mall in
Macon, Georgia and a 239,000 square food expansion of a community shopping
center in Montgomery, Alabama at an aggregate cost during 1997 of $28.6 million.
OFFICE PROPERTIES. During 1997, the Company increased its office portfolio
by one million square feet with the acquisition of four Office Properties and
the purchase of additional interests in two joint ventures. The Office
Properties are located in Alabama and Georgia and were purchased at an aggregate
cost of $104.5 million. In connection with one of the acquisitions, the Company
exchanged an office property which had a net book value of $2.0 million and
consisted of 25,000 square feet.
FUNDS FROM OPERATIONS
The Company's FFO for the years ended December 31, 1997 and 1996 was
computed as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net income.............................................................. $ 30,277 $ 27,506
Adjustments:
Minority interest in Operating Partnership............................ 14,360 13,231
Depreciation(1)....................................................... 32,288 22,621
Gains from sales of property(1)....................................... (3,082) (870)
Debt prepayment penalties............................................. 3,650 511
--------- ---------
Funds from operations................................................... $ 77,493 $ 62,999
</TABLE>
- ---------
(1) Includes pro-rata share of adjustments for subsidiaries.
S-19
<PAGE>
SCHEDULE OF INDEBTEDNESS
Certain of the Properties are subject to mortgage indebtedness. The
Properties whose financial results are consolidated in the financial statements
of the Company are subject to existing mortgage indebtedness, and the Company
has unsecured notes payable, in an aggregate amount as of December 31, 1997, of
approximately $702.0 million, carrying a weighted average interest rate of 7.23%
and a weighted average maturity of 7.3 years. The mortgage indebtedness on the
Properties and the Company's unsecured indebtedness as of December 31, 1997, are
set forth in the table below:
<TABLE>
<CAPTION>
ANTICIPATED
ANNUAL DEBT
PRINCIPAL SERVICE
INTEREST BALANCE (AS OF (1/1/98- MATURITY
PROPERTY (1) RATE 12/31/97) 12/31/98) DATE (2)
- ---------------------------------- ---------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
MORTGAGE DEBT
MULTIFAMILY PROPERTIES:
CG at Carrollwood............... 8.870% $ 6,230,000 $ 552,601 03/05/05
CG at Natchez Trace............. 7.950% 6,859,693 577,803 09/01/35
8.000% 4,081,678 351,254 02/01/37
CV at Rocky Ridge............... 5.900% 6,000,000(11) 354,000 08/01/02(3)
7.625% 1,335,000 188,648 08/01/02(3)
CG at Galleria Woods............ 6.875% 7,253,376 645,715 07/15/99
CG at Mountain Brook............ 8.000% 12,101,956 1,134,426 01/10/00
CV at Cahaba Heights............ 8.060% 3,696,965 376,726 05/10/00
CG at Edgewater................. 7.500% 9,811,501 10,481,759 11/15/98
CV at Inverness................. 5.960%(4) 9,900,000(11) 347,490 06/15/26(5)
CV at Huntleigh Woods........... 9.500% 2,992,056(8) 21,280(8) 05/01/02
CV at Inverness Lakes........... 5.900% 4,000,000(11) 236,000 07/31/02(6)
7.625% 1,663,333 204,037 07/31/02(7)
CG at Galleria.................. 4.540% 22,400,000(11) 786,240 06/15/26(5)
CG at Research Park............. 4.800% 12,775,000(11) 448,403 06/15/26(5)
CG at Riverchase................ 7.150% 9,081,348 9,134,047 12/31/98
Ski Lodge--Tuscaloosa........... 9.500% 4,779,642(8) 33,994(8) 05/01/02
CV at Vernon Marsh.............. 5.960%(4) 4,500,000(11) 157,950 06/15/26(5)
CV at White Bluff............... 5.960%(4) 3,400,000(11) 119,340 06/15/26(5)
CV at Hillwood.................. 5.900% 3,330,000(11) 196,470 07/31/02(6)
7.625% 1,593,333 197,203 07/31/02(7)
RETAIL PROPERTIES:
Bellwood........................ 10.125% 2,973,419 324,825 01/01/99
Island Walk..................... 8.800% 10,253,337 1,059,766 10/01/01
Mayberry Mall................... 9.220% 3,401,032 362,787 10/01/01
Montgomery Promenade............ 9.250% 10,810,000 999,925 07/01/00
Rivermont Shopping Center....... 10.125% 1,789,378 270,656 09/01/08
University Park Plaza........... 8.870% 14,445,000 1,281,272 03/05/05
Village at Roswell Summit....... 8.930% 1,652,438 168,057 09/01/05
OFFICE PROPERTIES:
International Park.............. 8.650% 2,011,911 216,795 10/01/99
Interstate Park................. 8.500% 4,481,137 643,443 08/01/03
Riverchase Center............... 7.880% 8,479,599 897,960 12/01/00
Mansell Office Park............. 8.250% 17,571,480 1,595,700 01/10/08
8.625% 14,007,994 1,333,754 06/01/00
OTHER DEBT:
Land Loan....................... 7.010% 668,364 712,178 09/30/98
UNSECURED INDEBTEDNESS
Line of Credit, incl. Comp.
Bid........................... 6.696%(9) 117,086,000 7,910,330 07/10/98(10)
Unsecured Senior Notes.......... 7.500% 64,886,337 4,875,000 07/15/01
Unsecured Senior Notes.......... 8.050% 64,741,683 5,232,500 07/15/06
Medium Term Notes............... 7.050% 50,000,000 3,525,000 12/15/03
Medium Term Notes............... 7.160% 50,000,000 3,580,000 01/17/03
Medium Term Notes............... 6.690% 75,000,000 5,017,500 07/26/04
Medium Term Notes............... 6.960% 25,000,000 1,740,000 08/01/05
Medium Term Notes............... 6.980% 25,000,000 1,745,000 09/26/05
----------------- --------------
TOTAL $ 702,043,990 $ 70,037,834
----------------- --------------
----------------- --------------
<CAPTION>
ESTIMATED
BALANCE DUE
PROPERTY (1) AT MATURITY
- ---------------------------------- ----------------
<S> <C><C>
MORTGAGE DEBT
MULTIFAMILY PROPERTIES:
CG at Carrollwood............... $ 6,230,000
CG at Natchez Trace............. 47,813
29,071
CV at Rocky Ridge............... 6,000,000
841,667
CG at Galleria Woods............ 7,035,235
CG at Mountain Brook............ 11,742,632
CV at Cahaba Heights............ 3,502,055
CG at Edgewater................. 9,685,749
CV at Inverness................. 9,900,000
CV at Huntleigh Woods........... 2,992,056(8)
CV at Inverness Lakes........... 4,000,000
1,234,167
CG at Galleria.................. 22,400,000
CG at Research Park............. 12,775,000
CG at Riverchase................ 8,967,396
Ski Lodge--Tuscaloosa........... 4,779,642(8)
CV at Vernon Marsh.............. 4,500,000
CV at White Bluff............... 3,400,000
CV at Hillwood.................. 3,330,000
1,179,167
RETAIL PROPERTIES:
Bellwood........................ 2,948,518
Island Walk..................... 9,578,044
Mayberry Mall................... 3,237,064
Montgomery Promenade............ 10,810,000
Rivermont Shopping Center....... 52,091
University Park Plaza........... 14,445,000
Village at Roswell Summit....... 1,401,860
OFFICE PROPERTIES:
International Park.............. 1,931,425
Interstate Park................. 2,648,144
Riverchase Center............... 7,766,043
Mansell Office Park............. 15,285,811
13,682,324
OTHER DEBT:
Land Loan....................... 649,897
UNSECURED INDEBTEDNESS
Line of Credit, incl. Comp.
Bid........................... 117,086,000
Unsecured Senior Notes.......... 65,000,000
Unsecured Senior Notes.......... 65,000,000
Medium Term Notes............... 50,000,000
Medium Term Notes............... 50,000,000
Medium Term Notes............... 75,000,000
Medium Term Notes............... 25,000,000
Medium Term Notes............... 25,000,000
----------------
TOTAL $ 681,093,871
----------------
----------------
</TABLE>
S-20
<PAGE>
- ----------
(1) As noted in the table, certain Properties were developed in phases and
separate mortgage indebtedness may encumber each of the various phases. In
the listing of property names, CG has been used as an abbreviation for
Colonial Grand and CV as an abbreviation for Colonial Village.
(2) All of the mortgages can be prepaid at any time, subject to prepayment
penalties calculated typically on a yield maintenance basis, except for the
mortgages encumbering CV at Rocky Ridge, CV at Inverness Lakes, CV at
Hillwood, and CG at Natchez Trace, which are closed to prepayment for
varying lengths of time.
(3) The maturity date noted represents the date on which credit enhancement
expires for the tax-exempt municipal bonds put in place as part of the
original financing for the Property. The stated maturity date for the loans
is August 1, 2007.
(4) Represents the maximum interest rate payable by the Company for the next
nine months on these loans as the result of an interest rate protection
agreement entered into by the Company. The loans (which are financed
through tax-exempt bonds) secured by these Properties (or phases thereof)
bear interest at a variable rate, determined weekly at the rate necessary
to produce a bid in the process of remarketing the bonds equal to par plus
accrued interest, based on comparable issues in the market. The interest
rate for these debt obligations as of December 31, 1997, was 3.80% for
these Properties.
(5) These loans are financed through tax-exempt bonds which are credit enhanced
by Fannie Mae. The loans, which bear interest at a weekly variable interest
rate, require monthly interest payments through June 2006 and principal and
interest payments from July 2006 through June 2026. The weighted average
interest rate of these five loans was 3.87% at December 31, 1997.
(6) The maturity date noted represents the date on which credit enhancement
expires for the tax-exempt municipal bonds put in place as part of the
original financing for the Property. The stated maturity date for the loans
is August 1, 2022.
(7) The maturity date noted represents the date on which credit enhancement
expires for the tax-exempt municipal bonds put in place as part of the
original financing for the Property. The stated maturity date for the loans
is August 1, 2010.
(8) The principal balances outstanding on these loans were repaid in February
1998 through advances on the Company's unsecured Line of Credit. The
amounts presented for anticipated annual debt service for these loans
represent the principal and interest paid during 1997 (excluding the final
principal balance paid). The amounts presented for estimated balance due on
maturity for these loans represent the outstanding balances that were
repaid in February 1998.
(9) This Line of Credit bears interest at a variable rate, based on LIBOR plus
a spread that ranges from 100 to 150 basis points. At December 31, 1997,
the Line of Credit bore interest at a rate of 110 basis points above LIBOR.
The facility also includes a competitive bid feature that allows the
Company to convert up to $100 million under the Line of Credit to a fixed
rate, for a fixed term not to exceed 90 days. At December 31, 1997, $45
million was outstanding under a competitive bid loan which bore interest at
a weighted average rate of 6.60%.
(10) This credit facility has a term of one year beginning in July 1997 and
provides for a two-year amortization in the event of non-renewal.
(11) These loans are financed through tax-exempt bonds.
In addition to the foregoing mortgage debt, the two Office Properties in
which the Company owns partial interests (and which therefore are not
consolidated in the financial statements of the Company) also are subject to
existing mortgage indebtedness. The Company's pro-rata share of such
indebtedness as of December 31, 1997, was $1,057,000 which carried a weighted
average interest rate of 9.3%. The maturity dates of these loans range from May
31, 1998 to July 17, 2000, and as of December 31, 1997, the loans had a weighted
average maturity of 1.8 years.
S-21
<PAGE>
PROPERTIES
GENERAL
The 95 Properties owned by the Company consist of 43 Multifamily Properties,
37 Retail Properties, and 15 Office Properties. Certain information relating to
the Company's revenues and occupancy rates by Property type as of and for the
year ended December 31, 1997 is set forth below.
<TABLE>
<CAPTION>
PERCENT
TOTAL 1997 OF
PROPERTY TOTAL PERCENTAGE
REVENUE 1997 OCCUPANCY AT
NUMBER OF UNITS/GLA/ (IN PROPERTY DEC. 31,
TYPE OF PROPERTY PROPERTIES NRA (1) THOUSANDS) (2) REVENUE (2) 1997 (3)
- -------------------- --------- ---------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Multifamily......... 43 13,759 $ 95,503 51.8% 93.8%
Retail.............. 37 10,558,000 71,179 38.6% 93.3%
Office.............. 15(4) 2,198,000(4) 17,761(5) 9.6%(5) 95.5%(5)
--
-------------- ---------
Total........... 95 $184,443 100.0%
--
--
-------------- ---------
-------------- ---------
</TABLE>
- ---------
(1) Units (in this table only) refers to multifamily apartment units, GLA refers
to gross leasable area of retail space and NRA refers to net rentable area
of office space.
(2) Includes the Company's proportionate share of revenue from those Office
Properties accounted for under the equity method.
(3) Excludes 1,972 units of expansion phases of five Multifamily Properties that
had not achieved stabilized occupancy as of December 31, 1997.
(4) Includes two Office Properties acquired in January 1998.
(5) Excludes two Office Properties acquired in January 1998.
The following table reflects the amount of the Company's net operating
income for the fourth quarter of 1997, as a percentage of total net operating
income of the Properties for the quarter, contributed by the Properties in the
eight states in which the Properties are located. Net operating income for
Properties acquired or developed during the fourth quarter of 1997 has been
adjusted to reflect a full quarter of operation.
<TABLE>
<CAPTION>
ADJUSTED PERCENT OF TOTAL
NET OPERATING 4TH QUARTER 1997
STATE INCOME NET OPERATING INCOME
- -------------------------------------------------------- ------------- --------------------
<S> <C> <C>
Alabama................................................. $15,810,881 37%
Florida................................................. 9,790,000 23%
Georgia................................................. 10,692,450 25%
North Carolina.......................................... 2,810,500 7%
South Carolina.......................................... 1,912,000 4%
Other (3 States)........................................ 2,062,500 4%
------------- --------------------
Total............................................... $43,078,331 100%
------------- --------------------
------------- --------------------
</TABLE>
MULTIFAMILY PROPERTIES
The 43 Multifamily Properties contain a total of 13,759 garden-style
apartments and range in size from 104 to 1,080 apartment units. Fourteen of the
Multifamily Properties were acquired by the Company in connection with the
formation of the Company at the time of the IPO (the "Formation Transactions"),
13 Properties and one additional phase of an existing Property were acquired
during 1994, seven Properties were acquired during 1996 and five Properties were
acquired during 1997. Also, since its IPO the Company has developed four
additional Multifamily Properties. Twenty Multifamily Properties (containing a
total of 6,985 apartment units) are located in Alabama, 13 Multifamily
Properties (containing a total of 4,502 apartment units) are located in Florida,
eight Multifamily Properties (containing a total of 1,594 apartments units) are
located in Georgia, one Multifamily Property (containing a total of 328
apartment units) is located in Mississippi, and one Multifamily Property
(containing a total of 350 apartment units) is located in South Carolina. All of
the Multifamily Properties are managed by the Company.
S-22
<PAGE>
The following table sets forth certain additional information relating to
the Multifamily Properties as of and for the year ended December 31, 1997.
MULTIFAMILY PROPERTIES
<TABLE>
<CAPTION>
AVERAGE
YEAR NUMBER APPROXIMATE RENTAL
COMPLETED OF RENTABLE AREA PERCENT RATE
MULTIFAMILY PROPERTY (1) LOCATION (2) UNITS (3) (SQUARE FEET) OCCUPIED PER UNIT
- ------------------------------------ ------------- ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA:
CV at Ashford Place................. Mobile 1983 168 139,000 95.8% $ 488
CV at Rocky Ridge................... Birmingham 1984 226 259,000 92.0% 598
Colony Park......................... Mobile 1975 201 130,000 92.5% 387
CG at Galleria Woods................ Birmingham 1994 244 261,000 92.6% 656
CG at Mountain Brook................ Birmingham 1987/91 392 393,000 89.5% 679
CV at Trussville.................... Birmingham 1996/97 376 410,000 (7) 674
CV at Cahaba Heights................ Birmingham 1992 125 131,000 92.0% 701
CG at Edgewater..................... Huntsville 1990 308 323,000 98.4% 571
CV at Inverness..................... Birmingham 1986/87/90 586 395,000 90.8% 540
CV at Huntleigh Woods............... Mobile 1978 233 199,000 99.6% 433
CG/CV at Inverness Lakes............ Mobile 1983/96 366 362,000 96.8% 572
CV at McGehee Place................. Montgomery 1986/95 468 404,000 92.5% 539
CV at Monte D'Oro................... Birmingham 1977 200 296,000 97.5% 650
Patio............................... Auburn 1966/83/84 240 179,000 95.8% 411
CV at Hillcrest..................... Mobile 1981 104 114,000 100.0% 590
CG at Galleria...................... Birmingham 1986/96 1,080 1,195,000 92.3% 614
CG at Research Park................. Huntsville 1987/94 736 809,000 97.0% 555
CG at Riverchase.................... Birmingham 1984/91 468 746,000 94.2% 746
Ski Lodge Tuscaloosa................ Tuscaloosa 1976/92 304 273,000 94.1% 406
CV at Hillwood...................... Montgomery 1984 160 151,000 95.6% 550
Other...........................
----------- -------------- ----- -----
Subtotal--Alabama (20 Properties)............................. 6,985 7,169,000 94.1% 582
----------- -------------- ----- -----
FLORIDA:
CG at Kirkman....................... Orlando 1991 370 337,000 92.2% 759
CG at Carrollwood................... Tampa 1966 244 286,000 96.3% 803
CG at Bayshore...................... Bradenton 1997 332 369,000 (7) 722
CG at Heathrow...................... Orlando 1997 312 370,000 95.5% 817
CG at Hunter's Creek................ Orlando 1997 496 624,000 (7) 833
CG at Palma Sola.................... Bradenton 1992 340 292,000 91.2% 689
CG at Palm Aire..................... Sarasota 1991 248 252,000 99.2% 785
CG at Gainesville................... Gainesville 1989/93/94 560 489,000 93.6% 720
CG at Ponte Vedra................... Jacksonville 1988 240 212,000 95.4% 666
CV at Oakleigh...................... Pensacola 1997 176 186,000 94.7% 683
CV at River Hills................... Tampa 1991/97 528 465,000 (7) 614
CV at Lake Mary..................... Orlando 1991/95 504 431,000 98.0% 628
CV at Cordova....................... Pensacola 1983 152 116,000 98.7% 497
Other...........................
----------- -------------- ----- -----
Subtotal--Florida (13 Properties)........................... 4,502 4,429,000 95.2% 714
----------- -------------- ----- -----
GEORGIA:
CG at Barrington.................... Macon 1996 176 201,000 80.1% 658
CG at Wesleyan...................... Macon 1997 240 240,000 (7) 621
North Ingle Villas.................. Macon 1983 140 133,000 82.1% 550
CV at White Bluff................... Savannah 1986 120 108,000 91.7% 631
CV at Vernon Marsh.................. Savannah 1986/87 178 151,000 95.5% 610
CG at Spring Creek.................. Macon 1992/94 296 328,000 91.6% 618
CV at Stockbridge................... Stockbridge 1993/94 240 253,000 96.3% 672
CV at Timothy Woods................. Athens 1996 204 211,000 89.2% 740
----------- -------------- ----- -----
Subtotal--Georgia (8 Properties)............................ 1,594 1,625,000 90.1% 641
----------- -------------- ----- -----
MISSISSIPPI:
CG at Natchez Trace................. Jackson 1995/97 328 343,000 99.0% 637
----------- -------------- ----- -----
Subtotal--Mississippi (1 Property).......................... 328 343,000 99.0% 637
----------- -------------- ----- -----
SOUTH CAROLINA:
CV at Caledon Wood.................. Greenville 1995/96 350 367,000 86.0% 727
----------- -------------- ----- -----
Subtotal--South Carolina (1 Property)....................... 350 367,000 86.0% 727
----------- -------------- ----- -----
TOTAL (43 Properties)....................................... 13,759 13,933,000 93.8% $ 631(5)
----------- -------------- ----- -----
----------- -------------- ----- -----
<CAPTION>
TOTAL MULTIFAMILY PERCENT OF
PROPERTY TOTAL 1997
REVENUE FOR PROPERTY
MULTIFAMILY PROPERTY (1) 1997 REVENUES (4)
- ------------------------------------ ----------------- -----------------
<S> <C> <C>
ALABAMA:
CV at Ashford Place................. $ 1,007,257 0.5%
CV at Rocky Ridge................... 1,491,752 0.8%
Colony Park......................... 879,268 0.5%
CG at Galleria Woods................ 1,710,598 0.9%
CG at Mountain Brook................ 2,679,375 1.5%
CV at Trussville.................... 1,424,920(6) 0.8%
CV at Cahaba Heights................ 923,694 0.5%
CG at Edgewater..................... 2,153,980 1.2%
CV at Inverness..................... 2,955,040 1.6%
CV at Huntleigh Woods............... 1,250,658 0.7%
CG/CV at Inverness Lakes............ 2,837,271 1.5%
CV at McGehee Place................. 2,526,700 1.4%
CV at Monte D'Oro................... 1,531,823 0.8%
Patio............................... 1,118,992 0.6%
CV at Hillcrest..................... 740,351 0.4%
CG at Galleria...................... 6,095,519 3.3%
CG at Research Park................. 5,282,727 2.9%
CG at Riverchase.................... 3,888,784 2.1%
Ski Lodge Tuscaloosa................ 1,402,641 0.8%
CV at Hillwood...................... 959,472 0.5%
Other........................... 9,773,474(8) 5.3%
----------------- ---
Subtotal--Alabama (20 Properties). $ 52,634,296 28.6%
----------------- ---
FLORIDA:
CG at Kirkman....................... $ 3,361,931 1.8%
CG at Carrollwood................... 2,224,130 1.2%
CG at Bayshore...................... 1,364,051 0.7%
CG at Heathrow...................... 2,984,876 1.6%
CG at Hunter's Creek................ 1,968,151 1.1%
CG at Palma Sola.................... 2,341,892 1.3%
CG at Palm Aire..................... 2,219,046 1.2%
CG at Gainesville................... 4,551,652 2.5%
CG at Ponte Vedra................... 1,723,195 0.9%
CV at Oakleigh...................... 751,218(6) 0.4%
CV at River Hills................... 2,519,441 1.4%
CV at Lake Mary..................... 3,764,405 2.0%
CV at Cordova....................... 896,927 0.5%
Other........................... 972,311(8) 0.5%
----------------- ---
Subtotal--Florida (13 Properties $ 31,643,226 17.1%
----------------- ---
GEORGIA:
CG at Barrington.................... $ 1,249,780 0.7%
CG at Wesleyan...................... 600,453 0.3%
North Ingle Villas.................. 732,141 0.4%
CV at White Bluff................... 871,295 0.5%
CV at Vernon Marsh.................. 1,264,803 0.7%
CG at Spring Creek.................. 2,104,184 1.1%
CV at Stockbridge................... 1,790,655 1.0%
CV at Timothy Woods................. 825,338(6) 0.4%
----------------- ---
Subtotal--Georgia (8 Properties) $ 9,438,649 5.1%
----------------- ---
MISSISSIPPI:
CG at Natchez Trace................. $ 1,025,654(6) 0.6%
----------------- ---
Subtotal--Mississippi (1 Propert $ 1,025,654 0.6%
----------------- ---
SOUTH CAROLINA:
CV at Caledon Wood.................. $ 761,142(6) 0.4%
----------------- ---
Subtotal--South Carolina (1 Prop $ 761,142(6) 0.4%
----------------- ---
TOTAL (43 Properties)........... $ 95,502,967 51.8%
----------------- ---
----------------- ---
</TABLE>
S-23
<PAGE>
- -------------
(1) All Multifamily Properties are 100% owned by the Company. In the listing of
Multifamily Property names, CG has been used as an abbreviation for Colonial
Grand and CV as an abbreviation for Colonial Village.
(2) Year initially completed and, where applicable, year(s) in which additional
phases were completed at the Property.
(3) Units (in this table only) refers to multifamily apartment units. Number of
Units includes all apartment units occupied or available for occupancy at
December 31, 1997.
(4) Percent of Total 1997 Property Revenue represents the Multifamily Property's
proportionate share of all revenue from the 93 Properties owned by the
Company at December 31, 1997 and the properties disposed of by the Company
in 1997.
(5) Represents weighted average rental rate per unit of the 43 Multifamily
Properties at December 31, 1997.
(6) Represents revenues from the date of the Company's acquisition of this
Property in 1997 through December 31, 1997.
(7) Expanded or newly developed Property currently undergoing lease-up.
(8) Represents revenues from the properties disposed of by the Company in 1997.
The following table sets forth the total number of apartment units, percent
leased and average base rental rate per apartment unit as of the end of each of
the last five years for the multifamily properties owned by the Company on each
such date:
<TABLE>
<CAPTION>
AVERAGE BASE
NUMBER PERCENT RENTAL RATE
YEAR-END OF UNITS(1) LEASED (2) PER UNIT
- ------------------------------------------------------- ----------- ------------- ---------------
<S> <C> <C> <C>
December 31, 1997...................................... 13,759 93.8% $ 631
December 31, 1996...................................... 13,617 94.8% $ 579
December 31, 1995...................................... 11,239 95.7% $ 552
December 31, 1994...................................... 10,972 96.0% $ 531
December 31, 1993...................................... 3,618 96.7% $ 510
</TABLE>
- ---------
(1) Units (in this table only) refers to multifamily apartment units owned at
year end.
(2) Represents weighted average occupancy of the multifamily properties that had
achieved stabilized occupancy at the end of the specified year.
RETAIL PROPERTIES
The 37 Retail Properties contain a total of approximately 10.6 million
square feet of GLA (including space owned by anchor tenants). Ten of the Retail
Properties are located in Alabama, 11 are located in Florida, seven are located
in Georgia, five are located in North Carolina, one is located in South
Carolina, one is located in Tennessee, and two are located in Virginia. The
Retail Properties consist of 12 enclosed regional malls (Briarcliffe Mall,
Brookwood Village, Gadsden Mall, Glynn Place Mall, Holly Hill Mall, Lakeshore
Mall, Macon Mall, Mayberry Mall, River Oaks Center, Staunton Mall, Valdosta
Mall, and Village Mall), two power centers, and 23 neighborhood shopping
centers. Nine of the 37 Retail Properties were originally developed by the
Company, two were acquired in 1994, six were acquired in 1995, four were
acquired in 1996, and 16 were acquired in 1997. All of the Retail Properties are
managed by the Company.
The following table sets forth certain information relating to the Retail
Properties as of and for the year ended December 31, 1997.
S-24
<PAGE>
RETAIL PROPERTIES
<TABLE>
<CAPTION>
GROSS
LEASEABLE
YEAR AREA NUMBER TOTAL
COMPLETED (SQUARE OF PERCENT ANNUALIZED
RETAIL PROPERTY (1) LOCATION (2) FEET) (3) STORES LEASED (3) BASE RENT
- ------------------------------ -------------- ---------- ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA:
River Oaks.................... Decatur 1979/89 494,000 58 88.3% $ 3,293,000
81,000(6)
Brookwood Village............. Birmingham 1973/91 463,000 69 86.3% 3,836,000
231,000(6)
Gadsden Mall.................. Gadsden 1974/91 492,000 61 96.9% 2,705,000
Village Mall.................. Auburn 1973/84/89 399,000 63 93.5% 2,606,000
Montgomery Promenade.......... Montgomery 1990/97 274,000 31 98.3% 1,679,000
174,000(6)
McGehee Place................. Montgomery 1980 55,000 13 86.3% 526,000
50,000(6)
Bellwood...................... Montgomery 1988 37,000 15 86.1% 401,000
50,000(6)
Old Springville............... Birmingham 1982 64,000 14 100.0% 405,000
Heatherbrooke Center.......... Birmingham 1984 28,000 5 100.0% 393,000
Olde Towne.................... Montgomery 1978/90 39,000 15 95.3% 336,000
---------- ------ ----- -----------
Subtotal--Alabama (10 Properties)..................... 2,931,000 344 92.0% $16,180,000
---------- ------ ----- -----------
FLORIDA:
University Park............... Orlando 1986/89 399,000 41 94.6 $ 2,763,000
Country Lake.................. Orlando 1990 217,000 28 97.3 1,063,000
Burnt Store Square............ Punta Gorda 1990 199,000 21 90.2% 1,241,000
Winter Haven.................. Orlando 1986 197,000 24 89.4% 1,292,000
Northdale Court............... Tampa 1988 193,000 27 81.5% 1,322,000
55,000(6)
Bear Lake..................... Orlando 1990 125,000 20 85.8% 839,000
Paddock Park.................. Ocala 1988 87,000 20 97.6% 663,000
Bardmoor Village.............. St. Petersburg 1981 158,000 27 98.1% 1,355,000
Island Walk................... Orlando 1993/95 222,000 24 98.2% 1,914,000
Wekiva Riverwalk.............. Orlando 1990 209,000 26 82.7% 1,950,000
Lakewood Plaza................ Jacksonville 1995 195,000 39 88.9% 1,366,000
---------- ------ ----- -----------
Subtotal--Florida (11 Properties)..................... 2,256,000 297 91.5% $15,768,000
---------- ------ ----- -----------
GEORGIA:
Macon Mall.................... Macon 1975/88/97 757,000 158 (8) $ 9,778,000
682,000(6)
Beechwood Center.............. Athens 1963/92 336,000 51 98.1% 2,404,000
Britt David................... Columbus 1990 110,000 10 100.0% 746,000
Lakeshore Mall................ Gainesville 1984-97 518,000 64 93.6% 3,358,000
Valdosta Mall................. Valdosta 1982-85 325,000 53 93.7% 2,831,000
74,000(6)
Glynn Place Mall.............. Brunswick 1986 285,000 54 84.71% 2,581,000
226,000(6)
Village at Roswell Summit..... Atlanta 1989 25,000 11 90.0% 320,000
---------- ------ ----- -----------
Subtotal--Georgia (7 Properties)...................... 3,338,000 401 93.4% $22,018,000
---------- ------ ----- -----------
NORTH CAROLINA:
Holly Hill Mall............... Burlington 1969/86/94 422,000 57 98.8% $ 2,591,000
Mayberry Mall................. Mount Airy 1969/86 150,000 19 95.4% 712,000
55,000(6)
Quaker Village................ Greensboro 1968/88/97 114,000 32 100.0% 1,028,000
<CAPTION>
AVERAGE
BASE PERCENT
RENT OF
PER TOTAL RETAIL TOTAL
LEASED PROPERTY 1997
SQUARE REVENUE FOR PROPERTY
RETAIL PROPERTY (1) FOOT (4) 1997 REVENUE (5)
- ------------------------------ -------- ------------ ---------
<S> <C> <C> <C>
ALABAMA:
River Oaks.................... $14.90 $ 4,828,318 2.6%
Brookwood Village............. 12.74 3,631,284(7) 2.0%
Gadsden Mall.................. 14.14 4,500,473 2.4%
Village Mall.................. 14.44 4,026,642 2.2%
Montgomery Promenade.......... 14.80 2,214,901 1.2%
McGehee Place................. 11.51 691,375 0.4%
Bellwood...................... 10.91 500,703 0.3%
Old Springville............... 8.39 500,277 0.3%
Heatherbrooke Center.......... 11.85 370,728(7) 0.2%
Olde Towne.................... 9.66 427,795 0.2%
-------- ------------ ---------
Subtotal--Alabama (10 Prop $13.36 $ 21,692,496 11.8%
-------- ------------ ---------
FLORIDA:
University Park............... $13.65 $ 3,668,053 2.0%
Country Lake.................. 10.57 1,716,094 0.9%
Burnt Store Square............ 11.64 1,549,115 0.8%
Winter Haven.................. 11.50 1,440,257 0.8%
Northdale Court............... 9.50 1,949,345 1.1%
Bear Lake..................... 12.97 1,117,744 0.6%
Paddock Park.................. 11.99 859,833 0.5%
Bardmoor Village.............. 15.45 1,772,679 1.0%
Island Walk................... 15.00 2,262,172 1.2%
Wekiva Riverwalk.............. 18.61 2,457,767 1.3%
Lakewood Plaza................ 9.30 470,071(7) 0.3%
-------- ------------ ---------
Subtotal--Florida (11 Prop $12.40 $ 19,263,130 10.4%
-------- ------------ ---------
GEORGIA:
Macon Mall.................... $22.59 $ 15,903,335 8.6%
Beechwood Center.............. 10.29 2,329,786(7) 1.3%
Britt David................... 12.48 936,002 0.5%
Lakeshore Mall................ 16.45 850,449(7) 0.5%
Valdosta Mall................. 15.93 844,207(7) 0.5%
Glynn Place Mall.............. 15.22 620,856(7) 0.3%
Village at Roswell Summit..... 14.77 --(7) 0.0%
-------- ------------ ---------
Subtotal--Georgia (7 Prope $17.93 $ 21,484,635 11.7%
-------- ------------ ---------
NORTH CAROLINA:
Holly Hill Mall............... $13.94 $ 820,231(7) 0.4%
Mayberry Mall................. 10.37 163,627(7) 0.1%
Quaker Village................ 10.02 202,015(7) 0.1%
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
GROSS
LEASEABLE
YEAR AREA NUMBER TOTAL
COMPLETED (SQUARE OF PERCENT ANNUALIZED
RETAIL PROPERTY (1) LOCATION (2) FEET) (3) STORES LEASED (3) BASE RENT
- ------------------------------ -------------- ---------- ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Yadkin Plaza.................. Yadkinville 1971/97 94,000 13 100.0% 651,000
Stanly Plaza.................. Locust 1987/96 47,000 7 100.0% 249,000
---------- ------ ----- -----------
Subtotal--North Carolina (5 Properties)............... 882,000 128 98.6% $ 5,231,000
---------- ------ ----- -----------
SOUTH CAROLINA:
Briarcliffe Mall.............. Myrtle Beach 1986 488,000 78 96.7% $ 4,066,000
---------- ------ ----- -----------
Subtotal--South Carolina (1 Property)................. 488,007 78 96.7% $ 4,066,000
---------- ------ ----- -----------
TENNESSEE:
Riverpoint Shopping Center.... Chattanooga 1986/97 75,000 8 95.4% $ 366,000
---------- ------ ----- -----------
Subtotal--Tennessee (1 Property)...................... 75,000 8 9.5% $ 366,000
---------- ------ ----- -----------
VIRGINIA:
Staunton Mall................. Staunton 1969/86/97 422,000 46 93.2% $ 1,841,000
Abingdon Towne Centre......... Abingdon 1987/96 166,000 19 100.0% 1,001,000
---------- ------ ----- -----------
Subtotal--Virginia (2 Properties)..................... 588,000 65 95.1% $ 2,842,000
---------- ------ ----- -----------
Total (37 Properties)................................... 10,558,000 1,321 93.3% $66,471,000
---------- ------ ----- -----------
---------- ------ ----- -----------
<CAPTION>
AVERAGE
BASE PERCENT
RENT OF
PER TOTAL RETAIL TOTAL
LEASED PROPERTY 1997
SQUARE REVENUE FOR PROPERTY
RETAIL PROPERTY (1) FOOT (4) 1997 REVENUE (5)
- ------------------------------ -------- ------------ ---------
<S> <C> <C> <C>
Yadkin Plaza.................. 6.20 59,046(7) 0.0%
Stanly Plaza.................. 7.27 44,373(7) 0.0%
-------- ------------ ---------
Subtotal--North Carolina ( $10.71 $ 1,289,292 0.7%
-------- ------------ ---------
SOUTH CAROLINA:
Briarcliffe Mall.............. $15.55 $ 6,725,317 3.6%
-------- ------------ ---------
Subtotal--South Carolina ( $15.55 $ 6,725,317 3.6%
-------- ------------ ---------
TENNESSEE:
Riverpoint Shopping Center.... $ 6.57 $ 75,381(7) 0.0%
-------- ------------ ---------
Subtotal--Tennessee (1 Pro $ 0.57 $ 75,381 0.0%
-------- ------------ ---------
VIRGINIA:
Staunton Mall................. $ 9.92 $ 467,896(7) 0.3%
Abingdon Towne Centre......... 9.81 180,352(7) 0.1%
-------- ------------ ---------
Subtotal--Virginia (2 Prop $ 9.81 $ 648,338 0.4%
-------- ------------ ---------
Total (37 Properties)....... $14.38 $ 71,178,589 38.6%
-------- ------------ ---------
-------- ------------ ---------
</TABLE>
- ------------
(1) All Retail Properties are 100% owned by the Company.
(2) Year initially completed and, where applicable, year(s) in which the
Property was substantially renovated or an additional phase of the Property
was completed.
(3) Total GLA includes space owned by anchor tenants, but Percent Leased
excludes such space.
(4) Includes specialty store space only.
(5) Percent of Total 1997 Property Revenue represents the Retail Property's
proportionate share of all revenue from the 93 Properties owned by the
Company at December 31, 1997.
(6) Represents space owned by anchor tenants.
(7) Represents revenues from the date of the Company's acquisition of the
Property in 1997 through December 31, 1997.
(8) Expanded or newly developed Property currently undergoing lease-up.
The following table sets forth the total GLA, percent leased and average
base rent per leased square foot as of the end of each of the last five years
for the Retail Properties owned by the Company on each such date:
<TABLE>
<CAPTION>
GROSS
LEASABLE AREA AVERAGE
(SQUARE PERCENT BASE RENT PER
YEAR-END FEET) (1) LEASED LEASED SQUARE FOOT(2)
- -------------------------------------------- --------------- ----------- ---------------------
<S> <C> <C> <C>
December 31, 1997........................... 8,880,000 93.3% $ 14.38
December 31, 1996........................... 4,856,000 93.8% $ 14.66
December 31, 1995........................... 3,758,000 93.1% $ 13.23
December 31, 1994........................... 2,467,000 95.8% $ 12.61
December 31, 1993........................... 2,158,000 95.0% $ 12.27
</TABLE>
- ---------
(1) Excludes 1,678,000 square feet of space owned by anchor tenants.
(2) Average base rent per leased square foot is calculated using specialty store
year-end base rent figures.
S-26
<PAGE>
The following table sets out a schedule of the lease expirations for leases
in place as of December 31, 1997, for the Retail Properties:
<TABLE>
<CAPTION>
NET RENTABLE
AREA OF ANNUALIZED PERCENT OF TOTAL
NUMBER OF EXPIRING LEASES BASE RENT OF ANNUAL BASE RENT
TENANTS WITH (SQUARE EXPIRING REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING LEASES FEET) (1) LEASES (1)(2) EXPIRING LEASES (1)
- -------------------------------------------- ----------------- --------------- ------------- -------------------
<S> <C> <C> <C> <C>
1998........................................ 280 872,122 $ 8,928,000 13.5%
1999........................................ 220 702,133 6,984,000 10.1%
2000........................................ 205 938,119 8,148,000 12.3%
2001........................................ 119 530,314 4,577,000 6.9%
2002........................................ 130 513,252 5,230,000 7.9%
2003........................................ 56 272,291 2,944,000 4.4%
2004........................................ 52 530,403 3,541,000 5.4%
2005........................................ 60 220,151 3,380,000 5.1%
2006........................................ 57 614,853 4,825,000 7.3%
2007........................................ 82 544,787 5,427,000 8.2%
2008-2015................................... 60 2,353,575 12,488,000 18.9%
----- --------------- ------------- -----
1,321 8,092,000 $ 66,472,000 100.0%
----- --------------- ------------- -----
----- --------------- ------------- -----
</TABLE>
- ---------
(1) Excludes 1,678,000 square feet of space owned by anchor tenants and 788,000
square feet of space not leased as of December 31, 1997.
(2) Annualized base rent is calculated using base rents as of December 31, 1997.
OFFICE PROPERTIES
The 15 Office Properties contain a total of approximately 2.2 million square
feet of NRA. Thirteen of the Office Properties are located in Alabama
(representing 80.8% of the office portfolio's NRA), one is located in Atlanta,
Georgia and one is located in Orlando, Florida. The Office Properties range in
size from approximately 30,000 square feet to 352,000 square feet. Four of the
Office Properties were developed by the Company, five were acquired at various
times between 1980 and 1990, four were acquired in 1997, and two were acquired
in 1998. All of the Office Properties are managed by the Company. The following
table sets forth certain additional information relating to the Office
Properties (other than Perimeter Corporate Park and Independence Plaza, which
were acquired by the Company in January 1998) as of and for the year ended
December 31, 1997.
S-27
<PAGE>
OFFICE PROPERTIES
<TABLE>
<CAPTION>
AVERAGE
BASE PERCENT
NET RENT OF
RENTABLE PER TOTAL OFFICE TOTAL
YEAR AREA TOTAL LEASED PROPERTY 1997
COMPLETED SQUARE PERCENT ANNUALIZED SQUARE REVENUE FOR PROPERTY
OFFICE PROPERTY (1) LOCATION (2) FEET LEASED BASE RENT FOOT 1997 (3) REVENUE (4)
- --------------------------------- ---------- ---------- --------- ------- ----------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALABAMA:
Interstate Park.................. Montgomery 1982-85/89 227,000 95.0% $ 2,717,000 $12.76 $ 2,987,935 1.5%
Riverchase Center................ Birmingham 1984-88 306,000 87.2% 2,779,000 9.95 2,673,025(5) 1.3%
International Park............... Birmingham 1987/89 93,000 100.0% 1,119,000 14.23 1,283,943 0.7%
Colonial Plaza................... Birmingham 1982 168,000 100.0% 2,410,000 14.66 1,784,666 1.0%
Progress Center.................. Huntsville 1983-91 225,000 96.1% 1,732,000 8.26 1,031,030(5) 0.6%
Lakeside Office Park............. Huntsville 1989/90 121,000 96.0% 1,330,000 11.40 858,403(5) 0.5%
AmSouth Center................... Huntsville 1990 157,000 92.6% 2,489,000 17.64 2,878,541 1.6%
P&S Building..................... Gadsden 1946/76/91 40,000 100.0% 178,000 4.50 178,020 0.1%
250 Commerce St.................. Montgomery 1904/81 35,000 100.0% 297,000 8.44 373,764 0.2%
Anderson Block(6)................ Montgomery 1981/83 34,000 96.1% 188,000 5.83 116,484 0.1%
Land Title Bldg.................. Birmingham 1975 30,000 100.0% 383,000 12.85 142,583 0.1%
Other 110,266(7) 0.1%
--------- ------- ----------- ------- ------------ --
Subtotal--Alabama (11 Properties).................... 1,436,000 94.6% $15,622,000 $11.66 $ 14,418,660 7.8%
--------- ------- ----------- ------- ------------ --
FLORIDA:
University Park Plaza............ Orlando 1985 71,000 92.0% $ 813,000 $14.37 $ 871,548 0.5%
--------- ------- ----------- ------- ------------ --
Subtotal--Florida (1 Property)....................... 71,000 92.0% $ 813,000 $14.37 $ 871,548 0.5%
--------- ------- ----------- ------- ------------ --
GEORGIA:
Mansell Office Park.............. Atlanta 1987/96/97 352,000 100.0% $ 4,200,000 $12.45 $ 2,471,239(5) 1.3%
--------- ------- ----------- ------- ------------ --
Subtotal--Georgia (1 Property)....................... 352,000 100.0% $ 4,200,000 $12.45 $ 2,471,239 1.3%
--------- ------- ----------- ------- ------------ --
TOTAL (13 Properties)................................ 1,859,000 95.5% $20,635,000 $12.18 $ 17,761,447 9.6%
--------- ------- ----------- ------- ------------ --
--------- ------- ----------- ------- ------------ --
</TABLE>
- ------------
(1) All Office Properties are 100% owned by the Company with the exception of
Anderson Block and Land Title Building, each of which is 33.33% owned by the
Company.
(2) Year initially completed and, where applicable, most recent year in which
the Property was substantially renovated or in which an additional phase of
the Property was completed.
(3) Total Office Property Revenue for 1997 is the Company's share of the Office
Property's revenue for 1997 based on the Company's percentage ownership
interest in the Office Property at the time the revenue was earned.
(4) Percent of Total 1997 Property Revenue represents the Office Property's
proportionate share of all revenue from the 93 Properties owned by the
Company at December 31, 1997 and the properties disposed of by the Company
in 1997.
(5) Represents revenue from the date of the Company's acquisition of this
Property in 1997 through December 31, 1997.
(6) The Company has a leasehold interest in this Property.
(7) Represents revenue from an office property disposed of in 1997.
S-28
<PAGE>
The following table sets out a schedule of the lease expirations for leases
in place as of December 31, 1997, for the 13 Office Properties owned by the
Company at such date (including all lease expirations for partially-owned
Properties).
<TABLE>
<CAPTION>
NET RENTABLE AVERAGE
AREA OF ANNUALIZED BASE RENT OF PERCENT OF TOTAL
NUMBER OF EXPIRING LEASES BASE RENT OF EXPIRING LEASES ANNUAL BASE RENT
TENANTS WITH (SQUARE EXPIRING PER LEASED REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING LEASES FEET) (1) LEASES (1)(2) SQUARE FOOT EXPIRING LEASES (1)
- --------------------------- ------------------- --------------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
1998....................... 101 599,000 $ 6,497,000 $ 10.85 31.5%
1999....................... 69 296,000 3,467,000 11.71 16.8%
2000....................... 57 283,000 3,426,000 12.11 16.6%
2001....................... 26 204,000 2,371,000 11.62 11.5%
2002....................... 16 68,000 820,000 12.06 4.0%
2003....................... 4 87,000 1,314,000 15.10 6.4%
2004....................... 2 23,000 254,000 11.04 1.2%
2005....................... 3 66,000 1,170,000 17.73 5.7%
2006....................... 4 108,000 1,204,000 11.15 5.8%
2007....................... 1 6,000 112,000 18.67 0.5%
--- --------------- ------------- ------ -----
283 1,740,000 $ 20,635,000 $ 11.86 100.0%
--- --------------- ------------- ------ -----
--- --------------- ------------- ------ -----
</TABLE>
- ---------
(1) Excludes 119,000 square feet of space not leased as of December 31, 1997.
(2) Annualized base rent is calculated using base rents as of December 31, 1997.
The following sets forth the NRA, total percent leased and average base rent
per leased square foot for each of the last five years for the owned by the
Company at the end of each such year:
<TABLE>
<CAPTION>
NET AVERAGE BASE
RENTABLE AREA TOTAL RENT PER LEASED
YEAR-END (SQUARE FEET) PERCENT LEASED SQUARE FOOT (1)
- ---------------------------------------------- ------------- ----------------- ---------------
<S> <C> <C> <C>
December 31, 1997............................. 1,859,000 95.5% $ 12.18(2)
December 31, 1996............................. 1,009,000 97.4% $ 13.80
December 31, 1995............................. 1,009,000 94.0% $ 13.52
December 31, 1994............................. 1,009,000 95.0% $ 12.99
December 31, 1993............................. 1,007,000 93.7% $ 13.05
</TABLE>
- ---------
(1) Average base rent per leased square foot is calculated using base rents as
of December 31 for each year.
(2) Average base rent decreased due to the acquisition of business park space
which is leased on a net lease basis.
UNDEVELOPED LAND
The Company owns eight undeveloped land parcels consisting of approximately
103.2 acres. These parcels are adjacent to five of the Properties and are
suitable for potential expansion at those Properties. The land suitable for
expansion is located adjacent to a Multifamily Property and four Retail
Properties. Land adjacent to Multifamily Properties typically will be considered
for potential development of another phase of an existing Multifamily Property
if the Company determines that the particular market can absorb additional
apartment units. The Company currently owns one such parcel. For expansions at
Retail Properties, the Company owns parcels both contiguous to the boundaries of
Retail Properties, which would
S-29
<PAGE>
accommodate expansion of the mall or shopping center, and outparcels which are
suitable for restaurants, financial institutions or free standing retailers. The
Company owns seven such parcels.
PRIMARY MARKETS
The Company believes that Properties in its primary markets have the
potential over the long term to provide investment returns that exceed national
averages. According to recent market surveys (source: Woods & Poole: 1997 MSA
Profile), employment, population and household formation growth in the Company's
primary markets, and the states in which those markets are located, generally
have shown, and are forecasted to continue to show, growth that exceeds averages
for the 50 largest metropolitan statistical areas ("MSAs") and for the United
States as a whole, as shown in the tables below.
<TABLE>
<CAPTION>
FORECASTED
HOUSEHOLD FORECASTED FORECASTED HOUSEHOLD
EMPLOYMENT POPULATION FORMATION EMPLOYMENT POPULATION FORMATION
GROWTH GROWTH GROWTH GROWTH GROWTH GROWTH
MARKETS (1990-1997) (1990-1997) (1990-1997) (1998-2010) (1998-2010) (1998-2010)
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Birmingham, AL.................... 9.8% 6.8% 8.1% 13.1% 10.8% 13.8%
Mobile, AL........................ 17.1% 10.7% 12.4% 18.2% 12.5% 16.1%
Huntsville, AL.................... 9.8% 10.2% 11.8% 15.5% 11.9% 15.1%
Montgomery, AL.................... 13.2% 9.7% 10.8% 14.0% 10.8% 13.2%
Orlando, FL....................... 20.5% 21.2% 19.5% 36.8% 41.5% 42.2%
Tampa/St. Petersburg, FL.......... 16.1% 9.6% 7.8% 23.9% 23.6% 23.7%
Macon, GA......................... -4.7% 6.3% 7.2% 8.1% 2.9% 4.4%
Sarasota/Bradenton, FL............ 27.2% 11.8% 10.0% 27.6% 26.0% 26.0%
Atlanta, GA....................... 21.3% 20.2% 21.0% 22.1% 23.6% 26.4%
50 largest MSAs................... 7.9% 7.6% 7.8% 13.3% 11.0% 13.0%
</TABLE>
<TABLE>
<CAPTION>
FORECASTED
HOUSEHOLD FORECASTED FORECASTED HOUSEHOLD
EMPLOYMENT POPULATION FORMATION EMPLOYMENT POPULATION FORMATION
GROWTH GROWTH GROWTH GROWTH GROWTH GROWTH
STATES (1990-1997) (1990-1997) (1990-1997) (1998-2010) (1998-2010) (1998-2010)
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama........................... 11.5% 6.8% 8.3% 13.1% 9.0% 12.2%
Florida........................... 15.8% 13.2% 11.6% 22.0% 22.3% 22.7%
Georgia........................... 16.1% 14.0% 14.9% 17.6% 16.2% 18.9%
Mississippi....................... 16.0% 5.8% 6.8% 10.9% 5.8% 8.4%
North Carolina.................... 14.5% 10.9% 11.2% 15.8% 14.3% 16.2%
South Carolina.................... 7.6% 7.9% 10.3% 17.8% 16.0% 19.8%
Tennessee......................... 14.8% 9.7% 10.2% 14.1% 11.3% 13.6%
Virginia.......................... 7.6% 8.6% 10.4% 14.3% 11.3% 14.5%
United States..................... 8.5% 7.3% 7.6% 12.8% 10.3% 12.1%
</TABLE>
S-30
<PAGE>
MANAGEMENT
TRUSTEES, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The trustees, executive officers and certain other significant employees of
the Company and their positions and offices are set forth in the following
table:
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES HELD
- -------------------------------------- ------------------------------------------------------
<S> <C>
Thomas H. Lowder...................... Chairman of the Board of Trustees, President and Chief
Executive Officer
Carl F. Bailey........................ Trustee (Retired Co-Chairman of BellSouth
Telecommunications, Inc., and retired Chairman and
CEO of South Central Bell Telephone Company;
President of BDI)
M. Miller Gorrie...................... Trustee (Chairman of the Board and Chief Executive
Officer of Brasfield & Gorrie, L.L.C.)
William M. Johnson.................... Trustee (President and Chief Executive Officer of
Johnson Development Company)
James K. Lowder....................... Trustee (Chairman and Chief Executive Officer of The
Colonial Company)
Herbert A. Meisler.................... Trustee (Investor)
Claude B. Nielsen..................... Trustee (President and Chief Executive Officer of
Coca-Cola Bottling Company United, Inc.)
Harold W. Ripps....................... Trustee (Investor)
Donald T. Senterfitt.................. Trustee (President and Chief Executive Officer of The
Pilot Group, L.C.)
Howard B. Nelson, Jr.................. Chief Financial Officer
Paul F. Earle......................... Executive Vice President--Multifamily Division
John N. Hughey........................ Executive Vice President--Retail Division
Charles A. McGehee.................... Executive Vice President--Land, Brokerage and
Dispositions
C. Reynolds Thompson III.............. Executive Vice President--Office Division
Paul C. Glascock...................... Senior Vice President--Retail Leasing
Robert A. Jackson..................... Senior Vice President--Office Division
Thomas M. LaDow....................... Senior Vice President--Office Division
John L. Moss.......................... Senior Vice President--Retail Management
Douglas B. Nunnelley.................. Senior Vice President and Secretary
R. William Pradat, Jr................. Senior Vice President--Office Division
Richard B. Yielding................... Senior Vice President--Retail Acquisitions
</TABLE>
S-31
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the terms agreement and
related underwriting agreement (collectively the "Underwriting Agreement"), the
Company has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Underwriter"), and the Underwriter has agreed to purchase from the
Company, 3,000,000 Common Shares. The Underwriting Agreement provides that the
obligations of the Underwriter are subject to certain conditions precedent, and
that the Underwriter is committed to purchase all of such Common Shares if any
are purchased.
The Underwriter has advised the Company that it proposes initially to offer
such Common Shares to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of $.33 per share. The Underwriter may allow,
and such dealers may reallow, a discount not in excess of $.10 per share on
sales to certain other dealers. After the initial offering to the public, the
public offering price, concession and discount may be changed.
The Company has granted to the Underwriter an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to 450,000
additional Common Shares (the "Option Shares") to cover over-allotments, if any,
at the public offering price per share set forth on the cover page of this
Prospectus Supplement, less the sum of the underwriting discount.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Subject to certain exceptions, the Company and its executive officers have
agreed not to, directly or indirectly, offer, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of any Common Shares or Units for a
period of 90 days after the date of this Prospectus Supplement without the prior
written consent of the Underwriter. Certain trustees and executive officers of
the Company may purchase Common Shares offered hereby. Such purchases will be
made on the same terms as will be offered by the Underwriter to others in the
Offering.
Until the distribution of the Common Shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter and
certain selling group members to bid for and purchase the Common Shares. As an
exception to these rules, the Underwriter is permitted to engage in certain
transactions that stabilize the price of the Common Shares. Such transactions
consist of bids or purchases for the purposes of pegging, fixing or maintaining
the price of the Common Shares.
If the Underwriter creates a short position in the Common Shares in
connection with the Offering, I.E., if it sells more Common Shares than are set
forth on the cover page of this Prospectus Supplement, the Underwriter may
reduce that short position by purchasing Common Shares in the open market. The
Underwriter may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases Common Shares in the open
market to reduce the Underwriter's short position or to stabilize the price of
the Common Shares, it may reclaim the amount of the selling concession from the
selling group members who sold those Common Shares as part of the Offering.
In general, purchases of a security for the purposes 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.
Neither the Company nor the Underwriter makes 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 Common Shares. In addition, neither
the Company nor the Underwriter makes any representation that the
S-32
<PAGE>
Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
The validity of the issuance of the Common Shares pursuant to this
Prospectus Supplement will be passed upon for the Company by Hogan & Hartson
L.L.P., Washington, D.C. Certain legal matters will be passed upon for the
Underwriter by Brown & Wood LLP, New York, New York. Hogan & Hartson L.L.P. and
Brown & Wood LLP will rely on the opinion of Sirote & Permutt P.C., Birmingham,
Alabama, as to matters of Alabama law.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In order to qualify as a REIT, the Company, at the close of each quarter of
its taxable year, must not own more than 10% of the outstanding voting
securities of any issuer, other than a qualified REIT subsidiary (a "QRS") or
another REIT. (For a more detailed discussion of this and other REIT
qualification requirements, see "Federal Income Tax Considerations" in the
accompanying Prospectus.) The Administration's February 1998 budget proposal
includes a proposal to amend the 10% voting securities test by prohibiting a
REIT from owning more than 10% of the vote OR value of all classes of stock of
any corporation (other than a QRS or another REIT). Stock owned by the Company
prior to the effective date of the proposal generally would be "grandfathered"
(I.E., with respect to such grandfathered stock, the Company would be subject to
the existing 10% voting securities test described above). However, if the
corporation in which such grandfathered stock is held were to engage in a new
trade or business or acquire substantial new assets, the grandfathered status
would terminate with respect to such stock.
Because the Company owns the majority of the nonvoting stock of the
Management Corporation, the Company would not satisfy the proposed 10% value
limitation with respect to its stock interest in the Management Corporation.
However, as the proposal is currently drafted, stock held by the Company in the
Management Corporation should be grandfathered. If the Management Corporation
were to engage in a new trade or business or acquire substantial new assets
after the specified effective date of the proposal, then the stock held by the
Company in the Management Corporation would lose its grandfathered status and
the Company would fail to qualify as a REIT. Moreover, the Company would not be
able to own more than 10% of the vote or value of any corporation (other than a
QRS or another REIT) formed after the effective date of the proposal. Thus, if
enacted as currently drafted, the proposal would materially impede the ability
of the Company to engage in new activities or to expand substantially its
current activities conducted through the Management Corporation.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996, and the
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1997, which are incorporated
by reference in the Company's Form 10-K (incorporated herein by reference), have
been incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
S-33
<PAGE>
PROSPECTUS
$325,000,000
COLONIAL PROPERTIES TRUST
DEBT SECURITIES, PREFERRED SHARES, COMMON SHARES,
COMMON SHARE WARRANTS AND DEPOSITARY SHARES
----------------
Colonial Properties Trust (the "Company") may from time to time offer in one
or more series of (i) unsecured debt securities ("Debt Securities"), (ii)
preferred shares of beneficial interest ("Preferred Shares"), (iii) common
shares of beneficial interest, $.01 par value ("Common Shares"), (iv) warrants
exercisable for Common Shares ("Common Share Warrants"), and (v) Preferred
Shares represented by depositary shares (the "Depositary Shares"), with an
aggregate public offering price of up to $325,000,000 (or its equivalent 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, Common Share Warrants and Depositary Shares (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be described in one or more supplements to
this Prospectus (a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Shares or Common Shares of the Company, covenants and any initial
public offering price; (ii) in the case of Preferred Shares, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of Common
Shares, any initial public offering price or, if applicable, information
regarding the exchange of units of partnership interest ("Units") of Colonial
Realty Limited Partnership for Common Shares; (iv) in the case of Common Share
Warrants, the specific title and aggregate number, and the issue price and the
exercise price; and (v) in the case of Depositary Shares, the fractional
Preferred Share represented by each Depositary Share. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Securities, in each case as may be appropriate to preserve
the status of the Company as a real estate investment trust for federal income
tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, 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 with,
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" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE SECURITIES.
--------------------------
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 date of this Prospectus is November 21, 1997
<PAGE>
AS USED HEREIN, THE TERM "COMPANY" INCLUDES COLONIAL PROPERTIES TRUST, AN
ALABAMA REAL ESTATE INVESTMENT TRUST, AND ONE OR MORE OF ITS SUBSIDIARIES
(INCLUDING COLONIAL PROPERTIES HOLDING COMPANY, INC., COLONIAL REALTY LIMITED
PARTNERSHIP, COLONIAL PROPERTIES SERVICES LIMITED PARTNERSHIP AND COLONIAL
PROPERTIES SERVICES, INC.) OR, AS THE CONTEXT MAY REQUIRE, COLONIAL PROPERTIES
TRUST ONLY OR COLONIAL REALTY LIMITED PARTNERSHIP ONLY.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and the documents incorporated by
reference herein and any accompanying Prospectus Supplement, including those set
forth in "Risk Factors" and "Use of Proceeds" herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions which
will, among other things, affect demand for multifamily properties, availability
and creditworthiness of prospective tenants, lease rents and the availability of
financing, adverse changes in the real estate markets including, among other
things, competition with other companies, risks of real estate acquisition,
governmental actions and initiatives, and environmental/safety requirements. See
"Risk Factors."
THE COMPANY
The Company is one of the largest developers, owners and operators of
multifamily, retail and office properties in the southern United States. The
Company's common shares are traded on the New York Stock Exchange ("NYSE") under
the symbol "CLP." It is a fully-integrated real estate company, whose activities
as of November 19, 1997 included ownership of a diversified portfolio of 84
properties located in Alabama, Florida, Georgia, Mississippi and South Carolina,
development of new properties, acquisitions of existing properties and
build-to-suit development. The Company is a self-administered equity real estate
investment trust ("REIT") that as of November 19, 1997 owned 43 garden-style
multifamily apartment communities containing a total of 13,631 apartment units
(the "Multifamily Properties"), 28 retail properties (including 9 regional
malls, two "power centers" and 17 neighborhood shopping centers) containing a
total of approximately 8.7 million square feet of retail space (the "Retail
Properties"), 13 office properties containing a total of approximately 1.9
million square feet of office space (the "Office Properties") and parcels of
land adjacent to or near certain of these properties (the "Land"). (The
Multifamily Properties, the Retail Properties, the Office Properties and the
Land are referred to collectively as the "Properties").
The Company, through Colonial Properties Holding Company, Inc., a wholly
owned subsidiary ("CPHC"), is the sole general partner of, and, as of November
19, 1997, holds approximately 69.4% of the common equity interests in, Colonial
Realty Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"). The Operating Partnership owns, directly or indirectly, all of
the Properties (or interests therein). The Company conducts all of its business
through CPHC, the Operating Partnership and the Company's two management
subsidiaries, Colonial Properties Services Limited Partnership (the "Management
Partnership"), which provides management services for the Company's properties,
and Colonial Properties Services, Inc. (the "Management Corporation"), which
provides management services for properties owned by third parties. As sole
general partner of the Operating Partnership, the Company, through CPHC, has the
exclusive power to manage and conduct the business of the Operating Partnership,
subject to certain limited exceptions.
Since the Company's initial public offering in September 1993 (the "IPO"),
the Company has significantly expanded its portfolio of Properties and its
operating businesses. The Company's acquisitions and its expansion and
development activities have increased the Company's presence in Alabama, Florida
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and Georgia, and the Company has expanded its operations into Mississippi and
South Carolina through acquisitions.
The Company's experienced staff of approximately 660 employees provides a
full range of real estate services from its headquarters in Birmingham, Alabama
and from six regional offices located in the Mobile, Huntsville and Montgomery,
Alabama, Orlando and Tampa, Florida and Atlanta, Georgia metropolitan areas.
The Company is an Alabama REIT that was formed in July 1993. The principal
executive offices of the Company are located at 2101 Sixth Avenue North, Suite
750, Birmingham, Alabama 35203, and its telephone number is (205) 250-8700.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE
MATTERS DESCRIBED BELOW.
REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate and the Company's
ability to service debt will depend in large part on the amount of income
generated, expenses incurred and capital expenditures required. The Company's
income from retail, multifamily or office properties may be adversely affected
by a number of factors, including the general economic climate and local real
estate conditions, such as an oversupply of, or a reduction in demand, for
retail, apartment or office space in the area and the attractiveness of the
properties to shoppers, residents and tenants. In addition, income from
properties and real estate values also are affected by such factors as the cost
of compliance with government regulation, including zoning and tax laws, the
potential for liability under applicable laws, interest rate levels and the
availability of financing. Certain significant expenditures associated with each
equity investment by the Company in a property (such as mortgage payments, if
any, real estate taxes and maintenance costs) also are generally not reduced
when circumstances cause a reduction in income from the property.
DEBT FINANCING. The Company is subject to the risks associated with debt
financing, including the risk that the Company's cash provided by operating
activities will be insufficient to meet required payments of principal and
interest, the risks of rising interest rates on the Company's floating rate
debt, the risk that the Company will not be able to prepay or refinance existing
indebtedness on the Properties (which generally will not have been fully
amortized at maturity) or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. In the event the Company is
unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company and might adversely affect the cash
flow available for distribution to equity holders or debt service. In addition,
if a property or properties are mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgage securing the
property could be foreclosed upon by, or the property could be otherwise
transferred to, the mortgagee with a consequent loss of income and asset value
to the Company.
RENEWAL OF LEASES AND RELETTING OF SPACE. The Company is subject to the
risks that upon expiration of leases for space located at the Properties, the
leases may not be renewed, the space may not be relet or the terms of the
renewal or reletting (including the cost of required renovations or concessions
to tenants) may be less favorable than current lease terms. Although the Company
has established an annual budget for renovation and reletting expenses that it
believes are reasonable in light of each Property's situation, no assurance can
be given that this budget will be sufficient to cover these expenses. If the
Company is unable to promptly relet or renew leases for all or substantially all
of the space at its Properties, if the rental rates upon such renewal or
reletting are significantly lower than expected, or if the Company's reserves
for these purposes prove inadequate, then the Company's cash provided by
operating activities and ability to make expected distributions to shareholders
or debt service payments could be adversely affected.
DEPENDENCE ON PRIMARY MARKETS. All of the Company's Properties are located
in the southern United States and 41 of the Properties are located in Birmingham
and Montgomery, Alabama, Orlando, Florida and Macon, Georgia. The Company's
performance and its ability to make distributions to shareholders or debt
service payments could be adversely affected by economic conditions in the
Southeast and in Birmingham, Montgomery, central Florida and Macon in
particular.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various Federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The
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presence of contamination or the failure to remediate contamination may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. The owner or operator of a site may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. The Company has not been
notified by any governmental authority of any material non-compliance, liability
or other claim in connection with any of the Properties and the Company is not
aware of any other environmental condition with respect to any of the Properties
that could be material. No assurance, however, can be given that no prior owner
created any material environmental condition not known to the Company, that no
material environmental condition with respect to any Property has occurred
during the Company's ownership thereof, or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability.
At one of the Company's Properties, the Gadsden Mall in Gadsden, Alabama,
four underground storage tanks were removed in 1989. In connection with the
removal of these gasoline storage tanks, associated petroleum contamination was
discovered in the soil and groundwater. The Company is currently working with
the state regulatory agency to remediate the contamination in accordance with
applicable requirements. Because the tanks were registered with the Alabama
Department of Environmental Management and the facility was in compliance with
regulations prior to the incident, the Company has been reimbursed under the
Alabama Underground Storage Tank Trust Fund for the costs incurred to date in
connection with the ongoing cleanup, and expects to be reimbursed for the
remaining costs as well. Currently, a free product recovery program is underway.
CONFLICTS OF INTEREST
Certain members of the Company's Board of Trustees ("Board of Trustees") and
officers (including Thomas and James Lowder, Harold Ripps, Herbert Meisler and
William Johnson) own Units in the Operating Partnership and, thus, may have
interests that conflict with shareholders with respect to business decisions
affecting the Company and the Operating Partnership. In particular, a holder of
Units may suffer different and/or more adverse tax consequences than the Company
upon the sale or refinancing of some of the Properties as a result of unrealized
gain attributable to certain Properties. These Unit holders and the Company,
therefore, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of Properties. Although the Company (through
CPHC), as the sole general partner of the Partnership, has the exclusive
authority as to whether and on what terms to sell or refinance an individual
Property, these Unit holders might seek to influence the Company not to sell or
refinance the Properties, even though such sale might otherwise be financially
advantageous to the Company, or may seek to influence the Company to refinance a
Property with a higher level of debt than would be in the best interests of the
Company. The Company has agreed to use its reasonable efforts to minimize the
adverse impact of any such refinancing upon the former owners, and to take into
account the tax consequences to such former owners in deciding whether to sell a
Property, which also may result in decisions that are not in the best interest
of all of the shareholders.
The Lowder family (which includes Thomas, James, Robert and Catherine Lowder
and their affiliates) holds interests in certain companies that in the past have
performed construction management, insurance brokerage and other services with
respect to the Properties. These companies may perform similar services for the
Company in the future. As a result of its financial interest in these companies,
the Lowder family may realize benefits from transactions between such companies
and the Company that are not realized by other shareholders of the Company. In
addition, Thomas Lowder and his brother, James Lowder, as trustees of the
Company, may be in a position to influence the Company to do business with
companies in which the Lowder family has a financial interest. Although the
Company has adopted certain policies designed to eliminate or minimize potential
conflicts of interest, including a policy which requires that transactions in
which a trustee or officer of the Company has a conflict of interest be approved
by a majority of the disinterested trustees, there can be no assurance that
these policies will be successful in eliminating the influence of such
conflicts, or that such transactions, if any, will be on terms as favorable to
the Company as could be obtained in an arms-length transaction with a third
party.
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DEVELOPMENT AND ACQUISITION RISKS
The Company intends to continue development of new multifamily, retail and
office properties (including expansions of existing Properties on the land
adjacent to those Properties) and to consider acquisitions of multifamily,
retail and office properties where it believes that such development or
acquisition is consistent with the business strategies of the Company. New
project development is subject to a number of risks, including construction
delays or cost overruns that may increase project costs, financing risks as
described above, the failure to meet anticipated occupancy or rent levels,
failure to receive required zoning, occupancy and other governmental permits and
authorizations and changes in applicable zoning and land use laws, which may
result in the incurrence of development costs in connection with projects that
are not pursued to completion. In addition, because the Company must distribute
95% of its taxable income in order to maintain its qualification as a REIT, the
Company anticipates that new developments and acquisitions will be financed
primarily through lines of credit or other forms of secured or unsecured
construction financing. If permanent debt or equity financing is not available
on acceptable terms to refinance such new developments or acquisitions are
undertaken without permanent financing, further development activities or
acquisitions may be curtailed or cash available for distribution to shareholders
or to meet debt service obligations may be adversely affected. Acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that judgments with respect to the costs of improvements to
bring an acquired property up to standards established for the market position
intended for that property will prove inaccurate, as well as general investment
risks associated with any new real estate investment. See "Real Estate
Investment Risks" above.
MANAGEMENT, LEASING AND BROKERAGE RISKS; CONTROL OF MANAGEMENT CORPORATION
The Company is subject to the risks associated with the property management,
leasing and brokerage businesses. These risks include the risk that management
contracts or service agreements with third-party owners will be lost to
competitors, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to shareholders
or debt service payments.
In order to maintain the Company's qualification as a REIT while realizing
income from the Company's third-party management business, the capital stock of
the Management Corporation (which conducts the Company's third-party management,
leasing and brokerage businesses) is divided into two classes. Voting common
stock, representing 1.01% of the total equity of the Management Corporation, is
held 99% by the Lowder family and 1% by the Company. Nonvoting common stock,
representing 98.99% of the total equity of the Management Corporation, is held
entirely by the Company. Although the Company holds a total of 99% of the equity
interests in the Management Corporation, the Company is not able to elect
directors of the Management Corporation and, consequently, the Company's ability
to influence the day-to-day decisions of such entity is limited.
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board of Trustees. Although it has no
present intention to do so, the Board of Trustees may amend or revise these and
other policies from time to time without a vote of the shareholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations, funds available for distributions to
shareholders or debt service or the market price of the Securities. The Company
cannot change its policy of seeking to maintain its qualification as a REIT
without the approval of the holders of a majority of the Common Shares.
CERTAIN TAX RISKS
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT. The
Company believes that it has operated so as to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"),
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commencing with its taxable year ended December 31, 1993, and intends to
continue to so operate. No assurance, however, can be given that the Company has
so qualified or will be able to remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances that may be wholly beyond the Company's control
may affect its ability to qualify or to continue to qualify as a REIT. In
addition, no assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the qualification as a REIT or the Federal income
consequences of such qualification to the Company. 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 would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax incurred in such event would significantly reduce the cash flow
available for distribution to shareholders and to meet debt service obligations.
See "Federal Income Tax Considerations--Taxation of the Company."
REIT DISTRIBUTION REQUIREMENTS AND POTENTIAL IMPACT OF BORROWINGS. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations-- Taxation of the Company (Annual Distribution Requirements)."
The Company could be required to borrow funds on a short-term basis to meet the
distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT, even if management believed that then
prevailing market conditions were not generally favorable for such borrowings.
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it will be
subject to certain Federal, state and local taxes on its income and property.
See "Federal Income Tax Considerations--Taxation of the Company and--Other Tax
Considerations." In particular, CPHC will be subject to income tax and certain
intangible property taxes in Alabama and the State of Alabama may seek to
contend that the Company is subject to such taxes as well.
PRICE FLUCTUATIONS OF THE COMMON SHARES AND TRADING VOLUME; SHARES AVAILABLE FOR
FUTURE SALE
A number of factors may adversely influence the price of the Company's
Common Shares in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Shares to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Shares,
the relatively low daily trading volume of REITs in general, including the
Common Shares and any inability of the Company to invest the proceeds of a
future offering of Securities in a manner that will increase earnings per share.
Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
The Company also may currently issue up to 9,143,590 Common Shares (subject to
the Ownership Limit, as defined below) upon redemption of Units issued in
connection with the formation of the Company and subsequent acquisitions. In
addition, 1,375,000 Common Shares of the Company have been issued or reserved
for issuance pursuant to share option and restricted share plans and other
employee benefit plans, and these shares will be available for sale in the
public markets from time to time pursuant to exemptions from registration
requirements or upon registration. No prediction can be made about the effect
that future sales of Common Shares will have on the market prices of shares.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to maintain its qualification as a REIT, the Company has limited
ownership of the issued and outstanding Common Shares by any single shareholder
(other than Lowder family members) to 5% of the outstanding Common Shares (the
"Ownership Limit"). The Board of Trustees could waive this restriction if it
were satisfied, based upon the advice of tax counsel, that ownership in excess
of the Ownership 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
interests of the Company. Common Shares acquired or transferred in breach of the
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limitation may be redeemed by the Company for the lesser of the price paid and
the average closing price for the ten trading days immediately preceding
redemption. The Company may elect to redeem such shares for Units, which are
subject to certain limitations on transfer. A transfer of Common Shares to a
person who, as a result of the transfer, violates the Ownership Limit will be
void. See "Description of Shares of Beneficial Interest--Restrictions on
Transfer" for additional information regarding the Ownership Limit. A similar
restriction would be imposed on any Preferred Shares or Debt Securities
convertible into Preferred or Common Shares that the Company may issue under
this Prospectus.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the Company's Declaration of Trust (the "Declaration
of Trust") restrict the possibility for acquisition or change in control of the
Company, even if such acquisition or change in control were in the shareholders'
interest, including the Ownership Limit, the staggered terms of the Company's
Trustees and the ability of the board to issue Preferred Shares.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest, contribute or otherwise transfer the net proceeds of
any sale of Securities to the Operating Partnership, which would use such net
proceeds for general business purposes, including, without limitation, the
development and acquisition of additional properties and other acquisition
transactions as suitable opportunities arise, the repayment of certain debt
outstanding at such time, capital expenditures, improvements to certain
properties in the Company's portfolio, working capital and other general
purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended
December 31, 1993, 1994, 1995 and 1996 and the nine months ended September 30,
1997 was 1.31, 2.24, 1.92, 2.40 and 1.97, respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
gains from sales of property and extraordinary items plus fixed charges. Fixed
charges consist of interest expense (including interest costs capitalized) and
the amortization of debt issuance costs. To date, the Company has not issued any
Preferred Shares; therefore, the ratios of earnings to combined fixed charges
and preferred share dividends are unchanged from the ratios presented in this
section.
Prior to completion of the Company's IPO, certain of the predecessor
entities to the Company operated in a highly leveraged manner. As a result,
although the Properties have historically generated positive net cash flow, the
combined financial statements of the predecessor entities for the fiscal year
ended December 31, 1992 show net losses. Consequently, the computation of the
ratio of earnings to fixed charges for such period indicates that earnings were
inadequate to cover fixed charges by approximately $0.8 million.
The reorganization and recapitalization of the Company effected in
connection with the IPO permitted the Operating Partnership to deleverage the
Properties significantly, resulting in an improved ratio of earnings to fixed
charges for periods subsequent to the IPO.
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DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable Indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities. The Forms
of the Senior Indenture (as defined herein) and the Subordinated Indenture (as
defined herein) have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company 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 (the "Indentures"). Senior Securities and Subordinated
Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"). 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 anticipated provisions thereof, do not purport
to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined below shall have the respective meanings set forth in each
Indenture.
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
Company as described under "--Subordination."
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a Prospectus Supplement relating thereto,
the Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time in
or pursuant to authority granted by a resolution of the Board of Trustees of the
Company or as established 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 issuances of additional Debt Securities of such series.
It is anticipated that each Indenture will provide that there may be 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.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(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 percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
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(4) If convertible in whole or in part into Common Shares or Preferred
Shares, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for determining the same),
the portion that is convertible and the conversion period, and any
applicable limitations on the ownership or transferability of the Common
Shares or Preferred Shares receivable on conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) 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;
(7) 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 regular 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;
(8) 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 conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which
and the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) The obligation, if any, of the Company 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 or the date and dates on which, the price or prices at which
and the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(11) 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;
(12) 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;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or
book-entry form;
(15) 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;
(16) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax, assessment
or governmental charge and, if so, whether the Company will have the option
to redeem such Debt Securities in lieu of making such payment; and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
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The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto, the applicable Indenture will not contain any provisions
that would limit the ability of the Company to incur indebtedness or that would
afford Holders of Debt Securities protection in the event of a highly leveraged
or similar transaction involving the Company or in the event of a change of
control. Restrictions on ownership and transfers of the Company's Common Shares,
Preferred Shares and Depositary Shares are designed to preserve its status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"Description of Preferred Shares of Beneficial Interest--Restrictions on
Ownership" and "Description of Common Shares of Beneficial
Interest--Restrictions on Transfer." 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 of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
"Subsidiary" means a corporation or a partnership a majority of the
outstanding voting stock or partnership interests, as the case may be, of which
is owned or controlled, directly or indirectly, by the Company or by one or more
other Subsidiaries of the Company. For the purposes of this definition, "voting
stock" means stock having voting power for the election of directors, or
trustees, as the case may be, whether at all times or only so long as no senior
class of stock has such voting power by reason of any contingency.
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 (Section 302).
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 Company, 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 (Sections 301,
305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
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If the applicable Prospectus Supplement refers to any transfer agent (in
addition to the applicable Trustee)
initially designated by the Company with respect to any series of Debt
Securities, the Company 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 Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series 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 Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) 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 (Section 305).
MERGER, CONSOLIDATION OR SALE
The Company will be permitted to 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 Company shall be the continuing entity, or
the successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium, if any)
and interest on all of the Debt Securities and the due and punctual performance
and observance of all of the covenants and conditions contained in each
Indenture; (b) immediately after giving effect to such transaction and treating
any indebtedness that becomes an obligation of the Company or any Subsidiary as
a result thereof as having been incurred by the Company or 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 (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to each Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
EXISTENCE. Except as described above under "Merger, Consolidation or Sale",
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (by declaration
of trust, by-laws and statute) and franchises; provided, however, that the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities.
MAINTENANCE OF PROPERTIES. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1007).
INSURANCE. The Company will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any
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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 Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1009).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Sections 13 or 15(d) if
the Company were so subject (the "Financial Information"), such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so to file such
documents if the Company were so subject. The Company also will in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the Financial Information and
(ii) to file with the Trustee copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, to supply copies of such documents to any
prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATION TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide 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 in the payment of principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (iii)
default 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 Company contained in the applicable 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) default in the
payment of an aggregate principal amount exceeding $10,000,000 of any
indebtedness of the Company or any mortgage, indenture or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or any Significant Subsidiary or either of its property; and (vii) any
other Event of Default provided with respect to a particular series of Debt
Securities (Section 501).
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% of the
principal amount of the Outstanding 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 Company (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
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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 (a) the Company 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 (b) 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 (Section
502). Each Indenture also will 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 (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required 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 (Section 601).
Each Indenture will 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 cases 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 (Section
507). This provision will not prevent, however, any Holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any 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 (Section 602). 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 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
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, 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 (Section 1011).
MODIFICATIONS 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
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such Indenture which are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a) change the stated
maturity of the principal of, or any installment of interest (or premium, if
any) on, any such Debt Security; (b) 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; (c) change the place
of payment, or the coin or currency, for payment of principal or premium, if
any, or interest on any such Debt Security; (d) impair the right to institute
suit for the enforcement of any payment on or with respect to any such Debt
Security; (e) reduce the above-stated percentage of Outstanding Debt Securities
of any series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
applicable Indenture; or (f) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made by
the Company 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 Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
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, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Shares or
Preferred Shares of the Company; (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 in any material respect; or (x) to supplement any of
the provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
Each Indenture will 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 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
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Outstanding shall be the principal face amount of such indexed security at
original issuance, unless otherwise provided with respect to such indexed
security pursuant to the applicable Indenture, and (iv) Debt Securities owned by
the Company or any other obligor upon the Debt Securities or any affiliate of
the Company or of such other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the Holders
of Debt Securities of a series (Section 501). A meeting will be permitted to be
called at any time by the applicable Trustee, and also, upon request, by the
Company or the Holders of at least 10% in principal amount of the Outstanding
Debt Securities of such series, in any such case upon notice given as provided
in the Indenture. 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 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, each Indenture will 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 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
Upon any distribution to creditors of the Company 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 (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal and interest on such
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). 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 Company receives
notice of the default (Section 1602 of the Subordinated Indenture). After all
Senior Debt is paid in full and until the Subordinated Securities are paid in
full, Holders will be surrogated to the right of Holders of Senior Debt to the
extent that distributions otherwise payable to Holders have been applied to the
payment of Senior Debt (Section 1607 of the Subordinated Indenture). By reason
of such subordination, in the event of a distribution of assets upon insolvency,
certain general creditors of the Company may recover more, ratably, than Holders
of Subordinated Securities.
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Senior Debt will be defined in the Subordinated Indenture as the principal
of and interest on, or substantially similar payments to be made by the Company
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 Company for money borrowed or represented by purchase-money
obligations, (ii) indebtedness of the Company evidenced by notes, debentures, or
bonds or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (iv) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (v) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (vi) any binding
commitment of the Company to fund any real estate investment or to fund any
investment in any entity making such real estate investment, in each case other
than (1) any such indebtedness, obligation or liability referred to in clauses
(i) through (vi) 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,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated, and (3) the
Subordinated Securities. As used in the preceding sentence, the term "purchase
money obligations" shall mean indebtedness or obligations evidenced by a note,
debenture, bond or other instrument (whether or not secured by any lien or other
security interest but excluding indebtedness or obligations for which recourse
is limited to the property purchased) issued or assumed as all or a part of the
consideration for the acquisition of property, whether by purchase, merger,
consolidation or otherwise, but shall not include any trade accounts payable.
There will not be any restrictions in an 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 contain the approximate amount
of Senior Debt outstanding as of the end of the Company's most recent fiscal
quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder 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.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or
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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 without reinvestment 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 Company 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
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to 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 of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America or such government, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the Holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the Holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the 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
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security 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
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 Company 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
certain
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specified sections of Article Ten of each Indenture (which sections would no
longer be applicable to such Debt Securities as a result of such covenant
defeasance) 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 Default. However, the Company 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.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the Redemption Price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities 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 Debt Securities will be to receive payment of
the Redemption Price.
Notice of any optional redemption of any Debt Securities 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 Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
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 depository 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 depository 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 OF BENEFICIAL INTEREST
The Company is authorized to issue 10,000,000 Preferred Shares. On November
6, 1997, the Company issued 5,000,000 Preferred Shares designated as the
Company's 8 3/4% Series A Cumulative Redeemable Preferred Shares of Beneficial
Interest. No other Preferred Shares were outstanding as of November 19, 1997.
Under the Company's Declaration of Trust, the Board of Trustees may from
time to time establish and issue one or more series of Preferred Shares, subject
to any shareholder approval required by the Constitution of the State of
Alabama. The Trustees may classify or reclassify any unissued Preferred Shares
by setting or changing the number, designation, preference, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption of such series.
THE BOARD OF TRUSTEES
The following description of the Preferred Shares sets forth certain general
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 the Company's
bylaws (the "Bylaws").
GENERAL
The Board of Trustees is empowered by the Company's Declaration of Trust to
designate and issue from time to time one or more series of Preferred Shares. On
October 23, 1997, the Company's shareholders authorized the Board of Trustees to
designate and issue up to 10,000,000 Preferred Shares. The Board of Trustees may
determine the relative rights, preferences and privileges of each series of
Preferred Shares so issued. Because the Board of Trustees has the power to
establish the preferences and rights of each series of Preferred Shares, it may
afford the holders of any series of Preferred Shares preferences, powers and
rights, voting or otherwise, senior to the rights of holders of Common Shares.
The Preferred Shares will, when issued, be fully paid and nonassessable.
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms thereof, including, without limitation:
(l) The title and stated value of such Preferred Shares;
(2) The number of such 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 of the Company, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to
such Preferred Shares;
(12) The relative ranking and preferences of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
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(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;
(14) Whether interests in such Preferred Shares will be represented by
Depositary Shares; and
(15) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
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; (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; 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. 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 (or dividends in
kind or in other property if expressly permitted and described in the applicable
Prospectus Supplement) 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 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.
Unless otherwise specified in the Prospectus Supplement, if any Preferred
Shares of any series are outstanding, no full dividends shall be declared or
paid or set apart for payment on any capital shares 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 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 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 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 do not have a
cumulative dividend) and such other series of Preferred Shares bear to
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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
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, no dividends (other than in Common Shares or other capital shares
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 or other
distribution upon the Common Shares, or any other capital shares 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 capital
shares 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 capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation).
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, in 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 capital shares of the Company, the terms of such
Preferred Shares may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Shares shall
automatically and mandatorily be converted into the applicable capital shares of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
any 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 current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
of the Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; 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. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
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 dividends 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 any series
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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 capital shares 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 lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
and series of Preferred Shares to be redeemed; (iii) the redemption 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 of 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 capital
shares 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
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Shares do not have a cumulative dividend). 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 shares
of other classes or series of capital shares 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 capital shares shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred 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
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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 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.
Whenever dividends on any Preferred Shares shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Shares (voting
separately as a class with all other series of Preferred Shares upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional Trustees of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Shares so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Shares has a
cumulative dividend, all dividends accumulated on such shares of Preferred
Shares for the past dividend periods and the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment or (ii) if such series of Preferred Shares do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board of Trustees of the Company will be
increased by two Trustees.
Unless provided otherwise for any series of Preferred Shares, so long as any
Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of Preferred Shares outstanding at the time, given in person or by proxy, either
in writing or at a meeting (such series voting separately as a class), (i)
authorize or create, or increase the authorized or issued amount of, any class
or series of capital shares ranking prior to such series of Preferred Shares
with respect to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
shares 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 (x) any increase in the amount of the authorized Preferred Shares or the
creation or issuance of any other series of Preferred Shares, or (y) 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 Preferred Shares of such series 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 manner
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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.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Shares of Beneficial
Interest--General," applicable Alabama law provides that no shareholder,
including holders of Preferred Shares, shall be personally liable for the acts
and obligations of the Company and that the funds and property of the Company
shall be the only recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares of Beneficial
Interest--Ownership Limits," for the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital shares may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Declaration of Trust provides that (subject to certain
exceptions) no holder of Preferred Shares may own, directly or by attribution,
more than 9.8% of any class or series of Preferred Shares. In addition, no
holder may own, directly or by attribution, more than 9.8% of the issued and
outstanding Common Shares and Preferred Shares. For a more detailed discussion
of these restrictions, see "Description of Common Shares of Beneficial
Interest--Restrictions on Transfer."
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON SHARES OF BENEFICIAL INTEREST
GENERAL
The authorized capital stock of the Company includes 65,000,000 common
shares of beneficial interest, $.01 par value per share ("Common Shares"). The
outstanding Common Shares entitle the holder to one vote on all matters
presented to shareholders for a vote. Holders of Common Shares have no
preemptive rights. At September 30, 1997, there were 20,934,059 Common Shares
outstanding.
Common Shares currently outstanding are listed for trading on the New York
Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list the
additional Common Shares to be sold pursuant to any Prospectus Supplement, and
the Company anticipates that such shares will be so listed.
Both Alabama statutory law governing real estate investment trusts organized
under the laws of that state (the "Alabama REIT Law") and the Company's
Declaration of Trust provide 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
being or having been a shareholder, and that the Company shall reimburse each
shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability. In addition, it will be the
Company's policy to include a clause in its contracts which provides that
shareholders assume no personal liability for obligations entered into on behalf
of the Company. 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, 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.
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Subject to such preferential rights as may be granted by the Board of
Trustees in connection with the future issuance of Preferred Shares, holders of
Common Shares are entitled to one vote per share on all matters to be voted on
by shareholders and are entitled to receive ratably such dividends as may be
declared on the Common Shares by the Board of Trustees in its discretion from
funds legally available therefor. In the event of the liquidation, dissolution
or winding up of the Company, holders of Common Shares are entitled to share
ratably in all assets remaining after payment of all debts and other liabilities
and any liquidation preference of the holders of Preferred Shares. Holders of
Common Shares have no subscription, redemption, conversion or preemptive rights.
Matters submitted for shareholder approval generally require a majority vote of
the shares present and voting thereon.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS. The Bylaws of the
Company provide that, with respect to an annual meeting of shareholders, the
proposal of business to be considered by shareholders may be made only (i) by or
at the direction of the Board of Trustees or (ii) by a shareholder who has
complied with the advance notice procedures set forth in the Bylaws. In
addition, with respect to any meeting of shareholders, nominations of persons
for election to the Board of Trustees may be made only (i) by or at the
direction of the Board of Trustees or (ii) by any shareholder of the Company who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
RESTRICTIONS ON TRANSFER
OWNERSHIP LIMITS. The Company's Declaration of Trust contains certain
restrictions on the number of Common Shares that individual shareholders may
own. For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding Common Shares may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The Common Shares must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Because the
Company intends to maintain its qualification as a REIT, the Declaration of
Trust of the Company contains restrictions on the ownership and transfer of
Common Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration of Trust, no
holder may own, or be deemed to own by virtue of certain attribution provisions
of the Code, more than 5% (the "Common Shares Ownership Limit") of the issued
and outstanding Common Shares. Members of the Lowder family (which includes
Thomas and James Lowder, members of their family and various corporations and
partnerships owned by them) are not subject to the Common Shares Ownership
Limit, but they are prohibited from acquiring additional Common Shares if, as a
result of such acquisition, a single member of the Lowder family would be
considered to own beneficially more than 29% of the outstanding Common Shares,
or any two members of the Lowder family would be considered to own beneficially
more than 34% of the outstanding Common Shares, or any three members of the
Lowder family would be considered to own beneficially more than 39% of the
outstanding Common Shares or any four members of the Lowder family would be
considered to own beneficially more than 44% of the outstanding Common Shares
(the "Excluded Holder Limit"). In addition, they are prohibited from acquiring
any Common Shares if such acquisition would cause five beneficial owners of
Common Shares to beneficially own in the aggregate more than 50% in value of the
outstanding Common Shares.
In addition to the foregoing ownership limits, no holder may own, directly
or by attribution, more than 9.8% of the issued and outstanding Common Shares
and Preferred Shares on a combined basis (the "Aggregate Ownership Limit").
Also, no holder may own, directly or by attribution, more than 9.8% of any class
or series of Preferred Shares (the "Preferred Shares Ownership Limit"). (The
Common Shares Ownership Limit, the Excluded Holder Limit, the Preferred Shares
Ownership Limit and the Aggregate Ownership Limit are referred to collectively
herein as the "Ownership Limits".)
The Board of Trustees may increase the Ownership Limits from time to time,
but may not do so to the extent that after giving effect to such increase five
beneficial owners of shares could beneficially own in the
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aggregate more than 49% of the outstanding Shares. The Board of Trustees may,
with a ruling from the IRS or an opinion of counsel satisfactory to it, waive
the Ownership Limits with respect to a holder if such holder's ownership will
not then or in the future jeopardize the Company's status as a REIT.
EXCESS SHARES. If any person owns, either directly or constructively under
the applicable attribution rules of the Code, Shares in excess of any of the
Ownership Limits (which include limits where the acquisition or ownership of
Shares would cause the Company to fail to qualify as a REIT), such person will
be deemed to have exchanged the Shares that cause an Ownership Limit to be
exceeded for an equal number of Excess Shares. The Excess Shares will not be
deemed issued to the person who exceeded the Ownership Limit, but instead will
be held by the Company as trustee of a trust for the exclusive benefit of a
transferee (or transferees) to be designated by the Company, provided that such
designee is a person to whom an equal number of Shares could be transferred
without violating the Ownership Limits. In addition, any purported transfer of
Shares which would cause the transferee to hold Shares in excess of the
Ownership Limits, shall be null and void. In such cases, the intended transferee
will acquire no rights or economic interest in the Shares, and the transferor
will be deemed instead to have transferred such Shares to the Company in
exchange for Excess Shares, which will be deemed to be held by the Company as
trustee of a trust for the exclusive benefit of the person or persons to whom
the Shares can be transferred without violating the Ownership Limits. The
Company generally must designate a transferee within 30 days of an event which
results in the deemed exchange for Excess Shares.
A person who holds or acquires Shares that shall have been deemed exchanged
for Excess Shares will not be entitled to vote the Excess Shares and will not be
entitled to receive any distributions (any distribution paid on Shares prior to
the discovery by the Company that such Shares have been exchanged for Excess
Shares shall be repaid to the Company upon demand, and any distribution declared
but unpaid shall be rescinded). Such person shall be entitled to receive
consideration paid by the Company's designated transferee in an amount that is
equal to the lesser of (i) in the case of a deemed exchange for Excess Shares
resulting from a transfer for value, the price paid for the Shares in such
transfer, or, in the case of a deemed exchange for Excess Shares resulting from
some other event, the market price, on the date of the deemed exchange, of the
Shares deemed exchanged, and (ii) the market price of the Shares for which such
Excess Shares are deemed to be exchanged, on the date of the designation of the
transferee. Any amount paid by the designated transferee in excess of the amount
described in the preceding sentence will be paid to the Company. For these
purposes, the market price on a given date is determined by reference to the
average closing price of the Shares for the five preceding days. The Excess
Shares so transferred will automatically be deemed to be exchanged for Shares.
Excess Shares may be purchased by the Company for the lesser of (i) in the case
of a deemed exchange for Excess Shares resulting from a transfer for value, the
price paid for the Shares in such transfer, or, in the case of a deemed exchange
for Excess Shares resulting from some other event, the market price, on the date
of the deemed exchange, of the Shares deemed exchanged, and (ii) the market
price of the Shares for which such Excess Shares are deemed to be exchanged, on
the date the Company purchases the Excess Shares.
The Board of Trustees has the authority at any time to waive the requirement
that Excess Shares be issued or be deemed outstanding in accordance with the
provisions of the Declaration of Trust if the issuance of such Excess Shares or
the fact that such Excess Shares are deemed to be outstanding would in the
opinion of counsel be satisfactory to jeopardize the status of the Company as a
REIT for Federal income tax purposes.
All certificates representing Common Shares will bear a legend referring to
the restrictions described above.
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 December 31 of each year. In addition,
each shareholder shall upon demand be required to disclose to the Company in
writing such information as the Company may request in good faith in order to
determine the Company's status as a REIT.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Shares is BankBoston, N.A.
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DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of Common
Shares. Common Share Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Share Warrants will be
issued under a separate 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 Common Share Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Share Warrants. The following
sets forth certain general terms and provisions of the Common Share Warrants
offered hereby. Further terms of the Common Share Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Share Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following:
(1) The title of such Common Share Warrants;
(2) The aggregate number of such Common Share Warrants;
(3) The price or prices at which such Common Share Warrants will be
issued;
(4) The designation, number and terms of the Common Shares purchasable
upon exercise of such Common Share Warrants;
(5) The designation and terms of the other Securities offered thereby
with which such Common Share Warrants are issued and the number of such
Common Share Warrants issued with each such Security offered thereby;
(6) The date, if any, on and after which such Common Share Warrants and
the related Common Stock will be separately transferable;
(7) The price at which each of the Common Shares purchasable upon
exercise of such Common Share Warrants may be purchased;
(8) The date on which the right to exercise such Common Share Warrants
shall commence and the date on which such right shall expire;
(9) The minimum or maximum number of such Common Share 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 Common Share Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Common Share Warrants.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares of each series represented by Depositary Shares
will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Share Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Shares represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by the Company to the Preferred Share
Depositary, the Company will cause the Preferred Share Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof filed as an exhibit to
the Registration Statement of which this Prospectus is a part is qualified in
its entirety by reference thereto.
DIVIDENDS
The Preferred Share Depositary will distribute all cash dividends received
in respect of the Preferred Shares to the record holders of Depositary Receipts
evidencing the related Depositary Shares in proportion to the number of such
Depositary Receipts owned by such holders, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Share Depositary.
In the event of a dividend other than in cash, the Preferred Share
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Share Depositary, unless the Preferred Share
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Share Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No dividend will be made in respect of any Depositary Share to the extent
that it represents any Preferred Shares converted into Excess Shares.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Share Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Shares), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional Preferred Shares and any
money or other property represented by the Depositary Shares evidenced by such
Depositary Receipts. Holders of Depositary Receipts will be entitled to receive
whole or fractional shares of the related Preferred Shares on the basis of the
proportion of the Preferred Shares represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such Preferred
Shares will not thereafter be entitled to receive Depositary Shares therefor. If
the Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
Preferred Shares to be withdrawn, the Preferred Share Depositary will deliver to
such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems Preferred Shares held by the Preferred Share
Depositary, the Preferred Share Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the Preferred Shares so
redeemed, provided the Company shall have paid in full to the Preferred Share
Depositary the redemption price of the Preferred Shares to be redeemed plus an
amount equal to any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price per Depositary Share will be equal to the
redemption price and any other amounts per share payable with respect to the
Preferred Shares. If fewer than all the Depositary Shares are to be redeemed,
the Depositary Shares to be redeemed will be selected pro rata (as nearly as may
be practicable without creating fractional Depositary Shares) or by any other
equitable method determined by the Company that will not result in the issuance
of any Excess Shares.
From and after the date fixed for redemption, all dividends in respect of
the Preferred Shares so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any monies payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Share Depositary.
VOTING OF THE PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Share Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Share
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Share Depositary will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Share Depositary in order to enable the Preferred Share Depositary to
do so. The Preferred Share Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Share Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Preferred Share Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each Preferred
Share represented by the Depositary Share evidenced by such Depositary Receipt,
as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. Nevertheless, if so specified in the applicable Prospectus Supplement
relating to an offering of Depositary Shares, the Depositary Receipts may be
surrendered by holders thereof to the Preferred Share Depositary with written
instructions to the Preferred Share Depositary to instruct the Company to cause
conversion of the Preferred Shares represented by the Depositary Shares
evidenced by such Depositary Receipts into whole Common Shares, other Preferred
Shares (including Excess Shares) of the Company or other shares of beneficial
interest, and the Company has agreed that upon receipt of such instructions and
any amounts payable in respect thereof, it will cause the conversion thereof
utilizing the
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same procedures as those provided for delivery of Preferred Shares to effect
such conversion. If the Depositary Shares evidenced by a Depositary Receipt are
to be converted in part only, a new Depositary Receipt or Receipts will be
issued for any Depositary Shares not to be converted. No fractional Common
Shares will be issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be paid in cash by the Company
equal to the value of the fractional interest based upon the closing price of
the Common Shares on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Share
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Shares will not be effective unless such amendment has been approved
by the existing holders of at least a majority of the Depositary Shares
evidenced by the Depositary Receipts then outstanding. No amendment shall impair
the right, subject to certain exceptions in the Depositary Agreement, of any
holder of Depositary Receipts to surrender any Depositary Receipt with
instructions to deliver to the holder the related Preferred Shares and all money
and other property, if any, represented thereby, except in order to comply with
law. Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such
Depositary Receipt, to consent and agree to such amendment and to be bound by
the Deposit Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Share Depositary if (i) such
termination is necessary to assist in maintaining the Company's status as a REIT
or (ii) a majority of each series of Preferred Shares affected by such
termination consents to such termination, whereupon the Preferred Share
Depositary shall deliver or make available to each holder of Depositary
Receipts, upon surrender of the Depositary Receipts held by such holder, such
number of whole or fractional Preferred Shares as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by the Preferred Share Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
assist in maintaining the Company's status as a REIT, then, if the Depositary
Shares are listed on a national securities exchange, the Company will use its
best efforts to list the Preferred Shares issued upon surrender of the related
Depositary Shares on a national securities exchange. In addition, the Deposit
Agreement will automatically terminate if (i) all outstanding Depositary Shares
shall have been redeemed, (ii) there shall have been a final distribution in
respect of the related Preferred Shares in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Shares or (iii) each share of the related
Preferred Shares shall have been converted into shares of beneficial interest of
the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED SHARE DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Share Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Share Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Share Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Share Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Share Depositary. A
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successor Preferred Share Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Share Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Share Depositary with respect to the related Preferred Shares.
Neither the Preferred Share Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Share Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Shares represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Share Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or Preferred Shares represented thereby
unless satisfactory indemnity is furnished. The Company and the Preferred Share
Depositary may rely on written advice of counsel or accountants, or information
provided by persons presenting Preferred Shares represented thereby for deposit,
holders of Depositary Receipts or other persons believed in good faith to be
competent to give such information, and on documents believed in good faith to
be genuine and signed by a proper party.
In the event the Preferred Share Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Share Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain Federal income tax
considerations to a prospective holder of Common Shares. The applicable
Prospectus Supplement will contain information about additional Federal income
tax considerations, if any, relating to Securities other than Common Shares. The
following discussion, which is not exhaustive of all possible tax
considerations, does not give a detailed discussion of any state, local or
foreign tax considerations. Nor does it discuss all of the aspects of Federal
income taxation that may be relevant to a prospective shareholder in light of
his or her particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
Federal income tax laws.
As discussed below, the Taxpayer Relief Act of 1997 (the "1997 Act")
contains certain changes to the REIT qualification requirements and to the
taxation of REITs that may be material to a holder of Common Shares, but that
will become effective only for the Company's taxable years commencing on or
after January 1, 1998. As used in this section, the term "Company" refers solely
to Colonial Properties Trust.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER IN LIGHT OF HIS OR
HER SPECIFIC OR UNIQUE CIRCUMSTANCES OF THE PURCHASE, OWNERSHIP AND SALE OF
SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company elected to be taxed as a REIT under Sections 856
through 860 of the Code effective as of its taxable year ending December 31,
1993. The Company believes that it is organized and has operated in a manner so
as to qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it will
continue to operate in such a manner in the future. Qualification and taxation
as a REIT depends upon the Company's ability to meet on a continuing basis
(through actual annual operating results, distribution levels and diversity of
stock ownership) the various qualification tests imposed under the Code on
REITs, some of which are summarized below. While the Company intends to operate
so that it qualifies as a REIT, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so. See
"--Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.
In any year in which the Company qualifies for taxation as a REIT, it
generally will not be subject to Federal corporate income taxes on that portion
of its REIT taxable income or capital gain that it currently distributes to
shareholders. This treatment substantially eliminates the "double taxation" (at
both the corporate and shareholder levels) that generally results from the use
of corporate investment vehicles. The Company may, however, be subject to tax at
normal corporate rates on any taxable income or capital gain that it does not
distribute.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest; (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) that during the last half of each taxable year not more
than 50% in value of
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the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and (7)
that meets certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (1) through (4), inclusive,
must be met during the entire taxable year and that condition (5) 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. The Company's
Declaration of Trust contains restrictions regarding the transfer of its Common
Shares that are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (5) and (6) above. See "Description of
Shares of Beneficial Interest--Restrictions on Transfer." Moreover, pursuant to
the 1997 Act, for the Company's taxable years commencing on or after January 1,
1998, if the Company complies with regulatory rules pursuant to which it is
required to send annual letters to holders of its shares requesting information
regarding the actual ownership of such shares, but does not know, or by
exercising reasonable diligence would not have known, whether it failed to meet
the requirement that it not be closely held, the Company will be treated as
having met the requirement.
INCOME TESTS. In order to maintain qualification as a REIT, there are three
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from 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 REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on 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 REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Pursuant to the 1997 Act, the Company will not have to meet this third test for
its taxable years commencing on or after January 1, 1998.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test or the 95% test if the Company, or an owner
of 10% or more of the Company, directly or constructively owns 10% or more of
such tenant. In addition, 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 such personal
property will not qualify as rents from real property. Moreover, an amount
received or accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based in
whole or in part on the income or profits of any person. Finally, for rents
received to qualify as rents from real property, the Company generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent that the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only, and are not
otherwise considered "rendered to the occupant" ("Permissible Services").
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, rents received generally will qualify as rents from real
property notwithstanding the fact that the Company provides services that are
not Permissible Services so long as the amount received for such services meets
a DE MINIMIS standard. The Management Partnership, which is not an "independent
contractor," provides certain services with respect to the Properties, but the
Company believes that all such services should be considered "usually or
customarily rendered" in connection with the rental of space for occupancy only,
although there is no assurance that the IRS might not contend otherwise. If the
Operating Partnership contemplates providing services which are not Permissible
Services in the future that reasonably might be expected not to meet the "usual
or customary" standard, it will arrange to have such services provided by an
independent contractor from which the Operating Partnership will receive no
income.
The amount received for "impermissible services" with respect to a property
(or, if services are available only to certain tenants, possibly with respect to
such tenants) cannot exceed one percent of all amounts received, directly or
indirectly, by the Company with respect to such property (or, if services are
available
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only to certain tenants, possibly with respect to such tenants). The amount that
the Company will be deemed to have received for performing "impermissible
services" will be the greater of the actual amount so received or 150% of the
direct cost to the Company of providing those services.
The Operating Partnership and/or the Management Partnership may receive fees
in consideration of the performance of property management services with respect
to certain Properties not owned entirely by the Operating Partnership. A portion
of such fees (corresponding to that portion of a Property owned by a third-
party) will not qualify under the 75% or 95% gross income test. The Operating
Partnership also may receive certain other types of income with respect to the
Properties it owns that will not qualify for the 75% or 95% gross income test.
In addition, dividends on the Company's stock in the Management Corporation and
its share of interest on the Management Corporation note 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 nonqualifying income under the 75% and
95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, the Company will be subject to a 100%
tax based upon the greater of the amount by which it fails either the 75% or 95%
gross income test for that year, less certain adjustments.
ASSET TESTS. At the close of each quarter of its taxable year, the Company
also must satisfy three tests relating to the nature of its assets: (i) 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; (ii) not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class; and (iii) of the investments included in the 25%
asset class, the value of any one issuer's securities (other than an interest in
a partnership, shares of a "qualified REIT subsidiary" or another REIT) owned by
the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities (other than an interest in a partnership, shares of a "qualified REIT
subsidiary" or another REIT). The Company owns 100% of the nonvoting stock and
l% of the voting stock of the Management Corporation. In addition, the Operating
Partnership owns a note issued by the Management Corporation, and by virtue of
its ownership of Units, the Company is considered to own its pro rata share of
the note of the Management Corporation. Neither the Company nor the Operating
Partnership, however, own more than 10% of the voting securities of the
Management Corporation. In addition, the Company and its senior management
believe that the Company's pro rata share of the value of the securities of the
Management Corporation (taking into account both the stock of the Management
Corporation held directly and the Company's pro rata share of the note of the
Management Corporation held by the Operating Partnership) do not exceed 5% of
the total value of the Company's assets. There can be no assurance, however,
that the IRS might not contend either that the value of the securities of the
Management Corporation held by the Company (directly and through the Operating
Partnership) exceeds the 5% value limitation or that the nonvoting stock of the
Management Corporation owned by the Operating Partnership should be considered
"voting stock" for this purpose.
The 5% value requirement must be satisfied each time the Company increases
its ownership of securities of the Management Corporation (including as a result
of increasing its interest in the Operating Partnership as limited partners
exercise their redemption rights or, for example, as a result of investing the
proceeds of sales of Common Shares in the Operating Partnership). 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 the Management Corporation.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to make dividend distributions (other than capital gain
dividends) to its shareholders each year in an amount at least equal to (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 net capital gain) and (ii) 95% of
the net income (after tax), if
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any, from foreclosure property, minus (B) the sum of certain items of non-cash
income. Such distributions 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 tax return for such year and if paid on or before the first regular
dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its REIT taxable
income, as adjusted, it will be subject to tax on the undistributed amount at
regular capital gains or ordinary corporate tax rates, as the case may be.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or after
January 1, 1998, the Company may elect to require the holders of Common Shares
to include the Company's undistributed net capital gains in their income by
designating, in a written notice to such holders, those amounts as undistributed
capital gains in respect of its shareholder's shares. If the Company makes such
an election, the holders will (i) include in their income as capital gains their
proportionate share of such undistributed capital gains and (ii) be deemed to
have paid their proportionate share of the tax paid by the Company on such
undistributed capital gains and thereby receive a credit or refund for such
amount. A holder of Common Shares will increase the basis in its shares by the
difference between the amount of capital gain included in its income and the
amount of the tax that the Company is deemed to have paid on the holder's
behalf. The earnings and profits of the Company will be adjusted appropriately.
For a more detailed description of the tax consequences to a holder of Common
Shares of such a designation, see "Taxation of Taxable Domestic Holders of
Common Shares."
The Company believes that it has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the distribution requirements. In
that event, CPHC may cause the Operating Partnership to arrange for short-term,
or possibly long-term, borrowing to permit the payments of required dividends.
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 required and, if made, will not
be deductible by the Company. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless 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.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
GENERAL. The Company holds direct or indirect interests in the Operating
Partnership and the Management Partnership (each individually a "Partnership"
and, collectively, the "Partnerships"). The Company believes that each of the
Partnerships qualifies as a partnership (as opposed to an association taxable as
a corporation) for Federal income tax purposes. If any of the Partnerships were
to be treated as an association, it would be taxable as a corporation and
therefore subject to an entity-level tax on its income. In such a situation, the
character of the Company's assets and items of gross income would change, which
would preclude the Company from satisfying the asset tests and possibly the
income tests (see "Federal Income Tax Considerations--Taxation of the
Company--Asset Tests" and "--Gross Income Tests"), and in turn would prevent the
Company from qualifying as a REIT.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership 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 and the adjusted
tax basis of contributed 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
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Operating Partnership was formed by way of contributions of appreciated
property. Consequently, the Operating Partnership partnership agreement requires
such allocations to be made in a manner consistent with Section 704(c). As a
result, certain limited partners of the Operating Partnership will be allocated
lower amounts of depreciation deductions for tax purposes and increased taxable
income and gain on sale by the Partnerships of the contributed assets. These
allocations will tend to eliminate the Book-Tax Difference over the life of the
Partnerships. However, the special allocation rules of Section 704(c) as applied
by the Company do not always entirely rectify the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed assets in the hands of the
Partnership will cause the Company to be allocated lower depreciation and other
deductions, and possibly greater amounts of taxable income in the event of a
sale of such contributed assets in excess of the economic or book income
allocated to its as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements."
SALE OF THE PROPERTIES. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations--Taxation of the
Company--Gross Income Tests--The 95% Test." Under existing law, whether property
is dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership has held and intends to continue to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties and to make such
occasional sales of the Properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general the Properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
TAXATION OF TAXABLE DOMESTIC HOLDERS OF COMMON SHARES
GENERAL. As long as the Company qualifies as a REIT, distributions made by
the Company to the Company's taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will be taken into account by them as ordinary income, and corporate
shareholders will not be eligible for the dividends received deduction as to
such amounts. For purposes of determining whether distributions on the Common
Shares are out of current or accumulated earnings and profits, the earnings and
profits of the Company will be allocated first to Preferred Shares, if any, and
second to the Common Shares. There can be no assurance that the Company will
have sufficient earnings and profits to cover distributions on any Preferred
Shares.
Distributions that are designated as capital gain dividends will be taxed as
gains from the sale or exchange of a capital asset held for more than one year
(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
its stock. Corporate shareholders, however, may be required to treat up to 20%
of certain capital gain dividends as ordinary income. As described below in
"--Recent Legislation," the 1997 Act changed significantly the taxation of
capital gains by taxpayers who are individuals, estates, or trusts. On November
10, 1997, the IRS issued IRS Notice 97-64, which provides generally that the
Company may classify portions of its designated capital gain dividend as (i) a
20% rate gain distribution (which would be taxed as long-term capital gain in
the 20% group), (ii) an unrecaptured Section 1250 gain distribution (which would
be taxed as long-term capital gain in the 25% group), or (iii) a 28% rate gain
distribution (which would be taxed as long-term capital gain in the 28% group).
(If no designation is made, the entire designated capital gain dividend will be
treated as a 28% rate gain distribution.) IRS Notice 97-64 provides that a REIT
must determine the maximum amounts that it may designate as 20% and 25% rate
capital gain dividends by performing the computation required by the Code as if
the REIT were an individual whose ordinary income were subject to a marginal tax
rate of at least 28%. The Notice further provides that designations made by the
REIT will only be effective only to the extent that they comply with Revenue
Ruling 89-81, which requires that distributions made to different classes of
shares be composed proportionately of dividends of a particular type.
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Distributions in excess of current or accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares, but rather will reduce the
adjusted basis of such Common Shares. To the extent that such distributions
exceed the adjusted basis of a shareholder's Common Shares, they will be taxable
as capital gains, assuming the Common Shares are a capital asset in the hands of
the shareholder.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition and
(ii) the shareholder's adjusted basis of such Common Shares. With respect to
dispositions occurring after July 28, 1997, in the case of a taxable domestic
shareholder who is an individual or an estate or trust, such gain or loss will
be mid-term capital gain or loss if such shares have been held for more thatn 18
months. In the case of a taxable domestic shareholder that is a corporation,
such gain or loss will be long-term capital gain or loss if such shares have
been held for more than one year. Loss upon a sale or exchange of Common Shares
by a shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as long-term or mid-term
capital loss to the extent of distributions from the Company required to be
treated by such shareholder as long-term or mid-term capital gain.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may elect to require holders of Common Shares
to include the Company's undistributed net capital gains in their income. If the
Company makes such an election, holders of Common Shares will (i) include in
their income as capital gains their proportionate share of such undistributed
capital gains and (ii) be deemed to have paid their proportionate share of the
tax paid by the Company on such undistributed capital gains and thereby receive
a credit or refund for such amount. A holder of Common Shares will increase the
basis in its Common Shares by the difference between the amount of capital gain
included in its income and the amount of tax it is deemed to have paid. The
earnings and profits of the Company will be adjusted appropriately.
ADDITIONAL TAX CONSEQUENCES FOR HOLDERS OF SECURITIES OTHER THAN COMMON
SHARES. If the Company offers Securities other than Common Shares there may be
additional tax consequences for the holders of such Securities. For a discussion
of any such additional consequences, see the applicable Prospectus Supplement.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to Federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
Securities with "acquisition indebtedness" within the meaning of the Code and
the Securities are not otherwise used in an unrelated trade or business of the
tax-exempt entity. In addition, for taxable years beginning on or after January
1, 1994, certain pension trusts that own more than 10% of a "pension-held REIT"
must report a portion of the distribution that they receive from such a REIT as
UBTI. The Company has not been and does not expect to be treated as a
pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income tax
consequences of the ownership and disposition of Securities applicable to
Non-U.S. Holders of such Securities. The rules governing U.S. federal income
taxation of Non-U.S. Holders are complex, and no attempt will be made herein to
provide more than a limited summary of such rules. A "Non-U.S. Holder" is any
person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States, or of any state thereof (other than a partnership
that is not treated as a United States person under applicable Treasury
Regulations), (iii) an estate or trust whose income is includable in gross
income for U.S. Federal income tax purposes regardless of its source. The
discussion is based on current law and is for general information only
(including certain trusts in existence on August 20, 1996, and treated as United
States persons under the United States Internal Revenue Code of 1986 which elect
to continue to be treated as United States persons), or (iv) a trust; if a court
within the United
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States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust.
DISTRIBUTIONS FROM THE COMPANY. The portion of dividends received by
Non-U.S. Holders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company or of the Operating Partnership and
which are not effectively connected with a U.S. trade or business of the
Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by an applicable treaty). In general, Non-U.S. Holders will not
be considered engaged in a U.S. trade or business solely as a result of their
ownership of Securities. In cases where the dividend income from a Non-U.S.
Holder's investment in Securities is (or is treated as) effectively connected
with the Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S.
Holder generally will be subject to U.S. tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to such dividends (and may
also be subject to the 30% branch profits tax in the case of a Non-U.S. Holder
that is a foreign corporation).
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Holder to the extent that they do
not exceed the adjusted basis of the shareholder's Common Shares, but rather
will reduce the adjusted basis of such Common Shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Holder's Common Shares,
they will give rise to gain from the sale or exchange of its Common Shares, the
tax treatment of which is described below. As a result of a legislative change
made by the Small Business Job Protection Act of 1996, it appears that the
Company will be required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution (or a lower applicable treaty rate), to the extent that the Company
does not do so, any portion of distribution not subject to withholding at a rate
of 30% (or a lower applicable treaty rate) will be subject to withholding at a
rate of 10%. However, the Non-U.S. Holder may seek a refund of such amounts from
the Internal Revenue Service if it subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company, and the amount withheld exceeded the Non-U.S. Holder's
United States tax liability, if any, with respect to the distribution.
Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), a
distribution made by the Company to a Non-U.S. Holder, to the extent
attributable to gains from dispositions of United States Real Property Interests
("USRPIs") such as the Properties beneficially owned by the Company ("USRPI
Capital Gains"), will be considered effectively connected with a U.S. trade or
business of the Non-U.S. Holder and subject to U.S. income tax at the rate
applicable to U.S. individuals or corporations, without regard to whether such
distribution is designated as a capital gain dividend. In addition, the Company
will be required to withhold tax equal to 35% of the amount of dividends to the
extent such dividends constitute USRPI Capital Gains. Distributions subject to
FIRPTA may also be subject to a 30% branch profits tax in the hands of a foreign
corporate shareholder that is not entitled to treaty exemption.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of Common Shares (see "Taxation of Taxable Domestic
Holders of Common Shares" above) would be treated with respect to Non-U.S.
Holders in the manner outlined in the preceding paragraph for actual
distributions by the Company of capital gain dividends. Under that approach, the
Non-U.S. Holders would be able to offset as a credit against their United States
federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on such undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate shares of such tax paid
by the Company were to exceed their actual United States federal income tax
liability).
DISPOSITIONS OF SECURITIES. Unless Securities constitute a USRPI, a sale of
Securities by a Non-U.S. Holder generally will not be subject to U.S. taxation
under FIRPTA. The Securities will not constitute a USRPI if the Company is a
"domestically controlled REIT." A domestically controlled REIT is a REIT in
which, at all times during a specified testing period, less than 50% in value of
its Securities is held directly or indirectly by Non-U.S. Holders. The Company
believes that it has been and anticipates that it will continue to be a
domestically controlled REIT, and therefore that the sale of Securities will not
be subject to taxation under FIRPTA. Because the Securities will be publicly
traded, however, no assurance can be given that the Company will continue to
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be a domestically controlled REIT. If the Company does not constitute a
domestically controlled REIT, a Non-U.S. Holder's sale of Securities generally
still will not be subject to tax under FIRPTA as a sale of a USRPI provided that
(i) the Securities are "regularly traded" (as defined by applicable Treasury
regulations) on an established securities market and (ii) the selling Non-U.S.
Holder held 5% or less of the Company's outstanding Securities at all times
during a specified testing period.
If gain on the sale of Securities were subject to taxation under FIRPTA, the
Non-U.S. Holder would be subject to the same treatment as a U.S. shareholder
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of Securities could be required to withhold 10% of the
purchase price and remit such amount to the Internal Revenue Service. Capital
gains not subject to FIRPTA will nonetheless be taxable in the United States to
a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's investment in
Securities is effectively connected with a U.S. trade or business conducted by
such Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment
as a U.S. shareholder with respect to such gain, or (ii) if the Non-U.S. Holder
is a nonresident alien individual who was present in the United States for 183
days or more during the taxable year and has a "tax home" in the United States,
the nonresident alien individual will be subject to a 30% tax on the
individual's capital gain.
RECENT LEGISLATION
As described above, the 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. The 1997 Act also
contains certain changes to the taxation of capital gains of individuals, trusts
and estates.
CAPITAL GAIN RATES. Subject to certain exceptions, for individuals, trusts
and estates, the maximum rate of tax on the net capital gain from a sale or
exchange occurring after July 28, 1997 of a capital asset held for more than 18
months has been reduced from 28% to 20%. The maximum rate has been reduced to
18% for capital assets acquired after December 31, 2000 and held for more than
five years. The maximum rate for capital assets held for more than one year but
not more than 18 months remains at 28%. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 18
months is 25% to the extent of the prior deductions for "unrecaptured Section
1250 gain" (that is depreciation deductions not otherwise recaptured as ordinary
income under the existing depreciation recapture rules). Capital gain from the
sale of depreciable real property held for more than 18 months allocated by the
Company to a non-corporate shareholder will be subject to the 25% rate to the
extent that the capital gain on the real property sold by the Company does not
exceed prior depreciation deductions with respect to such property. With respect
to any depreciable real property held by the Company for more than one year but
not more than 18 months, prior depreciation deductions claimed in excess of the
depreciation that would have been allowed if computed on a straight-line basis
will be taxed at the rates applicable to ordinary income with the remaining gain
being taxed at a maximum rate of 28%. The 1997 Act provides the Internal Revenue
Service with authority to issue regulations that could, among other things,
apply these rates on a look-through basis in the case of "pass-through" entities
such as the Company. The taxation of capital gains of corporations was not
changed by the 1997 Act.
REIT PROVISIONS. In addition to the provisions discussed above, the 1997
Act contains a number of technical provisions that either (i) reduce the risk
that the Company will inadvertently cease to qualify as a REIT, or (ii) provide
additional flexibility with which the Company can meet the REIT qualification
requirements. These provisions are effective for the Company's taxable years
commencing on or after January 1, 1998.
OTHER TAX CONSIDERATIONS
MANAGEMENT CORPORATION. A portion of the amount distributed by the Company
to shareholders comes from the Management Corporation, through dividends on
stock to the Operating Partnership held by the Company and payments on the note
held by the Operating Partnership. The Management Corporation does not qualify
as a REIT and thus pays Federal, state and local income taxes on its net income
at normal corporate rates. As a result of interest and amortization deductions,
the Management Corporation does not pay significant income taxes currently.
There can be no assurance, however, that the IRS will not challenge
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these deductions. In any event, future increases in the income of the Management
Corporation will be subject to income tax. Any Federal, state or local income
taxes that the Management Corporation is required to pay will reduce the cash
available for distribution by the Company to its shareholders. In addition, as
described above, the value of the securities of the Management Corporation held
by the Company cannot exceed 5% of the value of the Company's assets at a time
when a Partner exercises his redemption right (or the Company otherwise is
considered to acquire additional securities of the Management Corporation,
including as the result of the sale of Common Shares, Preferred Shares, or
Common Share Warrants pursuant to this Prospectus). See "Taxation of the
Company--Asset Tests." This limitation may restrict the ability of the
Management Corporation to increase the size of its respective business unless
the value of the assets of the Company is increasing at a commensurate rate.
STATE AND LOCAL TAXES. The Company and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its shareholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective shareholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Common Shares, Preferred Shares, Depositary
Shares or Common Share Warrants of the Company.
The Alabama Real Estate Investment Trust Act (the "Act"), which was enacted
in July 1995, generally conforms the treatment of REITs (such as the Company)
and qualified REIT subsidiaries (such as CPHC) under Alabama tax law to federal
law for tax years beginning after December 31, 1994. In particular, the Act
specifically permits REITs to deduct dividends paid in computing taxable income
for Alabama income tax purposes. In addition, the Act provides that neither
REITs nor qualified REIT subsidiaries will be subject to a tax on the value of
their shares in Alabama. Under Alabama law, each beneficiary of a REIT is
required to report and pay Alabama tax on its share of the REIT's income to the
extent described below. An individual who is an Alabama resident is required to
report and pay tax on all of its share of the REIT's income, regardless of the
source of that income. An individual who is not resident in Alabama for Alabama
state income tax purposes is required to report and pay tax only on income
considered to be Alabama source income (I.E., income that would be subject to
tax in Alabama if received directly by the individual). For this purpose,
however, income derived by a REIT with respect to stock or securities is not
considered to be Alabama source income merely because the securities are issued
by a corporation organized under Alabama law or doing business in Alabama.
Similar treatment applies to a corporate beneficiary of a REIT that is not
organized or otherwise engaged in a "trade" or "business" in Alabama. The
Company has received an opinion from special Alabama tax counsel to the effect
that so long as the Company's sole assets consist of stock and securities of
other corporations (I.E., CPHC and the Management Corporation), (i) individual
shareholders of the Company who are not residents of Alabama for Alabama state
income tax purposes and who do not otherwise receive taxable income from
property owned or business transacted in Alabama and (ii) corporate shareholders
not organized in Alabama that do not otherwise receive income from sources
within, or business transacted in, Alabama will not be required to file tax
returns in Alabama or pay tax in Alabama as a result of investing in Common
Shares, Preferred Shares or Common Share Warrants of the Company.
The state of Alabama imposes a franchise tax on corporations organized under
Alabama law. The Company is organized as an Alabama real estate investment trust
under the Act and believes that it is not subject to the domestic franchise tax.
Nevertheless, there can be no assurance that the state of Alabama will not
contend that the Alabama franchise tax applies to the Company. Any Alabama
franchise tax that the Company is required to pay will reduce the cash available
for distribution by the Company to shareholders.
The Alabama Department of Revenue initiated a tax audit with respect to the
Company and CPHC for periods prior to the effective date of the Act. In meetings
with the Company and CPHC, the Alabama Department of Revenue initially raised
questions about whether the Company was subject to Alabama franchise tax as a
Maryland REIT and whether CPHC is entitled to certain substantial deductions
claimed by CPHC for Alabama income tax purposes for interest payments made by
CPHC to the Company. Under the Act, CPHC will not be subject to a franchise tax
liability for tax years beginning after December 31, 1994. The Company is unable
at this time to predict whether any liability will result from this audit
proceeding or, if so, the amount thereof.
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PLAN OF DISTRIBUTION
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company may also offer and sell the
Securities in exchange for one or more of its then outstanding issues of debt or
convertible debt securities. The Company also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell Securities upon
terms and conditions set forth in the applicable Prospectus Supplement. In
connection with the sale of the Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the Securities
for whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company 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 ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected at the Public Reference Section maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Shares are listed
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
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The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission. The Commission maintains a 'web site'
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
such site is "http://www.sec.gov".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996 (the "10-K").
2. The Company's current reports on Form 8-K filed on January 31, 1997,
July 21, 1997, July 30, 1997, October 30, 1997 and November 5, 1997.
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997.
4. The Company's Registration Statement on Form 8-A, which incorporates
by reference a description of the Common Shares from the Company's
Registration Statement on Form S-11 (File No. 33-65954) including an
amendment or report filed for the purpose of updating such description.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein 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 in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Douglas B. Nunnelley, the Company's
Senior Vice President and Secretary at 2101 Sixth Avenue North, Suite 750,
Birmingham, Alabama 35203, telephone number (205) 250-8700.
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LEGAL MATTERS
The legality of the Debt Securities, the Preferred Shares, the Common
Shares, the Common Share Warrants and the Depositary Shares offered hereby and
certain tax matters will be passed upon for the Company by Hogan & Hartson
L.L.P., Washington, D.C. Certain Alabama tax matters will be passed on for the
Company by Sirote & Permutt, P.C., Birmingham, Alabama.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995 and the
consolidated statements of operations, partners' capital, and cash flows for
each of the three years in the period ended December 31, 1996, which are
incorporated by reference in the Company's Form 10-K (incorporated herein by
reference); the historical summaries of revenues and direct operating expenses
of Acquired Properties--Riverchase Center Building 2100, Beechwood Shopping
Center, Brookwood Mall, The Meadows at Trussville, and the Proposed Office and
Retail Merger, all of which are included in the Company's Form 8-K filed July
21, 1997 (incorporated herein by reference); and the historical summaries of
revenues and direct operating expenses of Acquired Properties--Georgia Malls and
Mark Trace, both of which are included in the Company's Form 8-K filed on
October 30, 1997 (incorporated herein by reference), have been incorporated
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary...................... S-3
The Company........................................ S-10
Use of Proceeds.................................... S-13
Price Range of Common Shares and Distribution
History.......................................... S-13
Capitalization..................................... S-15
Selected Financial and Operating Information....... S-16
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. S-18
Properties......................................... S-22
Management......................................... S-31
Underwriting....................................... S-32
Legal Matters...................................... S-33
Certain Federal Income Tax Considerations.......... S-33
Experts............................................ S-33
PROSPECTUS
Special Note Regarding Forward Looking
Statements....................................... 2
The Company........................................ 2
Risk Factors....................................... 4
Use of Proceeds.................................... 8
Ratios of Earnings to Fixed Charges................ 8
Description of Debt Securities..................... 9
Description of Preferred Shares of Beneficial
Interest......................................... 20
Description of Common Shares of Beneficial
Interest......................................... 25
Description of Common Share Warrants............... 28
Description of Depository Shares................... 29
Federal Income Tax Considerations.................. 33
Plan of Distribution............................... 42
Available Information.............................. 42
Incorporation of Certain Documents by Reference.... 43
Legal Matters...................................... 44
Experts............................................ 44
</TABLE>
3,000,000 SHARES
COMMON SHARES
OF BENEFICIAL INTEREST
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
APRIL 21, 1998
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