<PAGE> 1
Subject To Completion Dated November 12, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 28, 1995)
OASIS RESIDENTIAL, INC.
$50,000,000
% Notes due 2001
Interest payable and
ISSUE PRICE: %
$45,000,000
% Notes due 2003
Interest payable and
ISSUE PRICE: %
$50,000,000
% Notes due 2006
Interest payable and
ISSUE PRICE: %
Interest on the % Notes due 2001 (the "2001 Notes"), the % Notes due
2003 (the "2003 Notes") and the % Notes due 2006 (the "2006 Notes" and,
together with the 2001 Notes and the 2003 Notes, the "Notes") of Oasis
Residential, Inc. (the "Company") offered hereby are payable semi-annually on
and , commencing ,
1997. See "Description of Notes--Principal and Interest." The 2001 Notes will
mature on , 2001, the 2003 Notes will mature on , 2003
and the 2006 Notes will mature on , 2006. The Notes may be redeemed
at any time at the option of the Company, in whole or in part, at a redemption
price equal to the sum of (i) the principal amount of the Notes being redeemed
plus accrued interest thereon to the redemption date and (ii) the Make-Whole
Amount (as hereinafter defined), if any. See "Description of Notes--Optional
Redemption."
The Notes will be represented by one or more Global Securities (as hereinafter
defined) registered in the name of The Depository Trust Company ("DTC") or its
nominee. Interest in the Global Securities will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. Except as provided herein, Notes in definitive form will not be
issued. See "Description of Notes."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSION(2) COMPANY(1)(3)
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per 2001 Note % % %
- - --------------------------------------------------------------------------------------------------------
Total $ $ $
- - --------------------------------------------------------------------------------------------------------
Per 2003 Note % % %
- - --------------------------------------------------------------------------------------------------------
Total $ $ $
- - --------------------------------------------------------------------------------------------------------
Per 2006 Note % % %
- - --------------------------------------------------------------------------------------------------------
Total $ $ $
- - --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about , 1996 through the
facilities of DTC, against payment therefor in immediately available funds.
J.P. MORGAN & CO.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
November , 1996
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS SUBJECT TO
COMPLETION PURSUANT TO RULE 424 UNDER THE SECURITIES ACT OF 1933. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 415
UNDER THE SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT AND
PROSPECTUS WILL BE DELIVERED TO PURCHASERS OF THESE SECURITIES. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY OR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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<PAGE> 3
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THEY RELATE
OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH
INFORMATION.
Statements contained or incorporated by reference in this document that are not
based on historical fact are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements regarding the Company's future development activities, the
future condition and expansion of the Company's markets, the Company's ability
to meet its liquidity requirements and the Company's growth strategies, as well
as other statements which may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "estimate," "anticipate,"
"continue" or similar terms, variations of those terms or the negative of those
terms. Investors should carefully consider the statements set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
(incorporated herein by reference) under the heading "Risk Factors" which
constitute cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statements.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary............................... S-4
The Company........................... S-9
Use of Proceeds....................... S-10
Capitalization........................ S-10
Business.............................. S-11
Properties............................ S-17
Selected Consolidated Financial and
Operating Data...................... S-21
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. S-23
Credit Facility and Mortgage Debt..... S-34
Management............................ S-35
Description of Notes.................. S-37
Underwriting.......................... S-43
Legal Matters......................... S-43
</TABLE>
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 4
Ratios of Earnings to Fixed Charges... 4
Description of Debt Securities........ 4
Description of Common Stock........... 15
<CAPTION>
PAGE
----
<S> <C>
Description of Preferred Stock........ 16
Description of Warrants............... 21
Restrictions on Transfers of Capital
Stock............................... 21
Federal Income Tax Considerations to
the Company......................... 22
Plan of Distribution.................. 27
Legal Matters......................... 28
Experts............................... 28
</TABLE>
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<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein or therein by reference.
THE COMPANY
Oasis Residential, Inc. (the "Company") is a self-administered and self-managed
equity real estate investment trust (a "REIT"). The Company is the largest
active developer and owner of predominantly upscale apartment communities in the
greater Las Vegas, Nevada metropolitan area, based on the number of apartment
units developed and owned. The Company also is active in the development and
operation of apartment communities in Denver, Colorado and Reno, Nevada. The
Company commenced operations as a public company in October 1993 with an initial
portfolio of 23 apartment communities containing 5,215 units and a 30,000 square
foot commercial center in Henderson, Nevada in which the Company's headquarters
is located (the "Commercial Center"). As of October 20, 1996, the Company owned
and operated 49 apartment communities comprising a total of 13,196 apartment
units (the "Properties") with an average age of less than eight years, as well
as the Commercial Center. Forty-five of the apartment communities are located in
the greater Las Vegas area. As of the same date, the weighted average occupancy
rate of the Properties (including six Properties in lease-up) was 94%, and the
Commercial Center was 100% occupied. The Company currently has 2,233 units under
construction, consisting of 1,011 units in Las Vegas, 772 units in Denver and
450 units in Reno, and expects to complete construction on 336 of these units by
December 31, 1996. The Company is a fully integrated REIT, with in-house
acquisition, development, property management and finance expertise. Currently,
the Company employs approximately 590 people.
BUSINESS OBJECTIVES AND STRATEGIES
The Company's primary business strategy is to generate stable and increasing
cash flow and enhance portfolio value by focusing on the upscale apartment
market. The Company has implemented this strategy principally by pursuing
internal growth in income from its existing portfolio of apartment communities
and external growth through the selective development and acquisition of new
apartment communities.
The Company produces internal growth by intensively managing its existing
portfolio of properties, utilizing the expertise of senior management, which has
developed, leased and managed in excess of 16,500 apartment units in the greater
Las Vegas metropolitan area and 8,000 apartment units in other states. The
Company believes its strong local market presence, brand-name identity and
resident-oriented approach reduce turnover and encourage resident referrals,
resulting in higher occupancies, higher effective rents and reduced expenses.
The Company's weighted average occupancy has been consistently strong at 94%,
95% and 95% for the nine months ended September 30, 1996 and the years ended
December 31, 1995 and 1994, respectively. During these periods, weighted average
monthly rental income per unit increased steadily to $600 from $570 and $549,
respectively.
The Company pursues external growth by selectively developing new apartment
communities in the Las Vegas, Reno and Denver metropolitan areas where the
Company has first-hand knowledge of growth patterns and local economic
conditions and generally has a competitive advantage due to its brand-name
identity, extensive experience and reputation as a developer and access to lower
cost of capital than that available to many of its local competitors. The
Company also intends to continue its strategy of selectively acquiring apartment
communities as a supplement to its program of developing new properties.
FINANCIAL FLEXIBILITY AND CONSERVATIVE CAPITAL STRUCTURE
The Company intends to maintain a conservative balance sheet to provide
financial flexibility and access to optimal, cost-effective sources of capital.
This strategy has been demonstrated by the Company's recent financing
activities, including its 1993 initial public offering which raised $195
million, its 1994 offering of Common Stock which raised $141 million and its
1995 offering of $104 million of Series A Preferred Stock. In addition, the
Company has a $200 million unsecured credit facility with five banks, including
Wells Fargo Bank as Agent (the "Credit Facility"). If the Company had
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<PAGE> 5
completed the sale of the Notes on September 30, 1996 and applied the estimated
net proceeds as set forth under "Use of Proceeds," the Company would have had a
pro forma debt to total market capitalization ratio and an unencumbered EBITDA
ratio (the ratio of earnings before interest, taxes, depreciation and
amortization ("EBITDA") attributable to the unencumbered Properties to total
EBITDA) on that date of 44.5% and 62.2%, respectively. See "Business --
Financing Strategy."
GROWING MARKETS
The Company is the largest active developer in the Las Vegas apartment market
with an overall market share of 10.4%. The Las Vegas economy has grown
consistently over the last 25 years while becoming increasingly diverse. Over
the last seven years the average annual Las Vegas employment growth rate of 7.0%
was the highest of any major metropolitan area in the United States. Although
the new supply of apartments has increased significantly in 1996, the Company
believes that various factors, including restrictive zoning and water
permitting, should moderate market supply. The Company believes that its
brand-name and market position will enable it to continue to generate strong
occupancy rates. In addition, the Company has begun to establish a presence in
the Denver and Reno markets, where it believes that the markets also have strong
fundamentals, such as high employment growth and moderate new supply levels.
RECENT DEVELOPMENTS
During the first ten months of 1996, the Company has continued development
activities designed to expand its market leadership:
- The Company has completed construction on six new apartment communities
and one community expansion in the Las Vegas and Denver metropolitan areas
comprising an aggregate of 1,553 units as follows: Oasis Pointe (252
units), Oasis Meadows (383 units), Oasis Deerwood (342 units in Denver),
Oasis Tiara (400 units), Oasis Crossings (72 units), Oasis Villas (84
units) and Oasis Cove II (20 units).
- The Company has under construction six apartment communities comprising
2,233 units, consisting of 1,011 units in Las Vegas, 772 units in Denver
and 450 units in Reno. It is expected that 336 units will be completed by
December 31, 1996. The remaining units under construction are expected to
be completed during 1997.
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<PAGE> 6
THE OFFERING
For a more complete description of the terms of the Notes specified in the
following summary, including definitions of capitalized terms not otherwise
found, see "Description of Notes" in this Prospectus Supplement and "Description
of Debt Securities" in the accompanying Prospectus.
SECURITIES OFFERED..........
$50,000,000 aggregate principal amount of the 2001
Notes, $45,000,000 aggregate principal amount of the
2003 Notes and $50,000,000 aggregate principal amount
of the 2006 Notes.
MATURITY....................
The 2001 Notes mature on , 2001, the 2003
Notes mature on , 2003 and the 2006
Notes mature on , 2006 .
INTEREST PAYMENT DATES......
Interest on the 2001 Notes, the 2003 Notes and the
2006 Notes is payable semi-annually on
and of each year commencing on
, 1997.
RANKING.....................
The Notes will be direct, senior unsecured
obligations of the Company and will rank equally with
all other unsecured and unsubordinated indebtedness
of the Company from time to time outstanding. The
Notes will be effectively subordinated to mortgages
and other secured indebtedness of the Company and to
indebtedness and other liabilities of the Company's
Subsidiaries.
OPTIONAL REDEMPTION.........
The Notes are redeemable at any time at the option of
the Company, in whole or in part, at a redemption
price equal to the sum of (i) the principal amount of
the Notes being redeemed plus accrued interest
thereon to the redemption date and (ii) the
Make-Whole Amount, if any. See "Description of
Notes -- Optional Redemption."
USE OF PROCEEDS.............
The net proceeds to the Company from the Offering
will be used to repay fixed rate mortgage
indebtedness secured by certain of the Properties and
borrowings under the Credit Facility. See "Use of
Proceeds."
LIMITATION ON INCURRENCE OF
INDEBTEDNESS..............
The Notes contain various covenants, including the
following:
(1) The Company will not, and will not permit any
Subsidiary to, incur any indebtedness if, after
giving effect thereto, the aggregate principal
amount of all outstanding Indebtedness of the
Company and its Subsidiaries on a consolidated
basis is greater than 60% of the sum of (i) Total
Assets as of the end of the Company's calendar
quarter prior to the incurrence of the additional
Indebtedness and (ii) the purchase price of any
real estate assets or mortgages receivable
acquired and the amount of any securities
offering proceeds received (to the extent that
the proceeds were not used to acquire real estate
assets or mortgages receivable or used to reduce
Indebtedness), by the Company or any Subsidiary
since the end of that calendar quarter, including
those proceeds obtained in connection with the
incurrence of the additional Indebtedness (the
additional assets, together with the Total
Assets, are referred to as "Adjusted Total
Assets").
(2) The Company will not, and will not permit any
Subsidiary to, incur any indebtedness secured by
any Encumbrance upon any of the property of the
Company or any Subsidiary if, immediately after
giving effect to the incurrence of the additional
Indebtedness, the aggregate principal amount of
all outstanding Indebtedness of the Company and
its Subsidiaries on a consolidated basis which is
secured by any Encumbrance on property of the
Company or any Subsidiary is greater than 40% of
the Adjusted Total Assets.
(3) The Company will maintain Total Unencumbered
Assets of not less than 150% of the aggregate
outstanding principal amount of the Unsecured
Indebtedness of the Company and its Subsidiaries
on a consolidated basis.
(4) The Company will not, and will not permit any
Subsidiary to, incur any indebtedness if the
Consolidated Income Available for Debt Service
for the four consecutive fiscal quarters most
recently ended prior to the date of the
incurrence of the Indebtedness, on a pro forma
basis, would be less than 1.5 times the Annual
Service Charge on all indebtedness outstanding
immediately after the incurrence of the
Indebtedness.
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<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary historical information for the Company
and for the multifamily apartment communities and commercial center owned by the
Company's predecessor prior to the purchase of the apartment communities and
commercial center by the Company upon completion of the Company's initial public
offering in October 1993 (the "Original Properties and Commercial Center"). The
historical information reflects the actual operations of the Company from the
date of acquisition of the Original Properties and Commercial Center and the
operating data for the Original Properties and Commercial Center prior to the
date of their acquisition by the Company. This data should be read in
conjunction with the historical financial statements incorporated by reference
in the accompanying Prospectus and the "Selected Consolidated Financial and
Operating Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" included elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share and property data)
OPERATING DATA
Revenue:
Rental income.......................... $ 67,526 $ 53,210 $ 73,249 $ 49,316 $ 21,737 $ 15,106 $ 15,209
Other income........................... 2,308 2,427 3,080 2,581 815 375 324
----------- ----------- ----------- ----------- ------- ------- -------
Total revenue........................ 69,834 55,637 76,329 51,897 22,552 15,481 15,533
----------- ----------- ----------- ----------- ------- ------- -------
Expenses:
Property operating and maintenance
expense.............................. 20,109 15,756 21,485 14,978 6,782 5,242 4,328
Property management fees, related
party................................ -- -- -- -- 391 424 460
General and administrative............. 2,514 2,121 2,645 2,352 338 -- --
Real estate taxes...................... 3,748 2,936 4,079 2,814 1,372 980 912
Interest............................... 10,276 5,207 7,310 6,371 7,538 7,160 8,734
Interest (related party)............... -- -- -- -- 1,294 1,533 207
Interest (non-cash).................... 846 972 1,332 673 1,791 1,309 737
Depreciation and amortization.......... 11,225 8,728 12,062 8,689 4,343 3,472 3,304
----------- ----------- ----------- ----------- ------- ------- -------
Total expenses....................... 48,718 35,720 48,913 35,877 23,849 20,120 18,682
----------- ----------- ----------- ----------- ------- ------- -------
Income (loss) before extraordinary
item................................. 21,116 19,917 27,416 16,020 (1,297) (4,639) (3,149)
----------- ----------- ----------- ----------- ------- ------- -------
Less extraordinary item................ -- 1,952 1,952 -- -- -- --
----------- ----------- ----------- ----------- ------- ------- -------
Net income (loss)...................... 21,116 17,965 25,464 16,020 (1,297) (4,639) (3,149)
Less preferred dividend requirement.... 7,029 4,191 6,534 -- -- -- --
----------- ----------- ----------- ----------- ------- ------- -------
Earnings available for common stock.... $ 14,087 $ 13,774 $ 18,930 $ 16,020 $ (1,297) $ (4,639) $ (3,149)
=========== =========== =========== =========== ======= ======= =======
Weighted average common shares......... 16,237,646 16,228,069 16,230,429 12,957,175
Per share amounts:
Income before extraordinary item
(net of preferred dividend).......... $ .87 $ .97 $ 1.29 $ 1.24
Less extraordinary item................ -- .12 .12 --
----------- ----------- ----------- -----------
Earnings available per common share.... $ .87 $ .85 $ 1.17 $ 1.24
=========== =========== =========== ===========
Common dividends declared per share.... $ 1.31 $ 1.23 $ 1.64 $ 1.43
Fixed charge coverage ratio(1)(2)...... 2.85x 3.27x 3.40x 2.19x .88x .52x .67x
Ratio of earnings to debt service(3)... 2.11x 2.70x 2.67x 2.55x .86x .53x .69x
PROPERTY DATA
Total properties, at period end........ 47 42 43 38 24 15 14
Total apartment units, at period end... 13,040 11,067 11,643 9,819 5,317 2,586 2,510
Weighted average monthly rental income
per apartment unit(4)................ $ 600 $ 566 $ 570 $ 549 $ 507 $ 480 $ 510
Physical occupancy(5).................. 94% 95% 95% 95% 92% 89% 92%
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------ DECEMBER 31,
AS --------------------------------------------------------------
ADJUSTED(6) ACTUAL 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost........... $ 656,444 $ 656,444 $ 548,397 $ 434,237 $ 206,678 $ 97,238 $ 93,573
Total assets.......................... 750,528 749,686 641,936 502,432 208,789 102,116 84,455
Notes payable, secured................ 159,190 212,279 213,739 159,214 49,426 110,155 97,584
Notes payable, unsecured.............. 208,740 153,586 37,086 52,879 -- -- --
Total liabilities..................... 378,399 376,334 261,482 215,834 50,870 114,572 98,519
Stockholders' equity.................. 372,129 373,352 380,454 286,598 157,919 (12,456) (14,064)
</TABLE>
- - ---------------
(1) The fixed charge coverage ratio was computed by dividing earnings by fixed
charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus interest expense and amortization of debt
issuance costs. Fixed charges consist of interest expense, capitalized
interest and amortization of debt issuance costs.
(2) Earnings for the years ended December 1993, 1992 and 1991 were inadequate to
cover fixed charges. For those years, fixed charges exceeded earnings by
$1,328, $5,021 and $3,149, respectively.
(3) For purposes of these computations, earnings consist of income (loss) before
extraordinary charges, if any, plus debt service. Debt service consists of
interest and recurring principal amortization (excluding maturities) and
excludes amortization of debt expense and discount related to indebtedness.
(4) Excludes rental income from commercial property.
(5) Percentages represent weighted average occupancies for the stabilized
apartment communities for the periods presented. At October 20, 1996, the
Company's weighted average occupancy for the stabilized apartment
communities was 95.5%, and for all apartment communities was 94.0%.
Stabilization is deemed to occur when an apartment community attains 93%
occupancy.
(6) Adjusted to give effect to the consummation of the Offering and the
application of the estimated net proceeds from the Offering. See "Use of
Proceeds."
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<PAGE> 9
THE COMPANY
The Company is a self-administered and self-managed equity REIT and is the
largest active developer and owner of predominantly upscale apartment
communities in the greater Las Vegas metropolitan area, based on the number of
apartment units developed and owned. The Company also is active in the
development and operation of apartment communities in Denver and Reno. The
Company commenced operations as a public company in October 1993 with an initial
portfolio of 23 apartment communities containing 5,215 units and the Commercial
Center. As of October 20, 1996, the Company owned and operated 49 apartment
communities comprising a total of 13,196 apartment units (the "Properties") with
an average age of less than eight years, as well as the 30,000 square foot
Commercial Center in Henderson in which the Company's headquarters is located.
Forty-five of the apartment communities are located in the greater Las Vegas
area. As of October 20, 1996, the weighted average occupancy rate of the
Properties (including six Properties in lease-up) was 94%, and the Commercial
Center was 100% occupied. The Company occupies approximately 17,000 square feet
of the Commercial Center. The Company currently has 2,233 units under
construction, consisting of 1,011 units in Las Vegas, 772 units in Denver and
450 units in Reno, and expects to complete construction on 336 of these units by
December 31, 1996.
The Company is a fully integrated REIT, with in-house acquisition, development,
property management and finance expertise. Currently, the Company employs
approximately 590 people. The senior management team includes Robert V. Jones,
Chief Executive Officer, Scott S. Ingraham, President and Chief Operating
Officer, Allan O. Hunter, Executive Vice President - Operations, and Walter B.
Eeds, Executive Vice President - Development. The senior management team has
more than 50 years of combined experience in real estate development and
management, having developed and/or managed more than 24,500 apartment units in
California, Colorado, Florida, Nevada and Texas.
The Company has adhered to a strategy of concentrating on the acquisition,
development and management of primarily upscale apartment communities. The
Company believes it has certain competitive advantages in operating its
business, including the following:
- primarily operating in the Las Vegas market, which has had the highest
growth rate (7%) of any major metropolitan area in the United States over
the past seven years, and establishing a presence in the Denver and Reno
markets;
- the Oasis brand-name operating strategy, which has increased consumer
recognition of the Company's high operating standards and has improved
resident retention;
- an in-depth market knowledge that enables it to identify locations for
its apartment communities which provide residents with a feeling of
quality, community, security and accessibility;
- experience in obtaining necessary zoning, governmental permits and
authorizations for multifamily construction which in recent years have
become increasingly costly and complex to obtain;
- the ability to provide high quality living areas and attractive
amenities, common areas and landscaping;
- a consistent policy of regularly scheduled maintenance, which results in
lower overall operating costs and a higher quality living environment for
the Company's residents;
- a responsive management team that is service-oriented and attentive to
its residents' needs;
- economies of scale in operations, which reduce on-site and administrative
expenses; and
- ongoing training programs that enhance the performance of on-site
personnel.
The Company's executive offices are located at 4041 East Sunset Road, Henderson,
Nevada 89014. Its telephone number is (702) 435-9800.
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<PAGE> 10
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Notes are expected to
be approximately $143.6 million, assuming the Notes are sold at 100% of face
value. The Company expects to use the net proceeds to repay fixed rate mortgage
indebtedness secured by certain of the Properties and borrowings under its
unsecured Credit Facility, as follows:
<TABLE>
<CAPTION>
INDEBTEDNESS
TO BE REPAID(1) INTEREST
PROPERTY LENDER --------------------- RATE MATURITY
- - ----------------------------------- ---------------- (Dollars in millions) -------------- --------------
<S> <C> <C> <C> <C>
Oasis Heritage/Suites.............. PNC Bank $ 25.0 LIBOR + 1.00% July 1997
Oasis Place........................ PNC Bank 5.0 LIBOR + 1.00% July 1997
Oasis Paradise II.................. Allstate 9.3 7.55% July 1997
Oasis Springs...................... FNMA 8.8 9.00% April 1999
Oasis Pearl III, Oasis Reef, Oasis
Star I........................... Bankers Trust 5.6 9.75% April 1998
Unsecured Credit Facility.......... Wells Fargo Bank 89.9(2) LIBOR + 1.50% September 1997
-------
$ 143.6
===============
</TABLE>
- - ---------------
(1) See "Credit Facility and Mortgage Debt." Amounts shown represent outstanding
balances as of September 30, 1996, including prepayment penalty fees on
certain of the mortgage notes payable.
(2) $89.9 of this indebtedness was incurred in the past 12 months. The proceeds
of this indebtedness were used to fund construction of apartment communities
under development.
CAPITALIZATION
The following table sets forth the historical capitalization of the Company as
of September 30, 1996 and the capitalization of the Company as of that date as
adjusted to reflect the sale of the Notes offered hereby at the face value
thereof (the "Offering") and the application of the estimated net proceeds as
described in "Use of Proceeds." The information set forth in the following table
should be read in conjunction with the summary and selected financial
information presented elsewhere in this Prospectus Supplement, the consolidated
financial statements and notes thereto incorporated by reference into the
accompanying Prospectus and the discussion set forth in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(Dollars in thousands)
<S> <C> <C>
DEBT:
Unsecured Credit Facility.................................................. $ 153,586 $ 63,740
Mortgage notes payable..................................................... 212,279 159,190
% Notes due 2001.................................................... -- 50,000
% Notes due 2003.................................................... -- 45,000
% Notes due 2006.................................................... -- 50,000
---------- -----------
Total debt......................................................... 365,865 367,930
---------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $2.25 Series A Cumulative Convertible, $.01 par value,
liquidation preference $25 per share, 15,000,000 shares authorized,
4,165,000 shares issued and outstanding................................. 42 42
Common Stock, $.01 par value, 100,000,000 shares authorized, 16,237,646
shares issued and outstanding........................................... 162 162
Paid-in capital............................................................ 386,910 386,910
Distributions in excess of net income...................................... (13,762) (14,985)
---------- -----------
Total stockholders' equity......................................... 373,352 372,129
---------- -----------
Total capitalization............................................... $ 739,217 $ 740,059
======== ========
</TABLE>
S-10
<PAGE> 11
BUSINESS
THE COMPANY
The Company was formed in 1993 and commenced operations with an initial
portfolio of 23 apartment communities containing 5,215 units and the Commercial
Center. In 1994, the Company expanded into the Denver and Reno areas with the
purchase of 582 apartment units in Denver and the acquisition of property held
for development in Reno. At October 20, 1996, the Company owned and operated
11,996 and 1,200 apartment units in the Las Vegas and Denver areas,
respectively. Six apartment communities totalling 2,233 units are currently
under construction, consisting of 1,011 units in Las Vegas, 772 units in Denver
and 450 units in Reno.
OBJECTIVES
The Company's primary business strategy is to generate stable and increasing
cash flow and enhanced portfolio value by focusing on the upscale apartment
market. The Company has implemented this strategy principally by (i) realizing
internal growth in income from its existing portfolio of apartment communities
and (ii) pursuing external growth through the selective development and
acquisition of new apartment communities.
Brand-Name Operating Strategy. In order to take advantage of the Company's
significant presence and market leadership position in Las Vegas, the Company
implemented a customer brand-name operating strategy in 1995. The brand-name
program is designed to build customer recognition of the Company and its
apartment communities and to impart an image of distinction, quality and
consistency. All of the Company's Properties incorporate the Oasis brand-name
and all Company on-site associates wear uniforms advertising the Oasis
brand-name and logo. The Company believes the Oasis brand-name enhances the
Company's ability to attract new residents, retain existing residents, gain
additional resident referrals, and retain more residents transferring from one
Company Property to another. The Company has incorporated the same brand-name
operating strategy in Denver and Reno to develop market identity as it
establishes its presence in those cities.
Internal Growth Strategy. The Company is committed to increasing cash flow and
Funds from Operations (as defined herein) from its existing portfolio of
properties by utilizing the experience and quality of the Company's senior
management, which has developed, leased and managed in excess of 16,500
apartment units in the greater Las Vegas metropolitan area and 8,000 apartment
units in other states. The Company's operating priorities are: (i) to provide
the residents with the highest quality lifestyle apartment environment possible
in an apartment community; (ii) to emphasize a clean, pleasant living
environment by maintaining all buildings, grounds and landscaping in excellent
condition; and (iii) to attract the caliber of residents who desire to live in a
high-quality, clean apartment community with premium service at a reasonable
value.
The Company believes its strong local market presence, brand-name identity and
resident-oriented approach reduce turnover and encourage resident referrals,
resulting in higher occupancies, higher effective rents and reduced expenses.
External Growth Strategy. The Company pursues external growth by selectively
developing new apartment communities in areas where the Company has first-hand
knowledge of growth patterns and local economic conditions and generally has a
competitive advantage due to its brand-name identity, extensive experience and
reputation as a developer and access to lower cost of capital than that
available to many of its local competitors. The Company also intends to continue
its strategy of selectively acquiring apartment communities to supplement its
program of developing new properties.
In evaluating whether to develop a new property, the Company analyzes salient
geographic, demographic, economic and financial data, including the following
factors: (i) prevailing rental and occupancy rates in the area; (ii) prospective
resident income levels and the ability of those income levels to service the
property's requisite rents; (iii) the site's location and aesthetic appeal; and
(iv) the size and growth rate of the employment base in the area. In order to
provide its residents with a feeling of quality, community, security and
accessibility, the Company is extremely selective in seeking development sites
which are located in quality single-family neighborhoods having convenient
access to employment centers and plentiful amenities.
In certain circumstances, the Company also may expand its portfolio of
properties through the selective acquisition of existing apartment properties.
The Company seeks to acquire properties which are: (i) strategically located in
the
S-11
<PAGE> 12
Company's existing or target markets; (ii) capable of increased operating cash
flow after benefiting from the Company's renovation and management expertise;
(iii) priced below replacement cost, thereby enabling the Company to operate the
properties profitably at lower rents than those realized from new properties;
and (iv) able to generate returns comfortably in excess of the Company's
weighted average cost of capital.
The Company may from time to time dispose of properties if it believes the
redeployment of its property investments will enhance the quality of its
portfolio of properties.
It is also the Company's strategy to expand through acquisition and development
beyond the greater Las Vegas metropolitan area to certain target markets located
in Nevada and other western states. The Company believes these target markets
share many of the favorable investment characteristics found in the Las Vegas
area and are in sufficient proximity to allow the Company to continue to benefit
from its successful "hands-on" property management philosophy. The Company is
evaluating a possible expansion into the Southern California market, although it
currently owns no real estate in that market.
Financing Strategy. In conducting its operations and pursuing its external
growth strategy, the Company intends to maintain a conservative balance sheet to
provide the Company with the financial flexibility to choose the optimal source
of capital (whether debt or equity) with which to finance external growth. It is
the Company's policy to maintain a debt to total market capitalization ratio
(i.e., total consolidated debt of the Company as a percentage of market value of
its capital stock plus total consolidated debt) of less than 50%. For purposes
of this calculation, the Company's $2.25 Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") is valued at the greater of its
liquidation preference or the market value of the Common Stock into which it is
convertible (the Series A Preferred Stock will be valued at its liquidation
preference until the market value of the Common Stock exceeds the Series A
Preferred Stock's conversion price). If the Company had completed the Offering
on September 30, 1996 and applied the estimated net proceeds as set forth under
"Use of Proceeds," the Company would have had a pro forma debt to total market
capitalization ratio on that date of 44.5% (based on the liquidation preference
of the Series A Preferred Stock and the closing price for the Common Stock on
the NYSE on that date of $21.88).
MARKETS
Regional Growth. According to data published by the United States Bureau of
Census (the "Bureau of Census"), both population growth and household formation
within the western region of the United States in the 1990s are projected to be
substantially above national averages. The Company expects the region's economy
to improve due to such advantages as competitive wage rates, low energy rates
and moderate tax burdens. The Company believes that in addition to population
growth driven by favorable job opportunities, this region will continue to
benefit from the relocation of retirees from the rest of the country.
Overview of Las Vegas Market. The Company believes that the greater Las Vegas
apartment market provides investment returns that exceed national averages. This
favorable investment environment is due in large part to demographic trends and
the rapid and continuing growth of Las Vegas. The Company's belief in the
potential of the Las Vegas market is based on a multifamily investment
environment characterized by increasing demand and reasonable amounts of new
supply.
The Company believes that there will be a continued increase in demand for
multifamily housing due to significant growth in population and employment in
the greater Las Vegas market. According to a report from the Rosen Consulting
Group commissioned by the Company, the Las Vegas population increased 56.6% to
1,036,290 in July 1995 from 661,690 in July 1988, representing a compounded
average annual growth rate for the period of 6.6%. Between July 1994 and July
1995, the population grew 7.8%, which was the highest level of growth since
1990.
According to the Rosen Consulting Group, population growth in the greater Las
Vegas metropolitan area is projected to grow at a compounded average annual rate
of 5.6% from 1990 to 2000, in excess of five times the projected rate of growth
of 1.0% for the national population.
Las Vegas is the fastest growing metropolitan area in the United States based on
employment growth. Between March 1988 and March 1995, employment grew at an
average annual compounded growth rate of 7.0%. Employment in Las Vegas increased
by approximately 48,000 jobs during the year ended March 1996, an increase of
9.0%. According to the
S-12
<PAGE> 13
Rosen Consulting Group, the strong job growth is being propelled by all sectors,
representing a diversification of the employment base.
Las Vegas Population and Employment Growth Graphs
In addition, the Company believes the rate of new household formation in the
greater Las Vegas metropolitan area will continue to be substantially above the
national average, providing a stable demand for apartments. According to the
Bureau of Census, the number of households in the Las Vegas metropolitan area
increased at a compounded average annual rate of 5.1% between 1980 and 1990,
compared to the compounded average annual rate of 1.3% for the nation as a whole
for the same period. The Rosen Consulting Group projects continued strong growth
in the number of households. Between 1990 and 2000, the number of households in
the Las Vegas metropolitan area is expected to increase at a compounded average
annual rate of 4.6%, compared to a projected growth rate of 1.2% for the United
States.
Gaming continues to be a strong and growing business in Las Vegas. The Rosen
Consulting Group, based on data provided by the Nevada State Gaming Board,
reports that taxable gaming revenues for 1995 totaled approximately $5.7
billion. This represents a compounded average annual growth rate of
approximately 11.6% per year in taxable gaming revenues since 1970. According to
the Las Vegas Convention and Visitors Authority, approximately 800,000 persons
attended conventions in Las Vegas in 1982 and spent more than $590 million; by
1995, the number of convention attendees had increased to more than 2.9 million
and attendees spent approximately $3.4 billion. The Rosen Consulting Group also
reports that annual visitor volume for Las Vegas increased from 6.8 million
people in 1970 to 29.0 million people in 1995, while tourism and gaming revenues
rose from $10.0 billion to $19.2 billion during the same period. Between 1990
and 1995, the visitor volume increased 6.7% per year. According to the Las Vegas
Convention and Visitors Authority, the number of hotel and motel rooms in the
city of Las Vegas increased by 48% from 61,400 in 1988 to 91,000 in 1995, giving
Las Vegas the most hotel and motel rooms of any city in the United States,
including the ten largest resort hotels in the world.
The Company believes that growth in Las Vegas has been enhanced by the fact
that, in addition to being the nation's gaming capital, Las Vegas has evolved
into a major destination resort city, with broadened appeal to families and
non-gambling tourists. The success of The Mirage and The Excalibur hotels has
contributed to this expanding tourist base. Significant resorts opened in 1993,
such as the Luxor, Treasure Island and MGM Grand, are pursuing the family market
niche, thus widening the market appeal of the Las Vegas hotel and recreation
industry. Several additional hotel casinos opened in 1994 and 1995: Boomtown
Hotel & Casino, Boulder Station, the Flamingo Hilton, Rio Suites Hotel, Camino,
Inc. and Hard Rock Hotel. During 1996, several other major casino hotels and
resorts have opened, or are scheduled to open. The largest are Stratosphere,
Monte Carlo and New York-New York. The 1,500 room Stratosphere opened in April
1996 and the 3,014 room Monte Carlo resort, a joint venture of Mirage and
Circus-Circus, opened in June 1996. New York-New York, a joint venture between
MGM Grand and Primadonna Resorts, is a 2,200-room casino resort scheduled to be
completed in 1996 or 1997.
S-13
<PAGE> 14
Las Vegas Visitor Volume Growth Las Vegas Gaming Revenue Graph
The Company also believes Las Vegas will continue to benefit from its status as
the country's premier convention destination, its favorable business climate
fostered by low-regulation, low-tax state government, its sunny climate and
appeal to elderly retirees and the quality and capacity of McCarran
International Airport. Nevada's favorable business climate includes no state
corporate income tax, no state personal income tax, no state inventory tax,
property taxes which are lower than those found in certain surrounding states,
such as California, and worker's compensation and unemployment taxes which are
considerably lower than in California. In addition, Las Vegas has been the
beneficiary of the relocation of retirees from the rest of the U.S.,
particularly California. All of these factors have contributed to the increase
in demand for the Company's properties.
According to the Bureau of Census, new housing starts of multifamily properties
in the U.S. since 1991 are at their lowest levels since 1966. Multifamily starts
on a national basis were 160,000 and 258,200 units in 1993 and 1994,
respectively, compared to a ten-year high of 669,000 in 1985. Based on
statistics from the Nevada Apartment Association, there were approximately
13,900 apartment units added to the supply in 1990. The supply of new apartments
decreased annually to approximately 1,600 units in 1993. Since 1993, the number
of units added to supply has increased with approximately 1,800 units added in
1994 and approximately 5,000 units added in 1995. According to the Nevada
Apartment Association, approximately 7,000 new units will be added to supply in
1996.
GREATER LAS VEGAS (CLARK COUNTY) MULTI-FAMILY MARKET FORECAST
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(E) 1997(E)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
New Construction.................. 7,992 3,370 1,584 1,796 4,755 7,072 4,144
Net Absorption.................... 7,027 2,379 2,622 3,910 4,288 4,950 4,800
Vacancy Rate...................... 5.3% 6.1% 5.0% 2.9% 3.2% 4.8% 4.1%
Average Rental Rate............... $564 $560 $588 $595 $614 $630 $652
Rental Rate Change................ -- (.8%) 1.5% 4.7% 3.2% 2.7% 3.4%
</TABLE>
- - ---------------
Sources: CB Commercial, Center for Business & Economic Research at UNLV,
Nevada Apartment Association and the Rosen Consulting Group.
S-14
<PAGE> 15
Although new apartment supply is estimated to have caused a 1.6% increase in
market vacancy levels in 1996, the Company has not experienced as great a
decline in its average occupancy rate. In addition, Las Vegas multifamily
building permits increased to 9,500 in 1995 and according to the Rosen
Consulting Group have begun to decline to an estimated 7,500 in 1996 and are
expected to continue to decline in 1997 and 1998. The Company believes the
apartment demand generated by continuing population and job growth will
strengthen occupancy rates in the greater Las Vegas metropolitan area.
Furthermore, the Company believes its brand name and its position as a market
leader will enable it to continue generating occupancy rates higher than market
averages.
Overview of Denver Market. The Company believes that the greater Denver
metropolitan area provides a favorable investment environment due to favorable
demographic and economic trends as evidenced by the current market for rental
apartments.
According to the Denver Chamber of Commerce, between 1988 and 1995, the
population in the greater Denver metropolitan area grew at a compounded average
annual rate of 1.8%. In 1994 and 1995, Denver's population grew at annual rates
of 2.2% and 2.1%, respectively. Denver's relatively young population has
contributed to household formation growth. According to the Bureau of Census,
the number of households increased by 108,300 between 1980 and 1990,
representing a compounded average annual growth rate of 1.8%. Between 1990 and
2000, the number of households in Denver is projected by the Bureau of Census to
grow at a compounded average annual rate of 2.0%.
The greater Denver metropolitan area exhibited employment growth of 4.2% in
1995, compared to the national average of 2.0%, representing the sixth
consecutive year that employment growth in Denver exceeded the national average,
according to statistics provided by the Colorado Legislative Counsel and the
Rosen Consulting Group. The projected compounded average annual growth rate for
employment from 1994 to 1997 is 2.6% for Denver, compared to a projected growth
rate of 1.9% for the fifty largest metropolitan areas nationwide.
Denver's apartment market has strengthened significantly over the past seven
years. Similar to many markets in the western U.S., additions to the supply due
to new construction in the mid-1980's contributed to a rise in vacancy rates in
Denver in the late-1980's. The vacancy rate in Denver in 1989 was 11%. Since
1989, vacancy rates have steadily declined due to favorable economic and
demographic trends and a significantly reduced level of new construction. As of
December 31, 1995, the apartment market vacancy rate in the Denver metropolitan
area was 4.3%, according to the Denver Metro Apartment Vacancy and Rent Survey.
As vacancy rates have fallen, multifamily property owners have been able to
raise rents. Rental rates in the Denver market grew 7.4% in 1994 and 6.5% in
1995.
barchart
As of the 1990 Census, 38.4% of Denver households rented, compared to 25.8%
nationally. The Denver metropolitan area has an above-average propensity to
rent, despite the relatively high affordability of houses, due to the younger,
more mobile nature of the population. The Company believes that the relatively
high median household income in Denver combined with the above-average
propensity to rent have a positive impact on the Denver apartment market.
Overview of Reno Market. The Reno multifamily housing market, although
considerably smaller than either Las Vegas or Denver in terms of the number of
apartment units, offers an investment opportunity characterized by strong
demographic and economic conditions and a stable rental market.
S-15
<PAGE> 16
Favorable economic conditions in the Reno region have produced increases in the
population. Population growth in the Reno metropolitan area averaged 2.8% per
year during the 1980's, compared to the rate for the U.S. as a whole of just
under 1.0% per year. Reno added over 61,000 residents during the 1980s,
representing a 31.4% increase, from 194,000 residents in 1980 to 255,000
residents in 1990. Population continued to grow during the early 1990s,
averaging approximately 2% per year and increasing to 4.1% in 1995, according to
Carter-Ott Appraisal Associates. According to the Rosen Consulting Group,
population is projected to grow at a compounded average annual rate of 2.3%
during the 1990s.
According to the Rosen Consulting Group, between 1980 and 1990 the total number
of households in Reno increased by 25,090, representing a compounded average
annual growth rate of 2.9%. The total number of households is estimated to
increase by 27,257 between 1990 and 2000, or 2.4% on an average annual
compounded basis. Based upon a 1995 report by the Rosen Consulting Group,
approximately 45.8% of the households in Reno rent, a proportion significantly
higher than the national average of 35.8% at that time.
Employment growth in Reno has exceeded the national average for the past 10
years, according to the Bureau of Labor Statistics. Employment growth during the
past two years has been especially strong, increasing 5.3% in 1994 and 4.9% in
1995.
These favorable demographic and economic trends have generated a high level of
demand for apartments in the Reno market over the past several years. According
to statistics provided by the Rosen Consulting Group and Carter-Ott Appraisal
Associates, vacancy rates have declined over the past five years from 4.2% in
1991 to 2.3% in 1995. Average rental rates increased 3.8% in 1994 and 4.3% in
1995.
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<PAGE> 17
PROPERTIES
General
The Company currently owns and operates 49 Properties containing 13,196
apartment units, as well as the Commercial Center in which the Company's
headquarters is located, and has under development an additional 2,233 units.
The Properties typically consist of one-and two-story buildings in a landscaped
setting. Forty of the Properties (comprising approximately 74% of the total
units) were completed less than eight years ago. The Properties are
predominantly upscale garden apartment complexes consisting of one, two and
three bedroom apartments. Forty-three of the Properties have in excess of 100
apartment units, with the largest having 720 apartment units. As of October 20,
1996, the weighted average occupancy rate of the Properties (including six
Properties in lease-up) was 94%.
The communities generally provide residents with a variety of attractive
amenities, such as in-unit laundry facilities, oversized luxury bath tubs,
monitored security systems, swimming pools, spas and saunas, extensive
landscaping and, in certain cases, tennis courts, racquetball courts, and weight
and exercise facilities. The Properties generally are located in or adjacent to
attractive and desirable single-family residential neighborhoods and are easily
accessible to significant areas of employment.
The 30,000 square foot Commercial Center was constructed in 1989. The Company
occupies approximately 17,000 square feet of the building as its headquarters,
and the remainder is leased to third parties, consisting predominantly of
banking, professional and service businesses. As of October 20, 1996, the
Commercial Center was 100% leased, with third party tenants paying an average
annualized rent per square foot of $22.88. Aside from the Company, one tenant, a
bank, occupies more than 10% of the Commercial Center. The bank's lease expires
in May 2008 and has two five-year renewal options priced at fair market value.
The Company does not expect any of its Properties to account for 10% or more of
the book value of the Company's assets upon completion of the Offering.
S-17
<PAGE> 18
PROPERTY INFORMATION
The following table presents certain information concerning the Properties:
<TABLE>
<CAPTION>
OCTOBER 20, 1996
AVERAGE MONTHLY
APPROXIMATE AVERAGE OCCUPANCY RENTAL RATE(2)
NUMBER RENTABLE UNIT 1995 AT ------------------
OF AREA TOTAL YEAR SIZE AVERAGE OCTOBER 20, PER PER SQ.
THE COMMUNITIES UNITS (SQ. FT.) ACREAGE(1) COMPLETED (SQ. FT.) OCCUPANCY 1996 UNIT FT.
- - ----------------- ------- ------------ ----------- ---------- ---------- ---------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Las Vegas
Oasis Bay...... 128 108,032 5.6 1990 844 97.1% 100.0% $ 698 $0.83
Oasis Breeze... 320 275,920 13.3 1989 862 94.7% 94.4% 659 0.76
Oasis Canyon... 200 197,408 10.0 1995 987 91.4%(3) 93.0% 767 0.78
Oasis Cliffs... 376 351,920 18.5 1988 936 97.4% 98.1% 692 0.74
Oasis Club..... 320 286,560 14.8 1989 896 94.2% 96.6% 689 0.77
Oasis Cove..... 124 111,290 5.2 1990/96 898 98.3%(4) 99.2% 662 0.74
Oasis Del
Mar.......... 560 552,040 24.2 1995 986 --(5) 93.4% 805 0.82
Oasis
Emerald...... 132 115,180 6.2 1988 873 97.2% 95.5% 620 0.71
Oasis Glen..... 113 89,488 4.8 1994 792 94.2% 96.5% 679 0.86
Oasis Greens... 432 385,216 18.0 1990 892 97.4% 99.1% 666 0.75
Oasis
Heights...... 240 204,160 9.5 1989 851 94.8% 98.3% 618 0.73
Oasis
Heritage..... 720 678,760 45.4 1985/86/87 943 94.2% 95.1% 580 0.62
Oasis Hills.... 184 106,472 5.3 1991 579 98.4% 98.4% 481 0.83
Oasis Island... 118 106,260 5.8 1990 901 96.6% 96.6% 630 0.70
Oasis
Landing...... 144 124,752 6.4 1990 866 97.0% 93.8% 649 0.75
Oasis
Morning...... 106 53,772 2.6 1978/85 507 93.6% 94.3% 449 0.89
Oasis Orchid... 280 315,640 16.9 1989 1,127 95.1% 91.4% 717 0.64
Oasis Palms.... 208 184,272 12.7 1989 886 97.2% 96.2% 640 0.72
Oasis
Paradise..... 624 560,896 35.6 1990/91 899 95.2% 95.2% 706 0.79
Oasis Pearl.... 90 82,332 4.3 1987/89/92 915 94.4% 95.6% 665 0.73
Oasis Place.... 240 105,600 5.3 1992 440 92.7% 92.5% 453 1.03
Oasis Plaza.... 300 245,936 11.9 1976 820 96.4% 96.7% 577 0.70
Oasis Pointe... 252 249,216 12.6 1996 989 --(5) 94.4% 750 0.76
Oasis
Rainbow...... 232 202,600 12.0 1988 873 97.7% 94.0% 648 0.74
Oasis Reef..... 60 68,180 3.9 1992 1,136 95.7% 93.3% 766 0.67
Oasis Ridge.... 477 187,833 11.2 1984 394 93.2% 96.4% 441 1.12
Oasis Rose..... 212 213,888 13.3 1994 1,009 95.9% 94.8% 702 0.70
Oasis Sands.... 48 54,000 2.1 1994 1,125 95.0% 89.6% 747 0.66
Oasis
Springs...... 304 246,912 12.0 1988 812 96.6% 99.0% 601 0.74
Oasis Star..... 68 61,030 3.1 1988/91 898 91.9% 100.0% 675 0.75
Oasis Suites... 409 163,200 8.1 1988 399 95.9% 96.8% 433 1.09
Oasis Summit... 234 277,836 24.2 1994/95 1,187 93.0% 97.0% 1,015 0.85
Oasis
Terrace...... 336 334,848 15.2 1995 997 92.9% 95.5% 681 0.68
Oasis Topaz.... 270 223,268 12.6 1978 827 93.1% 96.7% 591 0.71
Oasis Trails... 360 322,956 12.3 1990 897 93.4% 93.6% 659 0.73
Oasis View..... 180 169,200 11.4 1983 940 91.9% 96.1% 625 0.66
Oasis
Vinings...... 234 269,574 11.1 1993/1994 1,152 94.6% 86.3% 740 0.64
Oasis
Vintage...... 368 366,048 17.0 1993/1994 995 95.4% 85.3% 710 0.71
Oasis Vista.... 408 363,196 30.0 1985 890 88.5% 98.5% 516 0.58
Oasis Winds.... 350 282,500 12.5 1978 807 94.0% 98.0% 570 0.71
------ --------- ----- ----- ----- ------ ----- -----
Subtotals/Wtd.
Avg........ 10,761 9,298,191 506.9 864 94.7% 95.4% 642 0.74
Denver
Oasis
Centennial... 276 205,380 9.1 1985 744 94.8%(6) 94.6% 636 0.85
Oasis Park..... 224 167,600 6.3 1985 748 93.8% 99.6% 644 0.86
Oasis
Wexford...... 358 289,968 16.9 1986 810 93.0% 97.2% 684 0.84
------ --------- ----- ----- ----- ------ ----- -----
Subtotals/Wtd.
Avg........ 858 662,948 32.3 773 93.8% 97.0% 658 0.85
Total/Wtd.
Avg........ 11,619 9,961,139 539.2 857 94.7% 95.5% $ 643 $0.75
====== ========= ===== ===== ===== ====== ===== =====
Lease-up
Las Vegas:
Oasis Bel
Air........ 296 296,512 14.3 1996 1,002 --(5) 81.1% $ 768 $0.77
Oasis
Crossings... 72 70,752 4.0 1996 983 --(5) 68.1% 750 0.76
Oasis
Meadows.... 383 397,276 20.7 1996 1,037 --(5) 83.6% 762 0.73
Oasis
Tiara...... 400 417,016 22.3 1996 1,043 --(5) 88.0% 810 0.78
Oasis
Villas..... 84 86,856 4.7 1996 1,034 --(5) 59.5% 795 0.77
------ --------- ----- ----- ----- ------ ----- -----
Denver:
Oasis
Deerwood... 342 392,876 12.6 1996 1,149 --(5) 88.6% 1,078 0.94
Lease-up
Totals/Wtd.
Avg...... 1,577 1,661,288 78.6 1,053 -- 83.3% 845 0.80
Grand
Totals/Wtd.
Avg...... 13,196 11,622,427 617.8 881 94.7% 94.0% $ 667 $0.76
====== ========= ===== ===== ===== ====== ===== =====
</TABLE>
- - ---------------
(1) Reflects gross acreage for each Property.
(2) Reflects a weighted average of current market rents for each Property.
(3) Average occupancy since stabilization.
(4) Average occupancy for the 104 unit phase I: phase II was completed and
stabilized in 1996.
(5) Under development and/or in lease-up during 1995, therefore, its occupancy
is not included in the subtotal or total.
(6) Occupancy for that portion of the year that the Property was owned by the
Company.
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<PAGE> 19
Development Information
The following table presents certain information concerning the Company's
development activities:
<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
NUMBER RENTABLE APPROXIMATE AVERAGE ANTICIPATED TOTAL
OF AREA TOTAL UNIT SIZE CONSTRUCTION CONSTRUCTION INVESTMENT
COMMUNITY UNITS (SQ. FT.) ACREAGE(1) (SQ. FT.) COMMENCEMENT COMPLETION (IN MILLIONS)(2)
- - ------------------------------ ------ ----------- ----------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under Construction
Las Vegas:
Oasis Harbor I............ 336 338,696 18.5 1,008 3rd Qtr. 1995 4th Qtr. 1996 $ 22.3
Oasis Gateway............. 360 418,680 10.0 1,163 1st Qtr. 1996 2nd Qtr. 1997 24.4
Oasis Pines............... 315 313,950 17.6 997 1st Qtr. 1996 2nd Qtr. 1997 21.6
Denver:
Oasis Denver West(3)...... 321 324,375 20.8 1,011 2nd Qtr. 1996 4th Qtr. 1997 25.9
Oasis Lakeway............. 451 425,770 28.0 944 1st Qtr. 1996 4th Qtr. 1997 35.3
Reno:
Oasis Bluffs I............ 450 501,687 50.1 1,115 2nd Qtr. 1996 2nd Qtr. 1997 37.1
----- --------- ----- ----- ------
Subtotal/weighted
average................. 2,233 2,323,158 145.0 1,040 $166.6
======
----- --------- ----- -----
Future Construction
Las Vegas:
Oasis Bluffs II........... 414 461,552 50.6 1,115 (4 ) (4)
Oasis Harbor II........... 248 250,026 13.6 1,008 (4 ) (4)
Oasis Miramar............. 352 350,112 19.6 995 (4 ) (4)
----- --------- ----- -----
Subtotal/weighted
average................. 1,014 1,061,690 83.8 1,047
----- --------- ----- -----
Total/weighted average...... 3,247 3,384,848 228.8 1,042
===== ========= ===== =====
</TABLE>
- - ---------------
(1) Reflects gross acreage for each community.
(2) Includes cost of land.
(3) Owned 50% by the Company through its member interest in Denver West
Apartments, L.L.C.
(4) In preliminary planning stage; no construction schedule has been
established. Commencement of construction is contingent upon a number of
factors, including suitable financing, and there can be no assurances as to
when or if such financing will be obtained.
The time required to complete the lease-up phase of development varies from
project to project. The Company typically develops its properties in phases,
opening a portion of the total units to occupancy at one time. The Company
begins leasing activities approximately 60 days before the first phase is opened
for occupancy, setting up a temporary leasing office at the property.
S-19
<PAGE> 20
The following table sets forth information regarding leasing stabilization of
the Company's completed developments since the Company's initial public
offering:
<TABLE>
<CAPTION>
NUMBER DATE OF STABILIZATION
PROPERTY OF UNITS COMPLETION DATE(1)
- - ------------------------------------------------------- -------- --------------- -----------------
<S> <C> <C> <C>
Oasis Summit I......................................... 78 June 1994 August 1994
Oasis Sands............................................ 48 August 1994 October 1994
Oasis Vintage II....................................... 32 August 1994 September 1994
Oasis Vinings II....................................... 132 September 1994 January 1995
Oasis Rose............................................. 212 October 1994 January 1995
Oasis Terrace.......................................... 336 February 1995 August 1995
Oasis Summit II........................................ 156 May 1995 October 1995
Oasis Canyon........................................... 200 July 1995 October 1995
Oasis Del Mar.......................................... 560 October 1995/ June 1996
December 1995
Oasis Bel Air.......................................... 296 December 1995 February 1997(2)
Oasis Pointe........................................... 252 March 1996 May 1996
Oasis Cove II.......................................... 20 June 1996 August 1996
Oasis Meadows.......................................... 383 September 1996 February 1997(2)
Oasis Deerwood......................................... 342 September 1996 February 1997(2)
Oasis Crossings........................................ 72 October 1996 February 1997(2)
Oasis Tiara............................................ 400 October 1996 February 1997(2)
Oasis Villas........................................... 84 October 1996 March 1997(2)
-----
Total................................................ 3,603
=====
</TABLE>
- - ---------------
(1) Date on which the property achieved an occupancy rate of 93%.
(2) Estimated date on which property will achieve an occupancy rate of 93%.
In order to maintain favorable tax exempt financing on two of the Properties in
the Denver market, the Company is required to comply with affordable housing
restrictions that require a certain percentage of the units at these Properties
to be leased to persons with incomes below a certain percentage of the local
median income. This obligation may impair the Company's ability to achieve
increased rental rates on portions of these Properties.
The Company has entered into a contract for the sale of Oasis Star I, a 44 unit
apartment community in Las Vegas, for a sales price of $2.7 million. The Company
anticipates that the sale of this property will close on or around December 16,
1996. In addition, the Company has executed a letter of intent for the sale of
Oasis Reef, a 60 unit apartment community in Las Vegas, for a sales price of
$3.9 million. These transactions are subject to certain contingencies and
conditions, including the buyers' due diligence, and there can be no assurance
that these transactions will be consummated on these terms or at all.
S-20
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical information for the Company
and for the Original Properties and Commercial Center. The historical
information reflects the actual operations of the Company from the date of
acquisition of the Original Properties and Commercial Center and the operating
data for the Original Properties and Commercial Center prior to the date of
their acquisition by the Company. This data should be read in conjunction with
the historical financial statements incorporated by reference in the
accompanying Prospectus and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" included elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue:
Rental income.......................... $ 67,526 $ 53,210 $ 73,249 $ 49,316 $ 21,737 $ 15,106 $ 15,209
Other income........................... 2,308 2,427 3,080 2,581 815 375 324
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue........................ 69,834 55,637 76,329 51,897 22,552 15,481 15,533
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Property operating and maintenance..... 20,109 15,756 21,485 14,978 6,782 5,242 4,328
Property management fees, related
party................................ -- -- -- -- 391 424 460
General and administrative............. 2,514 2,121 2,645 2,352 338 -- --
Real estate taxes...................... 3,748 2,936 4,079 2,814 1,372 980 912
Interest............................... 10,276 5,207 7,310 6,371 7,538 7,160 8,734
Interest (related party)............... -- -- -- -- 1,294 1,533 207
Interest (non-cash).................... 846 972 1,332 673 1,791 1,309 737
Depreciation and amortization.......... 11,225 8,728 12,062 8,689 4,343 3,472 3,304
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses....................... 48,718 35,720 48,913 35,877 23,849 20,120 18,682
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item................................. 21,116 19,917 27,416 16,020 (1,297) (4,639) (3,149)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Less extraordinary item................ -- 1,952 1,952 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...................... 21,116 17,965 25,464 16,020 (1,297) (4,639) (3,149)
Less preferred dividend requirement.... 7,029 4,191 6,534 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings available for common stock.... $ 14,087 $ 13,774 $ 18,930 $ 16,020 $ (1,297) $ (4,639) $ (3,149)
========= ========= ========= ========= ========= ========= =========
Weighted average common shares......... 16,237,646 16,228,069 16,230,429 12,957,175
Per share amounts:
Income before extraordinary item (net
of preferred dividend)............... $ .87 $ .97 $ 1.29 $ 1.24
Less extraordinary item................ -- .12 .12 --
---------- ---------- ---------- ----------
Earnings available per common share.... $ .87 $ .85 $ 1.17 $ 1.24
========= ========= ========= =========
Common dividends declared per share.... $ 1.31 $ 1.23 $ 1.64 $ 1.43
Fixed charge coverage ratio(1)(2)...... 2.85x 3.27x 3.40x 2.19x .88x .52x .67x
Ratio of earnings to debt service(3)... 2.11x 2.70x 2.67x 2.55x .86x .53x .69x
PROPERTY DATA
Total properties, at period end........ 47 42 43 38 24 15 14
Total apartment units, at period end... 13,040 11,067 11,643 9,819 5,317 2,586 2,510
Weighted average monthly rental income
per apartment unit(4)................ $ 600 $ 566 $ 570 $ 549 $ 507 $ 480 $ 510
Physical Occupancy(5).................. 94% 95% 95% 95% 92% 89% 92%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------ DECEMBER 31,
AS --------------------------------------------------------------
ADJUSTED(6) ACTUAL 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost........... $ 656,444 $ 656,444 $ 548,397 $ 434,237 $ 206,678 $ 97,238 $ 93,573
Total assets.......................... 750,528 749,686 641,936 502,432 208,789 102,116 84,455
Notes payable, secured................ 159,190 212,279 213,739 159,214 49,426 110,155 97,584
Notes payable, unsecured.............. 208,740 153,586 37,086 52,879 -- -- --
Total liabilities..................... 378,399 376,334 261,482 215,834 50,870 114,572 98,519
Stockholders' equity.................. 372,129 373,352 380,454 286,598 157,919 (12,456) (14,064)
</TABLE>
S-21
<PAGE> 22
- - ---------------
(1) The fixed charge coverage ratio was computed by dividing earnings by fixed
charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus interest expense and amortization of debt
issuance costs. Fixed charges consist of interest expense, capitalized
interest and amortization of debt issuance costs.
(2) Earnings for the years ended December 1993, 1992 and 1991 were inadequate to
cover fixed charges. For those years, fixed charges exceeded earnings by
$1,328, $5,021 and $3,149, respectively.
(3) For purposes of these computations, earnings consist of income (loss) before
extraordinary charges, if any, plus debt service. Debt service consists of
interest and recurring principal amortization (excluding maturities) and
excludes amortization of debt expense and discount related to indebtedness.
(4) Excludes rental income from commercial property.
(5) Percentages represent weighted average occupancies for the stabilized
apartment communities for the periods presented. At October 20, 1996, the
Company's weighted average occupancy for the stabilized apartment
communities was 95.5%, and for all apartment communities was 94.0%.
(6) Adjusted to give effect to the consummation of the Offering and the
application of the estimated net proceeds from the Offering. See "Use of
Proceeds."
S-22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL BACKGROUND
The following discussion should be read in conjunction with the "Selected
Consolidated Financial and Operating Data" and the consolidated financial
statements and notes thereto incorporated by reference in the accompanying
Prospectus. Oasis became an operating entity on October 22, 1993, when it
completed an initial public offering (the "Initial Offering") of its common
stock, par value $.01 per share (the "Common Stock"). In connection with the
Initial Offering, the Company acquired the Original Properties and Commercial
Center from Robert V. Jones, Corp. ("RVJ") and other affiliates, and an
additional 2,023 apartment units from third parties.
The operating data for the Company for the year ended December 31, 1993 have
been derived from the consolidated financial statements of the Company since
October 22, 1993 and the financial statements of the Original Properties and
Commercial Center through October 21, 1993. The historical financial data
includes certain financing and interest costs incurred by the Original
Properties and Commercial Center which may not be incurred by the Company,
primarily due to the reduction in debt.
On July 20, 1994, the Company completed a second public offering of 5,750,000
shares of Common Stock (including 750,000 shares issued pursuant to the
underwriters' over-allotment option). The net proceeds of the offering
(approximately $132,000,000) were used to (i) acquire five communities
containing 2,441 units for approximately $98,811,000 including the assumption of
$38,880,000 of mortgage indebtedness, (ii) effectively repay $16,067,000 of
construction loan indebtedness, and (iii) reduce the amounts drawn on the
Company's credit facilities by approximately $51,000,000. The balance of the net
proceeds were used for general corporate purposes, including other acquisitions
and development activities.
On April 12, 1995, the Company completed a public offering of 4,165,000 shares
of Series A Preferred Stock (including 165,000 shares issued pursuant to the
underwriters' over-allotment option) at $25.00 per share. The net proceeds of
the offering were approximately $99,200,000 of which $63,000,000 was used to
repay credit facility debt, $6,100,000 was used to repay short-term debt and
$23,214,000 was used to repay construction debt. The balance of the net proceeds
was used for working capital purposes.
RESULTS OF OPERATIONS
Increases in the operating results for the periods discussed below are primarily
the result of increases from period to period in the number of properties owned
and operated. Where applicable, comparisons have been made on a weighted average
per unit basis in order to adjust for these changes in the number of units
owned. In computing the weighted average per unit amounts, income and expenses
of the commercial properties have been eliminated.
Comparison of the nine months ended September 30, 1996 to the nine months ended
September 30, 1995
The weighted average number of apartment units increased by 2,074, or 20.1%,
from 10,344 units in 1995 to 12,418 units in 1996 for the nine months ended
September 30, 1996, as compared to the same period in 1995. This increase
resulted from the acquisition of 276 units in September 1995 and the development
of 1,697 units since the end of September 1995. The total number of units
operated as of September 30, 1996 and 1995 were 13,040 and 11,067, respectively.
For the nine months ended September 30, 1996, net income increased by
$3,151,000, or 17.5%, as compared to the nine months ended September 30, 1995.
When examining income on an income before extraordinary charge basis, income for
the nine months ended September 30, 1996 increased by $1,199,000 over the nine
months ended September 30, 1995. This increase was due to increased rental
income of $14,316,000 and a decrease in interest expense (non cash), which
represents amortization of loan fees and costs of $126,000. Offsetting these
factors were a decrease in other income of $119,000 and increases in property
operating and maintenance expenses of $4,353,000, general and administrative
expenses of $393,000, real estate taxes of $812,000, interest expense of
$5,069,000, and depreciation and other amortization of $2,497,000. These
increases were primarily the result of operating a greater number of apartment
units during the nine months ended September 30, 1996 as compared to the same
period in 1995. The increase in interest
S-23
<PAGE> 24
expense was primarily a result of higher borrowings which were used to fund
capital improvements at the multifamily apartment communities.
Property Operations: The following table presents the Company's results of
operations for its multifamily apartment communities (excluding commercial
property and corporate, general and administrative expenses) for the nine months
ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 % CHANGE
------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Rental income........................................................ $67,039 $52,714 27%
Other income......................................................... 2,129 1,854 15%
------- ------- --------
Total income....................................................... 69,168 54,568 27%
------- ------- --------
Property operating and maintenance................................... 19,995 15,664 28%
Real estate taxes.................................................... 3,716 2,903 28%
Depreciation and amortization........................................ 10,981 8,560 28%
------- ------- --------
Total expenses, excluding interest................................. 34,692 27,127 28%
------- ------- --------
Property net income, before interest................................. $34,476 $27,441 26%
======= ======= =======
</TABLE>
Rental income increased by $14,325,000, or 27%, from $67,039,000 in 1995 to
$52,714,000 in 1996. Of the increase, $1,341,000 was attributable to acquisition
communities, $14,749,000 was attributable to development communities and the
balance was attributable to increased rents of communities owned during both
periods. The weighted average monthly rental income per apartment unit was
approximately $600 in 1996 compared to $566 in 1995.
Other income (consisting primarily of nonrefundable security deposits, laundry
and vending income) increased by $275,000, or 15%, from $1,854,000 to
$2,129,000, primarily due to the operation of additional apartment communities
in 1996 as compared to 1995.
Property operating and maintenance expenses increased by $4,331,000, or 28%. On
a weighted average per unit basis, these expenses increased by $96, or 6%, from
$1,514 in 1995 to $1,610 in 1996. Of the $4,331,000 increase, $454,000 was
attributable to acquisitions, $3,397,000 was attributable to development
communities and the balance was attributable to communities owned during both
periods. These increases are primarily attributable to additional costs
associated with the Company's implementation of its brand name operating
strategy, as well as general increases in utility rates during 1996.
Real estate taxes increased by $813,000, or 28%, primarily due to the
acquisition and development of additional apartment communities in 1996 and
during the fourth quarter of 1995. On a weighted average per unit basis, real
estate taxes increased by $18, or 6%, from $281 in 1995 to $299 in 1996. These
increases are due to increases in property taxes at certain properties for the
tax year commencing July 1, 1996. In Nevada, properties are assessed at their
value as of July 1 of each year and, therefore, properties that are under
development as of that date are not assessed on their full value until July 1 of
the following year.
Depreciation and amortization increased by $2,421,000, or 28%, from $8,560,000
in 1995 to $10,981,000 in 1996, primarily due to the additional communities
acquired and developed subsequent to September 30, 1995.
S-24
<PAGE> 25
"Same store" portfolio: The following table presents a comparison of the
operating results for the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995 for the properties that the Company
owned as of December 31, 1994, consisting of 38 apartment communities containing
9,819 apartment units:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 % CHANGE
------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Total income......................................................... $52,291 $51,545 1.0%
------- ------- --------
Properties operating and maintenance................................. 15,211 14,731 3.0%
Real estate taxes.................................................... 2,948 2,811 5.0%
------- ------- --------
Total property expenses............................................ 18,159 17,542 4.0%
------- ------- --------
Property net income, before interest expenses........................ $34,132 $34,003 0.4%
======= ======= =======
</TABLE>
The increase in total income of $746,000, or 1%, was primarily due to increases
in average rental rates.
The increase in property operating and maintenance expenses of $480,000, or 3%,
is due to increased marketing expenses of $28,000, increased payroll costs of
$190,000, increased utilities of $325,000 and an increase in other operating
expenses of $106,000 which were partially offset by a decrease in repairs and
maintenance of $169,000.
Real estate taxes increased by $137,000, or 5%, from $2,811,000 in 1995 to
$2,948,000 in 1996, primarily due to the re-appraisal of certain communities by
the taxing authorities.
Development communities: The following table presents the operating results of
the communities that have been developed by the Company since December 31, 1994.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
------- ------
(Dollars in
thousands)
<S> <C> <C>
Total income................................................................... $15,389 $2,938
------- ------
Real estate taxes.............................................................. 659 86
Marketing...................................................................... 466 65
Salaries and related costs..................................................... 1,737 384
Utilities...................................................................... 888 222
Repairs and maintenance........................................................ 691 141
Other operating expenses....................................................... 530 103
------- ------
Total operating and maintenance expenses.................................. 4,971 1,001
------- ------
Property operating income.................................................... $10,418 $1,937
======= ======
Weighted average number of apartment units................................ 2,323 249
======= ======
</TABLE>
S-25
<PAGE> 26
Acquisition communities: The following table presents the operating results of
Oasis Centennial, the one community that was acquired by the Company in
September 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------ ----
(Dollars in
thousands)
<S> <C> <C>
Total income................................................................... $1,488 $ 85
------ ----
Real estate taxes.............................................................. 109 6
Marketing...................................................................... 41 2
Salaries and related costs..................................................... 177 4
Utilities...................................................................... 108 5
Repairs and maintenance........................................................ 63 3
Other operating expenses....................................................... 83 4
------ ----
Total operating and maintenance expenses....................................... 581 24
------ ----
Property operating income.................................................... $ 907 $ 61
====== ====
Number of apartment units.................................................... 276 276
====== ====
</TABLE>
Comparison of year ended December 31, 1995 to year ended December 31, 1994
The weighted average number of apartment units increased by 3,194, or 43%, from
7,416 units in 1994 to 10,610 units in 1995. This increase is primarily the
result of the development of 1,548 units and the acquisition of 276 units during
1995, as well as the acquisition of 3,136 units during the second half of 1994.
Total units owned at the end of each period were 11,643 and 9,819, respectively.
For the year ended December 31, 1995, income before extraordinary item increased
by $11,396,000, or 71%, as compared to the year ended December 31, 1994. This
increase was due to increased rental and other income of $23,933,000 and
$499,000, respectively. Offsetting these factors were increases in property
operating and maintenance expenses of $6,507,000, general and administrative
expenses of $293,000, real estate taxes of $1,265,000, interest expense of
$939,000, interest expense (non-cash), which represents amortization of loan
fees and costs, of $659,000, and depreciation and other amortization of
$3,373,000. These increases were primarily the result of operating a greater
number of apartment units in 1995 as compared to 1994.
In September 1995, the Company closed on a new two year revolving line of credit
and retired two lines of credit that were previously outstanding. In connection
with the retirement of these lines of credit, the Company wrote-off $1,952,000
of loan fees and costs that remained unamortized as of the date of retirement.
S-26
<PAGE> 27
Property Operations: The following table presents the operations of the
Company's apartment communities (excluding the commercial properties and
corporate general and administrative expenses) for the year ended December 31,
1995 with comparative amounts for 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 % CHANGE
------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Rental income........................................................ $72,595 $48,881 49%
Other income......................................................... 2,388 1,794 33%
------- ------- --------
Total income....................................................... 74,983 50,675 48%
------- ------- --------
Property operating and maintenance................................... 21,356 14,898 43%
Real estate taxes.................................................... 4,038 2,781 45%
Depreciation and amortization........................................ 11,825 8,517 39%
------- ------- --------
Total property expenses............................................ 37,219 26,196 42%
------- ------- --------
Property net income, before interest expense....................... $37,764 $24,479 54%
======= ======= =======
</TABLE>
Rental income increased by $23,714,000, or 49%, from $48,881,000 in 1994 to
$72,595,000 in 1995. Of the increase, $14,081,000 was attributable to
acquisition communities, $8,730,000 was attributable to development communities
and the balance was attributable to increased rents of communities owned during
both periods. The weighted average monthly rental income per apartment unit was
approximately $570 in 1995 compared to $549 in 1994.
Other income (consisting primarily of nonrefundable security deposits, laundry
and vending income) increased by $594,000, or 33%, from $1,794,000 to
$2,388,000, primarily due to the operation of additional apartment communities
in 1995 as compared to 1994.
Property operating and maintenance expenses increased by $6,458,000, or 43%. On
a weighted average per unit basis, these expenses increased by $4, or less than
1%, from $2,009 in 1994 to $2,013 in 1995. Of the $6,458,000 increase,
$4,217,000 was attributable to acquisitions, $2,083,000 was attributable to
development communities and the balance was attributable to communities owned
during both periods.
Real estate taxes increased by $1,257,000, or 45%, primarily due to the
acquisition and development of additional apartment communities in 1995 and
during the second half of 1994. On a weighted average per unit basis, real
estate taxes increased by $6, or 2%, from $375 in 1994 to $381 in 1995. This
increase is primarily due to the reassessment of certain of the Company's
communities. Nevada law requires the taxing authorities to re-assess
approximately twenty percent of all properties each year. Accordingly, each of
the Company's Properties will be reappraised for tax purposes approximately once
every five years. The Company continually monitors the re-appraisal process and
challenges those re-appraisals that appear to be unwarranted.
Depreciation and amortization increased by $3,308,000, or 39%, from $8,517,000
in 1994 to $11,825,000 in 1995, primarily due to the additional communities
acquired and developed in 1995 and 1994.
S-27
<PAGE> 28
"Same store" portfolio: The following summarized financial information presents
a comparison of 24 operating apartment communities, containing 5,317 units that
the Company owned as of January 1, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 % CHANGE
------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Total income......................................................... $37,435 $35,938 4%
------- ------- --------
Property operating and maintenance................................... 10,665 10,507 2%
Real estate taxes.................................................... 2,103 2,031 4%
Depreciation and amortization........................................ 6,000 5,877 2%
------- ------- --------
Total property expenses............................................ $18,768 $18,415 2%
------- ------- --------
Property net income, before interest expense....................... $18,667 $17,523 7%
======= ======= =======
</TABLE>
The increase in total income of $1,497,000, or 4%, was primarily due to
increases in average rental rates.
The increase in property operating and maintenance expenses of $158,000, or 2%,
was due to increased payroll costs of $92,000, increased repairs and maintenance
of $116,000 which were partially offset by decreases in marketing expenses of
$43,000, utilities of $5,000 and other operating expenses of $2,000.
Real estate taxes increased by $72,000, or 4%, from $2,031,000 in 1994 to
$2,103,000 in 1995, primarily due to the re-appraisal of certain communities by
the taxing authorities.
The increase in depreciation and amortization from 1994 to 1995 of $123,000, or
2%, is primarily due to depreciation on additions to the assets at the
respective communities.
Comparison of year ended December 31, 1994 to year ended December 31, 1993
The weighted average number of apartment units increased by 3,915 units, or
112%, from 3,501 units in 1993 to 7,416 units in 1994 as a result of acquisition
of 4,000 units and the development of 502 units during 1994. Total units owned
at the end of each period were 5,317 and 9,819, respectively.
Rental income from apartment communities increased by $27,579,000 or 127%, from
$21,737,000 to $49,316,000. The weighted average monthly rental income per
apartment unit was approximately $554 in 1994 compared to $517 in 1993. This
increase in average monthly rental income is due to higher occupancies and
increased average rents during 1994.
Other income increased by $1,766,000, or 217%, from $815,000 in 1993 to
$2,581,000 in 1994, primarily due to the additional apartment units acquired and
developed during the second half of 1994 and interest earned on short-term
investments. Interest income increased by $477,000 as a result of higher cash
balances available for investment subsequent to the Initial Offering.
Property operating and maintenance expenses increased by $8,196,000, or 121%. On
a per unit basis these expenses increased by $83, or 4%, from $1,937 in 1993 to
$2,020 in 1994. Of the $8,196,000 increase, $3,956,000 was attributable to
acquisitions of new communities during 1994 and $434,000 was attributable to new
communities developed during 1994. The balance was attributable to a full year
of operating and maintenance expenses in 1994 compared to expenses for the
portion of 1993 during which the communities were owned by the Company.
Property management fees were eliminated subsequent to the Initial Offering to
reflect the self-administered format of the Company.
Real estate taxes increased by $1,442,000 or 105%, primarily due to the
additional apartment communities operated during 1994. On a per unit basis, real
estate taxes decreased from $392 in 1993 to $379 in 1994, due to the difference
between the time a community is completed and when it is added to the tax rolls.
In 1994, a higher percentage of the Company's real estate taxes was attributable
to communities under development than in 1993.
Interest expense decreased by approximately $3,579,000, or 34%, primarily due to
the repayment of mortgage indebtedness in October 1993 from the proceeds of the
Initial Offering.
S-28
<PAGE> 29
Depreciation and amortization increased by $4,346,000, or 100%, from $4,343,000
to $8,689,000, primarily due to operating additional properties in 1994 as
compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, net cash provided by operating
activities increased by $3,070,000 from $29,657,000 in 1995 to $32,727,000 in
1996, primarily due to increases in the rental income from additional Properties
acquired and developed subsequent to September 30, 1995 and a reduction in
deferred costs and other assets, which were partially offset by a reduction in
accounts payable and accrued expenses.
Net cash used in investing activities increased by $14,365,000 from $107,528,000
in the nine months ended September 30, 1995 to $121,893,000 in the nine months
ended September 30, 1996. During the nine months ended September 30, 1996, the
Company had 13 properties under construction, containing 3,786 apartment units,
of which 1,197 units were completed. The estimated total investment upon
completion in the remaining 2,589 units is approximately $178,975,000.
The Company funds its development activities through a combination of working
capital, construction loans and credit facility debt. On September 24, 1996, the
Company increased the borrowing capacity on the Credit Facility from
$150,000,000 to $200,000,000. Advances under the Credit Facility continue to
bear interest, at the Company's election, at either LIBOR plus 1.50% or the
prime lending rate. At September 30, 1996, the Company had available $15,890,000
in a construction loan and borrowing capacity under the credit facility of
$46,414,000. In addition, the Company, in connection with its 50% member
interest in Denver West Apartments, LLC, secured a commitment for $15,430,000 in
construction and permanent financing. This loan closed on November 8, 1996.
Net cash provided by financing activities increased by $15,069,000 in the nine
months ended September 30, 1996 as compared to the nine months ended September
30, 1995 primarily as a result of lower debt retirement in 1996 as compared to
1995, partially offset by the issuance of Series A Preferred Stock in April
1995, and an increase in dividends paid during 1996 as compared to 1995 as a
result of the preferred stock issuance.
The Company anticipates meeting its short-term liquidity requirements through a
combination of cash flow retained for investment purposes, cash available from
its Credit Facility and construction loans plus additional long-term borrowings.
The Company believes that its net cash provided by operations will be adequate
to meet its operating requirements and to pay dividends in accordance with REIT
requirements.
The Company expects to meet its long-term liquidity requirements, such as funds
acquisition and development and the repayment of mortgage debt, through new
long-term borrowings, the issuance of debt securities or additional equity
securities of the Company.
S-29
<PAGE> 30
The following table presents certain information concerning the development and
expansion activities of the Company during 1996:
<TABLE>
<CAPTION>
COST PRIMARY SOURCE OF FUNDING
ESTIMATED EXPENDED --------------------------------
NUMBER TOTAL THROUGH CONSTRUCTION WORKING CAPITAL/
COMMUNITIES OF UNITS INVESTMENT(1) 9/30/96(1) LOAN CREDIT FACILITY
- - ---------------------------------------- -------- ------------- ---------- ------------ ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Completed developments/expansions
Oasis Cove II......................... 20 $ 1,250 $ 1,250 $ $ 1,250
Oasis Deerwood........................ 342 28,400 28,400 28,400
Oasis Meadows......................... 383 24,300 24,300 24,300
Oasis Pointe.......................... 252 16,900 16,900 16,900
Oasis Tiara I......................... 200 13,825 13,825 13,825
----- -------- -------- ------- --------
Subtotal........................... 1,197 84,675 84,675 84,675
Under construction
Oasis Bluffs I........................ 450 37,100 22,757 37,100
Oasis Crossings(2).................... 72 5,150 4,992 5,150
Oasis Gateway......................... 360 24,400 19,205 24,400
Oasis Harbor 1........................ 336 22,300 22,148 22,300
Oasis Denver West(3).................. 321 12,950 7,695 7,715 5,235
Oasis Lakeway......................... 451 35,300 16,081 35,300
Oasis Pines........................... 315 21,600 17,739 21,600
Oasis Tiara II(2)..................... 200 13,825 13,797 13,825
Oasis Villas(2)....................... 84 6,350 6,112 6,350
----- -------- -------- ------- --------
Subtotal........................... 2,589 178,975 130,526 7,715 171,260
Land held for future developments
Oasis Bluffs II....................... 414 5,353(4)
Oasis Harbor II....................... 248 5,090(4)
Oasis Miramar......................... 352 3,667(4)
----- -------- -------- ------- --------
Subtotal........................... 1,014 14,110
Total......................... 4,800 $ 263,650 $229,311 $ 7,715 $255,935
===== ======== ======== ======= ========
</TABLE>
- - ---------------
(1) Includes cost of land.
(2) Completed in October 1996.
(3) Owned 50% by the Company through its member interest in Denver West
Apartments, L.L.C.; dollar amounts shown represent the Company's 50%
interest only.
(4) Represents cost of land and infrastructure.
S-30
<PAGE> 31
The following table sets forth certain information with respect to notes payable
at September 30, 1996. As of that date, the Company had 5,853 apartment units
and the Commercial Center unencumbered:
<TABLE>
<CAPTION>
NUMBER BALANCE
ENCUMBERED OF INTEREST SEPTEMBER 30,
LENDER PROPERTIES UNITS MATURITY RATE 1996
- - --------------------------- ---------------------- ------ -------- ------------- -------------
(Dollars in
thousands)
<S> <C> <C> <C> <C> <C>
Credit Facility debt
Wells Fargo Bank......... Unsecured 09/97(1) LIBOR + 1.50%(2) $ 153,586
Fixed rate mortgages
Allstate................. Oasis Paradise II 256 07/97 7.55% 9,191
Bankers Trust............ Oasis Pearl III 16 04/98 9.75% 591
Bankers Trust............ Oasis Reef 60 04/98 9.75% 2,675
Bankers Trust............ Oasis Star I 44 04/98 9.75% 1,998
Lutheran Brotherhood..... Oasis Club 320 10/98 6.90% 9,088
FNMA..................... Oasis Springs 304 04/99 9.00% 8,632
FNMA-MBS................. Oasis Greens 432 08/01 8.63% 12,000
FNMA-MBS................. Oasis Plaza 300 08/01 8.63% 6,000
FNMA..................... Oasis Topaz 270 12/01 9.50% 6,562
Teachers Insurance....... Oasis Del Mar 560 12/02 8.46% 21,799
FNMA..................... Oasis Hills 184 10/03 7.50% 2,637
FNMA..................... Oasis Landing 144 10/03 7.50% 3,978
FNMA..................... Oasis Rainbow 232 10/03 7.50% 6,402
FNMA..................... Oasis Vintage I 336 10/03 7.50% 10,977
Teachers Insurance....... Various(3) 1,068 12/05 8.13% 40,110
Allstate................. Oasis Paradise I 368 04/08 7.10% 15,881
------
4,894 $ 158,521
------
Mortgages with fixed rate
ceiling
PNC Bank................. Oasis Place 240 07/97 LIBOR + 1.00%(4) $ 5,000
PNC Bank................. Oasis Heritage/Suites 1,129 07/97(5) LIBOR + 1.00%(4) 25,000
------
1,369 $ 30,000
------
Fixed rate tax exempt
Bonds.................... Oasis Park 224 01/26 7.29% $ 7,688(6)
Bonds.................... Oasis Wexford 358 11/25 6.45% 16,067
------
582 $ 23,755
------
Construction loans
Bank One................. Oasis Deerwood 342 06/00 LIBOR + 1.65% $ 3
------
Total............ 7,187 $ 365,865
======
</TABLE>
- - ---------------
(1) The Company has the option to extend the maturity of the facility for one
additional year.
(2) Beginning July 26, 1996, the rate on the Credit Facility debt was reduced to
LIBOR + 1.50% from LIBOR + 1.75%.
(3) Communities collateralized are Oasis Bel Air, Oasis Canyon, Oasis Rose, and
Oasis Trails.
(4) The maximum interest rate on these mortgages is 7.75%.
(5) The Company has the option to extend the maturity of the indebtedness for
two additional years.
(6) $1,090 of the outstanding balance is taxable.
S-31
<PAGE> 32
The following table sets forth certain information with respect to unencumbered
properties at September 30, 1996:
<TABLE>
<CAPTION>
NUMBER APPROXIMATE
UNENCUMBERED COMMUNITIES OF UNITS INVESTMENT
- - ------------------------------------------------------------------------------- -------- -----------
(Dollars in thousands)
<S> <C> <C>
Operating properties........................................................... 5,853 $ 285,689
Development properties......................................................... 1,912 97,930
----- --------
Total................................................................ 7,765 $ 383,619
===== ========
</TABLE>
INFLATION
The Company leases apartments to its residents under lease terms generally
ranging from six to 12 months. Management believes that the short-term lease
contracts lessen the impact of inflation by giving the Company the ability to
adjust rental rates to market levels as leases expire. The impact of recent low
rates of inflation has not been significant to the Company's operations, except
for the positive effect that low inflation has had on reducing the Company's
interest cost. Inflation and inflationary expectations and their effect on
interest rates may affect the Company in the future by changing the underlying
value of the Company's real estate or by affecting the Company's costs of
financing its operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 121 "Accounting for Long Lived Assets" and No. 123
"Accounting for Stock-Based Compensation." These statements are effective for
financial statements for fiscal years beginning after December 15, 1995.
Management believes that adoption of Standard No. 121 will not have a material
effect on its financial position or results of operations. Management intends to
adopt the disclosure method of Standard No. 123 and, accordingly, there will be
no impact on the Company's financial position or results of operations.
CALCULATION OF FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR DISTRIBUTION
The Company considers Funds from Operations to be an appropriate measure of
performance of an equity REIT. Funds from Operations, as defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), means income (loss)
before gains (losses) on investments and extraordinary items adjusted for
certain non-cash items, primarily depreciation and amortization. In March 1995,
NAREIT issued a new definition of Funds from Operations (referred to below as
"adjusted funds from operations") which is defined as income before gains
(losses) on investments and extraordinary items (computed in accordance with
generally accepted accounting principles) plus real estate depreciation and
after adjustments for significant non-recurring items, if any. This new
definition of Funds from Operations is effective for periods ending after
December 31, 1995. Funds Available for Distribution is defined as Funds from
Operations less non-revenue producing capital expenditures and amortization
payments of mortgage loan principal. The Company believes that to facilitate a
clear understanding of the Company's operating results, Funds from Operations
and Funds Available for Distribution should be examined in conjunction with net
income, and should not be considered as alternatives to net income as an
indication of the Company's operating performance or as alternatives to cash
flow as a measure of liquidity.
S-32
<PAGE> 33
The following table presents a calculation of Funds From Operations and Funds
Available for Distribution for the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1996 1995
---------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Income(1)................................................. $21,116 $17,965
Depreciation:
Real estate assets.......................................... 11,080 8,624
Extraordinary Item............................................ -- 1,952
------- -------
FUNDS FROM OPERATIONS.................................... $32,196 $28,541
------- -------
Add:
Amortization of deferred financing costs(2)................. $ 846 $972
Depreciation of non-real estate assets...................... 135 92
Other amortization(3)....................................... 10 12
------- -------
991 1,076
------- -------
$33,187 29,617
Non-revenue producing capital expenditures(4)(5)............ (2,379) (1,140)
------- -------
FUNDS AVAILABLE FOR DISTRIBUTION......................... $30,808 $28,477
======= =======
</TABLE>
- - ---------------
(1) The Company expenses all recurring non-revenue generating property
expenditures, including carpet and appliance replacements, except for
certain expenditures on acquisition properties where major improvements are
required to bring the property up to the operating standards of the Oasis
portfolio.
(2) Amortization of deferred financing costs consists primarily of fees and
costs incurred in connection with the Company's indebtedness.
(3) Other amortization consists of amortization of corporate organization
expenses.
(4) Non-revenue producing expenditures at the properties consist of improvements
and equipment additions that do not enhance the revenue producing
capabilities of the properties.
(5) Non-revenue producing expenditures at the corporate office consist primarily
of computer and office equipment acquisitions.
S-33
<PAGE> 34
CREDIT FACILITY AND MORTGAGE DEBT
CREDIT FACILITY DEBT
In 1995, the Company entered into the Credit Facility, which as amended is a
$200 million unsecured line of credit from Wells Fargo Bank. The Company uses
the Credit Facility to finance its external growth plan of developing and
acquiring multifamily apartment communities and also may use the Credit Facility
to finance renovation or for working capital at its discretion, subject to the
bank's standard underwriting requirements for which the Company is prequalified.
The Credit Facility provides for a maturity date of September 1997, and bears
interest for advances, at the Company's election, of either LIBOR plus 1.50% or
the prime lending rate. The Company has an option to extend the Credit Facility
for one additional year.
The Credit Facility contains certain representations, covenants and events of
default, the most restrictive of which limits the borrowing capacity of the
Company to 50% of "Gross Asset Value," as defined, and restrict distributions to
shareholders of 95% of funds from operations, as defined in the Credit Facility.
MORTGAGE DEBT
Upon completion of the Offering and application of the estimated net proceeds,
the Company will have mortgage debt totalling $159.2 million, bearing a weighted
average interest cost of 7.8% and having a weighted average maturity of 7 years.
TAX EXEMPT BONDS
In 1994, in connection with the acquisition of Oasis Wexford in Colorado, the
Company assumed tax exempt housing bonds in the principal amount of $17.8
million. The bonds were reissued in November 1995 for $16 million, and are
payable in monthly installments of approximately $102,000 including interest at
an annual rate of 6.45%. The interest rate is subject to "reset" on December 1,
2005 based upon market conditions at that time. The bonds are due November 1,
2025.
In December 1995, the Company reissued $6.6 million (Series 1995A) of tax exempt
housing bonds and $1.1 million (Series 1995B) of taxable housing bonds
collateralized by Oasis Park. The bonds are payable in monthly installments of
$53,000 including interest at an annual rate of 7.29%. The Series 1995A bonds
are due January 1, 2026 and the Series 1995B are due July 1, 2006.
CONSTRUCTION LOAN DEBT
The Company currently has one construction loan with Bank One for $15.8 million
which is secured by Oasis Deerwood, is payable in monthly installments including
interest at an annual rate of LIBOR plus 1.65% and matures in June 2000. Denver
West Apartments, L.L.C., in which the Company has a 50% member interest, has a
construction loan with Northwestern Mutual Life for $15.4 million which is
secured by Oasis Denver West, is payable in monthly installments including
interest at an annual rate of 8.30% and matures in August 2007.
S-34
<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the Directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert V. Jones 48 Chairman of the Board of Directors and Chief Executive Officer
Scott S. Ingraham 42 President, Chief Operating Officer and Director
Allan O. Hunter, Jr. 41 Executive Vice President, Operations, Secretary and Director
Walter B. Eeds 51 Executive Vice President and Director
Jack W. Pattee, Jr. 52 Senior Vice President, Construction Management
John M. Clayton 42 Senior Vice President, Finance, Chief Financial Officer, Assistant
Secretary
Gina A. Ellsworth 42 Vice President, Operations
Marianne K. Aguiar 30 Vice President, Controller and Treasurer
Paul M. Buss 33 Vice President, Human Resources
John M. Galvin 64 Director
Kenny C. Guinn 60 Director
Edward R. Muller 44 Director
Peter L. Rhein 55 Director
Robert H. Smith 61 Director
</TABLE>
Robert V. Jones. Mr. Jones became Chairman of the Board of Directors, President
and Chief Executive Officer of the Company in March 1993. Effective June 1,
1994, he resigned as President, while retaining his positions as Chairman of the
Board and Chief Executive Officer. He has developed, owned and operated
multifamily apartment communities in the Las Vegas market since 1976. In 1984,
Mr. Jones formed RVJ, which until 1993, engaged primarily in the development of
multifamily apartment communities and which thereafter engaged in developing and
selling single family homes, townhomes and condominiums. Mr. Jones has served as
RVJ's President, Chairman of the Board and sole owner since its formation.
Effective November 1, 1996, RVJ's residential development operations were
assumed by The Robert Jones Company, a corporation of which Mr. Jones is the
sole owner and Chairman of the Board, but not an officer.
Scott S. Ingraham. Mr. Ingraham serves as President, Chief Operating Officer
and a Director of the Company. He became President effective June 1, 1994, and
Chief Operating Officer effective March 1, 1996, and served as Chief Financial
Officer from March 1993 to March 1996. He also served as Executive Vice
President and Secretary of the Company from March 1993 to June 1994 and August
1994, respectively. Mr. Ingraham was employed by RVJ from 1992 to 1993. Prior to
his employment with RVJ, he was a Managing Director and partner at Post Oak
Partners, a real estate finance/consulting firm founded by Mr. Ingraham and
others in 1982.
Allan O. Hunter, Jr. Mr. Hunter serves as Executive Vice President Operations,
Secretary and a Director of the Company. He has served as Executive Vice
President since March 1993 and as Secretary since August 1994. He served as
Treasurer from March 1993 to June 1994. Mr. Hunter was employed by RVJ from 1992
to 1993. Prior to his employment with RVJ, he was a Managing Director and
partner at Post Oak Partners.
Walter B. Eeds. Mr. Eeds serves as Executive Vice President of the Company, a
position he has held since November 1, 1994. He also served as a member of the
Board of Directors from January 1995 to March 1995. In January, 1996, Mr. Eeds
was elected to serve a two-year term until 1998 as a Director. From 1978 to
1994, Mr. Eeds was the principal, President and Chief Executive Officer of The
Greystone Group, Inc., which developed multifamily apartment communities, and
Greystone Asset Management, Inc., which managed multifamily apartment
communities.
Jack W. Pattee, Jr. Mr. Pattee serves as Senior Vice President, Construction
Management of the Company. He has worked with Mr. Jones in the construction of
multifamily housing since 1978. He was employed by RVJ from 1984 to 1994, and by
American Construction Management from February 1994 to February 1995, at which
time he joined the Company.
S-35
<PAGE> 36
John M. Clayton. Mr. Clayton serves as Senior Vice President Finance and Chief
Financial Officer. He became Vice President Finance effective January 1, 1996,
and became Chief Financial Officer effective March 1, 1996. From 1986 to 1994,
Mr. Clayton was Controller of Barratt American and from 1994 to 1995, Mr.
Clayton served as Chief Financial Officer of Metalclad, Inc.
Gina A. Ellsworth. Ms. Ellsworth serves as Vice President Operations. From 1993
to 1995, Ms. Ellsworth served as Vice President of Prudential California
Realty/International Records. From 1990 to 1995, she was President and co-owner
of Contact Development Corporation International.
Marianne K. Aguiar. Ms. Aguiar serves as Vice President, Controller and
Treasurer of the Company. She has been employed by the Company since June 1966
and has served as Vice President, Controller and Treasurer since July 1996. From
November 1995 until May 1996, Ms. Aguiar was employed by SBT Accounting Systems
where from April 1996 to June 1996, she served as acting Vice President of
Finance and Controller and from November 1995 to April 1996 she served as
Assistant Controller. From November 1992 to November 1995, Ms. Aguiar was
employed by Coopers & Lybrand L.L.P. where from July 1994 to November 1995 she
served as Audit Manager and from November 1992 to July 1994 she served as Senior
Associate. Ms. Aguiar also served as Financial Accounting Consultant for Wells
Fargo Bank from April 1992 to November 1992 and as Senior Associate for Coopers
& Lybrand L.L.P. from January 1991 to April 1992.
Paul M. Buss. Mr. Buss serves as Vice President, Human Resources of the
Company. He has held this position since January 1996. From January 1995 to
January 1996, Mr. Buss served as Project Manager of Disney Ice, a subsidiary of
The Walt Disney Company. From 1990 until 1995, Mr. Buss was employed by Disney
Development Co., where he served as Manager, Human Resources from 1992 until
1995 and as Senior Human Resources Representative from 1990 until 1992.
John M. Galvin. Mr. Galvin serves as a Director of the Company. He is currently
President of The Galvin Company, which manages private investments and renders
business advisory services, and serves as a member of the Board of Directors of
Global Marine, Inc., Commercial Intertech and TMS Technologies, Inc. From 1987
until 1992, he served as Vice Chairman, Chief Financial Officer and a Director
of The Irvine Company, a real estate and development company.
Kenny C. Guinn. Mr. Guinn serves as a Director of the Company. He has served as
Chairman of the Board of Directors of PriMerit Bank since 1987 and as Chairman
of the Board of Directors of Southwest Gas Corporation since 1988. He also
serves on the Board of Directors of Boyd Gaming, Inc. and Del Webb, Inc. He
previously served as President of the University of Nevada, Las Vegas, from May
1994 to May 1995 and as Chief Executive Officer of Southwest Gas Corporation
from 1988 to his retirement in 1993. He also served as Chairman of the Board of
Directors of the Metropolitan Police Fiscal Office Commission and as Chairman of
the Board of Trustees of the University of Nevada, Las Vegas Foundation.
Edward R. Muller. Mr. Muller serves as a Director of the Company. He has served
as President and Chief Executive Officer of Edison Mission Energy since 1993,
and is a Director of Whittaker Corporation. From 1989 to 1993, he served as Vice
President, Secretary and General Counsel of Whittaker Corporation. From 1989 to
1992, he served as Chief Administrative Officer of Whittaker Corporation, and
from 1992 to 1993 he served as Chief Financial Officer. From 1991 to 1993, he
served as Vice President, Secretary and General Counsel of BioWhittaker, Inc.
Peter L. Rhein. Mr. Rhein serves as a Director of the Company. He has been a
General Partner of Sarlot and Rhein, a real estate investment and development
partnership, since 1967. From 1970 until May 1984, Mr. Rhein was employed by
Wells Fargo Realty Advisors where from July 1981 to May 1984 he served as
Executive Vice President and from August 1977 to July 1981 he served as Senior
Vice President-Finance. He was also Vice President, Treasurer and Chief
Financial Officer of Wells Fargo Mortgage and Equity Trust, a real estate
investment trust, from 1976 until May 1984. Mr. Rhein is a Director of Health
Care Property Investors, Inc.
Robert H. Smith. Mr. Smith serves as a Director of the Company. He has served
as Managing Director of Smith & Crowley, Inc., an investment banking firm
specializing in California banking, since 1993 and served as its Chief Executive
Officer from 1993 to September 1996. From 1991 until April 1992, he served as
Chairman of the Board of Directors and Chief Executive Officer of Security
Pacific Corporation and Chairman of the Board of Directors of Security Pacific
National Bank. He then served as the President and Chief Operating officer of
BankAmerica and a member of its Board of Directors until his departure in
October 1992. He is currently a Director of Edison International, JG Boswell
Company, Pinkerton, Inc. and Marine National Bank.
S-36
<PAGE> 37
DESCRIPTION OF NOTES
(The following description of the particular terms of the Notes offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the "Senior Securities" set forth in the
accompanying Prospectus under "Description of Debt Securities," to which
reference is hereby made.)
The 2001 Notes, the 2003 Notes and the 2006 Notes each constitute a separate
series of Senior Securities (which is more fully described in the accompanying
Prospectus) to be issued under an Indenture, dated as of , 1996 and
a Supplemental Indenture dated as of , 1996, (collectively, the
"Indenture") between the Company and State Street Bank and Trust Company of
California, N.A. (the "Trustee"). The Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus Supplement is part and is
available for inspection at the corporate trust office of the Trustee at 725 S.
Figueroa, Suite 3100, Los Angeles, California 90017. The Indenture is subject
to, and governed by, the Trust Indenture Act of 1939, as amended (the "TIA").
The statements made hereunder relating to the Indenture and the Notes to be
issued thereunder are summaries of certain provisions thereof, do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and the Notes. Capitalized terms used but
not defined herein shall have the respective meanings set forth in the
Indenture.
GENERAL
The 2001 Notes will be limited to an aggregate principal amount of $50,000,000,
the 2003 Notes will be limited to an aggregate principal amount of $45,000,000
and the 2006 Notes will be limited to an aggregate principal amount of
$50,000,000. The Notes will be direct, senior unsecured obligations of the
Company and will rank equally with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding. The Notes will be
effectively subordinated to mortgages and other secured indebtedness of the
Company and to indebtedness and other liabilities of the Company's Subsidiaries.
Accordingly, this prior indebtedness will have to be satisfied in full before
holders of the Notes will be able to realize any value from encumbered
properties or properties held by Subsidiaries.
As of September 30, 1996, on a pro forma basis after giving effect to the
Offering and the application of the proceeds therefrom as described under "Use
of Proceeds," the Company would have had approximately $367.9 million of
indebtedness, of which approximately $159.2 million would have been secured by
18 of the properties. The Company may incur additional indebtedness, including
secured indebtedness, subject to the provisions described below under "Certain
Covenants -- Limitations on Incurrence of Indebtedness."
The Notes will only be issued in fully registered form in denomination of $1,000
and integral multiples thereof.
PRINCIPAL AND INTEREST
The 2001 Notes will bear interest at % per annum and will mature on
, 2001; the 2003 Notes will bear interest at % per annum and
will mature on , 2003; and the 2006 Notes will bear interest at %
per annum and will mature on , 2006. The Notes will bear interest from
, 1996 or from the immediately preceding Interest Payment Date (as
defined below) to which interest has been paid, payable semi-annually in arrears
on and of each year, commencing on , 1997
(each, an "Interest Payment Date"), to the persons in whose name the applicable
Notes are registered in the Security Register on the preceding or
(whether or not a Business Day, as defined below), as the case may
be (each, a "Regular Record Date"). Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or Stated Maturity falls on a day that is not a
Business Day, the required payment shall be made on the next Business Day as if
it were made on the date the payment was due and no interest shall accrue on the
amount so payable for the period from and after the Interest Payment Date or the
Maturity Date, as the case may be. "Business Day" mean any day, other than a
Saturday or Sunday, on which banks in the City of New York are not required or
authorized by law or executive order to close.
The principal of and interest on the Notes will be payable at the corporate
trust office of State Street Bank and Trust Company of California, N.A. (the
"Paying Agent") in the City of New York, initially located at 61 Broadway, New
York, New York 10006, 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 Security Register or by wire transfer of funds to
that Person at an account maintained within the United States.
S-37
<PAGE> 38
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Company, in whole or
in part, at a redemption price equal to the sum of (i) the principal amount of
the Notes being redeemed plus accrued interest thereon to the redemption date
and (ii) the Make-Whole Amount, if any, with respect to those Notes (the
"Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been made available on
the redemption date referred to in the notice, the Notes will cease to bear
interest on the date fixed for the redemption specified in the notice and the
only right of the Holders of the Notes will be to receive payment of the
Redemption Price.
Notice of any optional redemption of any Notes will be given to Holders at their
addresses, as shown in the Security Register, not more than 60 nor less than 30
days prior to the date fixed for redemption. The notice of redemption will
specify, among other items, the Redemption Price and the principal amount of the
Notes held by the Holder to be redeemed.
If less than all the Notes are to be redeemed at the option of the Company, the
Company will notify the Trustee at least 45 days prior to the giving of the
notice of redemption to the Holders of the Notes (or such shorter period as is
satisfactory to the Trustee) of the aggregate principal amount of Notes to be
redeemed and their redemption date. The Trustee shall select, in such manner as
it shall deem fair and appropriate, Notes to be redeemed in part. Notes may be
redeemed, in part, in the minimum authorized denomination for Notes or in any
integral multiple thereof.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note, the excess, if any, of (i) the aggregate
present value as of the date of the redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of the dollar if the redemption or accelerated
payment had not been made, determined by discounting, on a semi-annual basis,
the principal and interest at the Reinvestment Rate (determined on the third
Business Day preceding the date the notice of Redemption is given or declaration
of acceleration is made) from the respective dates on which the principal and
interest would have been payable if the redemption or accelerated payment had
not been made, over (ii) the aggregate principal amount of the Notes being
redeemed or paid.
"Reinvestment Rate" means .25% (twenty-five one hundredths of one percent) plus
the arithmetic mean of the yields under the respective headings "This Week" and
"Last Week" published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity of the Notes, as of the payment
date of the principal being redeemed or paid. If no maturity exactly corresponds
to that maturity, yields for the two published maturities most closely
corresponding to that maturity shall be calculated pursuant to the immediately
preceding sentence and the Reinvestment Rate shall be interpolated or
extrapolated from those yields on a straight-line basis, rounding in each of the
relevant periods to the nearest month. For purposes of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)" or
any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities or, if the statistical release is not
published at the time of any determination under the Indenture, then such other
reasonably comparable index which shall be designated by the Company.
CERTAIN COVENANTS
Limitations on Incurrence of Indebtedness. The Company will not, and will not
permit any Subsidiary to, incur any Indebtedness (as defined below) if,
immediately after giving effect to the incurrence of that additional
Indebtedness and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Indebtedness of the Company and its
Subsidiaries on a consolidated basis determined in accordance with GAAP is
greater than 60% of the sum of (without duplication) (i) the Total Assets (as
defined below) of the Company and its Subsidiaries as of the end of the calendar
quarter covered in the Company's Annual Report on Form 10-K or Quarterly Report
on Form 10-Q, as the case may be, most recently filed with the Commission (or,
if the filing is not permitted under the Exchange Act, with the Trustee) prior
to the incurrence of the additional Indebtedness and (ii) the purchase price of
any real estate assets or
S-38
<PAGE> 39
mortgages receivable acquired and the amount of any securities offering proceeds
received (to the extent that the proceeds were not used to acquire real estate
assets or mortgages receivable or used to reduce Indebtedness), by the Company
or any Subsidiary since the end of the calendar quarter, including those
proceeds obtained in connection with the incurrence of the additional
Indebtedness.
In addition to the foregoing limitation on the incurrence of Indebtedness, the
Company will not, and will not permit any Subsidiary to, incur any Indebtedness
secured by any Encumbrance upon any of the property of the Company or any
Subsidiary if, immediately after giving effect to the incurrence of the
additional Indebtedness and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Indebtedness of the Company and
its Subsidiaries on a consolidated basis which is secured by any Encumbrance on
property of the Company or any Subsidiary is greater than 40% of the sum of
(without duplication) (i) the Total Assets of the Company and its Subsidiaries
as of the end of the calendar quarter covered in the Company's Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently
filed with the Commission (or, if the filing is not permitted under the Exchange
Act, with the Trustee) prior to the incurrence of the additional Indebtedness
and (ii) the purchase price of any real estate assets or mortgages receivable
acquired and the amount of any securities offering proceeds received (to the
extent that the proceeds were not used to acquire real estate assets or
mortgages receivable or used to reduce Indebtedness), by the Company or any
Subsidiary since the end of the calendar quarter, including those proceeds
obtained in connection with the incurrence of the additional Indebtedness.
The Company and its Subsidiaries may not at any time own Total Unencumbered
Assets (as defined below) equal to less than 150% of the aggregate outstanding
principal amount of the Unsecured Indebtedness of the Company and its
Subsidiaries on a consolidated basis.
In addition to the foregoing limitations on the incurrence of Indebtedness, the
Company will not, and will not permit any Subsidiary to, incur any Indebtedness
if the ratio of Consolidated Income Available for Debt Service (as defined
below) to the Annual Service Charge (as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which the additional
Indebtedness is to be incurred shall have been less than 1.5:1 on a pro forma
basis after giving effect thereto and to the application of the proceeds
therefrom, and calculated on the assumption that (i) the Indebtedness and any
other Indebtedness incurred by the Company and its Subsidiaries since the first
day of the four-quarter period and the application of the proceeds therefrom,
including to refinance other Indebtedness, had occurred at the beginning of the
period; (ii) the repayment or retirement of any other Indebtedness by the
Company and its Subsidiaries since the first day of the four-quarter period had
been repaid or retired at the beginning of that period (except that, in making
the computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of the Indebtedness
during that period); (iii) in the case of Acquired Indebtedness (as defined
below) or Indebtedness incurred in connection with any acquisition since the
first day of the four-quarter period, the related acquisition had occurred as of
the first day of the period with the appropriate adjustments with respect to the
acquisition being included in the pro forma calculation; and (iv) in the case of
any acquisition or disposition by the Company or its Subsidiaries of any asset
or group of assets since the first day of the four-quarter period, whether by
merger, stock purchase or sale, or asset purchase or sale, the acquisition or
disposition and any related repayment of Indebtedness had occurred as of the
first day of the period with the appropriate adjustments with respect to the
acquisition or disposition being included in the pro forma calculation.
As used herein, and in the Indenture:
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time the Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from the Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, the
Person becoming a Subsidiary or that acquisition. Acquired Indebtedness
shall be deemed to be incurred on the date of the related acquisition of
assets from any Person or the date the acquired Person becomes a
Subsidiary.
"Annual Service Charge" for any period means the aggregate interest expense
for the period in respect of, and the amortization during the period of any
original issue discount of, Indebtedness of the Company and its
Subsidiaries and the amount of dividends which are payable during the
period in respect of any Disqualified Stock.
S-39
<PAGE> 40
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of the Person and any rights
(other than debt securities convertible into or exchangeable for corporate
stock), warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations (as defined below) of the Company and its
Subsidiaries plus amounts which have been deducted, and minus amounts which
have been added, for the following (without duplication): (i) interest
expense on Indebtedness of the Company and its Subsidiaries, (ii) provision
for taxes of the Company and its Subsidiaries based on income, (iii)
amortization of debt discount, (iv) provisions for gains and losses on
properties and property depreciation and amortization, (v) the effect of
any noncash charge resulting from a change in accounting principles in
determining Earnings from Operations for the period and (vi) amortization
of deferred charges.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of the Person which by the terms of that Capital Stock (or by the terms of
any security into which it is convertible or for which it is exchangeable
or exercisable), upon the happening of any event or otherwise (i) matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise (other than Capital Stock which is redeemable solely in exchange
for common stock), (ii) is convertible into or exchangeable or exercisable
for Indebtedness or Disqualified Stock or (iii) is redeemable at the option
of the holder thereof, in whole or in part (other than Capital Stock which
is redeemable solely in exchange for Capital Stock which is not
Disqualified Stock or the redemption price of which may, at the option of
that Person, be paid in Capital Stock which is not Disqualified Stock), in
each case on or prior to the Stated Maturity of the Notes.
"Earnings from Operations" for any period means net earnings excluding
gains and losses on sales of investments, extraordinary items, and property
valuation losses, net, as reflected in the financial statements of the
Company and its Subsidiaries for the period determined on a consolidated
basis in accordance with GAAP.
"Encumbrance" means any mortgage, lien, charge, pledge or security interest
of any kind.
"Indebtedness" of the Company or any Subsidiary means any indebtedness of
the Company or any Subsidiary, whether or not contingent, in respect of (i)
borrowed money or evidenced by bonds, notes, debentures or similar
instruments whether or not the indebtedness is secured by any Encumbrance
existing on property owned by the Company or any subsidiary, (ii)
indebtedness for borrowed money secured by any Encumbrance existing on
property owned by the Company or any Subsidiary, (iii) the reimbursement
obligations, contingent or otherwise, in connection with any letters of
credit actually issued or amounts representing the balance deferred and
unpaid of the purchase price of any property or services, except any such
balance that constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention
agreement, (iv) the amount of all obligations of the Company or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock, (v) any lease of property by the Company or any
Subsidiary as lessee which is reflected on the Company's consolidated
balance sheet as a capitalized lease in accordance with GAAP (vi) interest
rate swaps, caps or similar agreements and foreign exchange contracts,
currency swaps, or similar agreements, to the extent, in the case of items
of indebtedness under (i) through (iii) above, that any such items (other
than letters of credit) would appear as a liability on the Company's
consolidated balance sheet in accordance with GAAP, and also includes, to
the extent not otherwise included, any obligation by the Company or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business),
Indebtedness of another Person (other than the Company or any Subsidiary)
(it being understood that Indebtedness shall be deemed to be incurred by
the Company or any Subsidiary whenever the Company or the Subsidiary shall
create, assume, guarantee or otherwise become liable in respect thereof).
"Subsidiary" means a corporation a majority of the outstanding voting power
of voting stock of which is owned, 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 normally having voting power
for the election of directors.
"Total Assets" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Company and its Subsidiaries
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).
S-40
<PAGE> 41
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance for borrowed money and (ii) all
other assets of the Company and its Subsidiaries not subject to an
Encumbrance for borrowed money determined in accordance with GAAP (but
excluding accounts receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and
its Subsidiaries on that date, before depreciation and amortization
determined on a consolidated basis in accordance with GAAP.
"Unsecured Indebtedness" means Indebtedness which is not secured by any
Encumbrance upon any of the properties of the Company or any Subsidiary.
See "Description of Debt Securities--Certain Covenants" in the accompanying
Prospectus for a description of additional covenants applicable to the Company.
EVENTS OF DEFAULT
The Indenture provides that the following events are "Events of Default" with
respect to the Notes: (a) default for 30 days in the payment of any installment
of interest on any Notes; (b) default in the payment of the principal of (or
premium or Make-Whole Amount, if any, on) any Notes when due and payable; (c)
default in making any sinking fund payment required by the Notes; (d) default in
the performance, or breach, of any other covenant or warranty of the Company
contained in the Indenture with respect to the Notes, continued for 60 days
after written notice as provided in the Indenture; (e) default under any bond,
debenture, note, or other evidence of indebtedness for money borrowed by the
Company or any of its Subsidiaries (including obligations under leases required
to be capitalized on the balance sheet of the lessee under GAAP), in an
aggregate principal amount in excess of $10,000,000, or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
of its Subsidiaries (including the leases) in an aggregate principal amount in
excess of $10,000,000, whether the indebtedness now exists or shall hereafter be
created, which default shall have resulted in the indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, or the obligations being accelerated, without the
acceleration having been rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary or for all or
substantially all of the property of the Company or any Significant Subsidiary;
and (g) the entry by a court of competent jurisdiction of one or more judgments,
orders or decrees against the Company or any of its Subsidiaries in an aggregate
amount (excluding amounts fully covered by insurance) in excess of $10,000,000
and the judgments, orders or decrees remain undischarged, unstayed and
unsatisfied in an aggregate amount (excluding amounts fully covered by
insurance) in excess of $10,000,000 for a period of 30 consecutive days. The
Term "Significant Subsidiary" has the meaning ascribed to the term in Regulation
S-X promulgated under the Securities Act.
If an Event of Default specified in clause (f) above, relating to the Company or
any Significant Subsidiary occurs, the principal amount of all outstanding Notes
shall become due and payable without any declaration or other act on the part of
the Trustee of the Holders.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of Debt
Securities--Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus, will apply to the Notes. Each of the covenants described under
"--Certain Covenants" herein and "Description of Debt Securities--Certain
Covenants" in the accompanying Prospectus will be subject to covenant
defeasance.
BOOK-ENTRY SYSTEM
The provisions described under "Description of Debt Securities--Book-Entry
System" in the accompanying prospectus will apply to the Notes.
DTC has advised the Company of the following information regarding DTC: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking
S-41
<PAGE> 42
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among its Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in its Participants' accounts, thereby eliminating the need
for physical movement of securities certificates. Direct Participants of DTC
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations, and certain other organizations. DTC is
owned by a number of its direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct Participant of DTC,
either directly, or indirectly. The rules applicable to DTC and its participants
are on file with the Commission.
GOVERNING LAW
The Indenture will be governed by and shall be construed in accordance with the
laws of the State of New York.
S-42
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions in the Underwriting Agreement dated the date
hereof (the "Underwriting Agreement"), the Company has agreed to sell to each of
the Underwriters named below (the "Underwriters"), and each of the Underwriters
has severally agreed to purchase, the respective principal amount of Notes set
forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTES
-------------------------
---------------------------------------
2001 NOTES 2003 NOTES 2006 NOTES
----------- ----------- -----------
<S> <C> <C> <C>
UNDERWRITER
J.P. Morgan Securities Inc. ................................... $ $ $
Goldman, Sachs & Co............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
PaineWebber Incorporated.......................................
----------- ----------- -----------
Total..................................................... $50,000,000 $45,000,000 $50,000,000
=========== =========== ===========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
will be obligated to purchase all of the Notes if any are purchased.
The Underwriters have advised the Company that they propose initially to offer
the Notes directly to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at that price
less a concession not in excess of % of the principal amount of the 2001
Notes, % of the principal amount of the 2003 Notes and % of the principal
amount of the 2006 Notes. The Underwriters may allow, and the dealers may
reallow, a concession not in excess of % of the principal amount of the 2001
Notes, % of the principal amount of the 2003 Notes or % of the 2006 Notes to
certain other dealers. After the initial public offering, the public offering
price and the concession may be changed.
The 2001 Notes, the 2003 Notes and the 2006 Notes are each a new issue of
securities with no established trading market. The Company has been advised by
the Underwriters that the Underwriters intend to make a market in the Notes but
are not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
In the ordinary course of their respective business, affiliates of Underwriters
have engaged, or may in the future engage, in commercial banking and investment
banking transactions with the Company.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Latham & Watkins,
Costa Mesa, California, and Streich Lang, Las Vegas, Nevada. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York.
S-43
<PAGE> 44
PROSPECTUS
- - ----------------------
Oasis Residential, Inc. (the "Company") may offer from time to time in one or
more series (i) unsecured debt securities (the "Debt Securities"), (ii) shares
of common stock, par value $.01 per share (the "Common Stock"), (iii) shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), or (iv)
warrants or other rights to purchase Common Stock or Preferred Stock (the
"Warrants"), with an aggregate public offering price of up to $250,000,000 on
terms to be determined at the time of offering. The Debt Securities, Common
Stock, Preferred Stock and Warrants (collectively, the "Securities") may be
offered separately or together, in separate series, in amounts, at prices and on
terms to be set forth in one or more supplement to this Prospectus (each, a
"Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms of
redemption at the option of the Company or repayment at the option of the
holder, terms for sinking fund payments, terms for conversion into Common Stock,
Preferred Stock or other Company securities, additional covenants, and any
initial public offering price; (ii) in the case of Common Stock, any initial
public offering price; (iii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; (iv)
in the case of Warrants, the duration, offering price, exercise price and
detachability. 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 will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered by the Company directly to one or more purchasers,
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 the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable 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.
------------------------
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.
$250,000,000
OASIS RESIDENTIAL,
INC.
Debt Securities
Common Stock
Preferred Stock
Warrants
<PAGE> 45
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS IS MARCH 28, 1995.
<PAGE> 46
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of the contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities offered hereby, reference is hereby
made to the Registration Statement and the exhibits and schedules to the
Registration Statement which may be obtained from the Commission at its
principal office in Washington, D.C., upon payment of fees prescribed by the
Commission.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Commission. The reports, proxy and information statements and other
information and the Registration Statement and the exhibits and financial
statement schedules thereto filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at 13th Floor, 7 World Trade
Center, New York, New York 10048, and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials can be obtained by mail
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
reports, proxy and information statements and other information can also be
inspected at the offices of the New York Stock Exchange (the "NYSE"), 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994; (ii) the Company's Current Report on Form 8-K/A filed May 16, 1994;
and (iii) the Company's Current Report on Form 8-K filed March 21, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents.
Any statement contained herein or in a document incorporated herein by reference
or deemed to be incorporated herein by reference shall be deemed to be modified
or superseded for purposes of the Registration Statement and this Prospectus to
the extent that a statement contained in the Registration Statement or in the
Prospectus (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is 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.
Copies of all documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates), will be
provided without charge to each person, including any beneficial owner, to whom
a copy of this Prospectus is delivered, upon written request of that person.
Requests for such copies should be directed to Rhona H. Cameron, Shareholder
Relations, Oasis Residential, Inc., 4041 East Sunset Road, Henderson, Nevada
89014.
2
<PAGE> 47
THE COMPANY
The Company is the largest active developer and owner of multifamily apartment
communities in the greater Las Vegas, Nevada, metropolitan area, based on the
number of apartment units developed or owned. The Company is a self-administered
and self-managed equity real estate investment trust (a "REIT"). The Company
owns and operates a portfolio of multifamily apartment communities (the
"Properties") comprising more than 10,000 apartment units, as well as a 30,000
square foot commercial center in which the Company's headquarters is located. In
addition, the Company is actively involved in developing additional multifamily
apartment properties.
The Company is a fully-integrated real estate company, with in-house
development, acquisition, leasing, property management and finance expertise.
The Company was formed in 1993 to continue and expand the multifamily apartment
operations of Robert V. Jones, Corp. and certain of its affiliates. The Company
commenced operations as a public company in October 1993 with an initial
portfolio of 23 of the Properties containing 5,215 units and the commercial
center. The management team is led by Robert Jones, the Chairman and Chief
Executive Officer of the Company, who has developed, owned, operated and
acquired multifamily apartment communities in the Las Vegas area through a
variety of market cycles since 1976. In addition, the Company has expanded its
operations beyond the greater Las Vegas metropolitan area into the Denver,
Colorado and Reno, Nevada markets.
The Company and its predecessors have adhered to a strategy of concentrating in
one specialty: the development, acquisition and management of apartment
communities. The Company believes it has certain competitive advantages in
operating its business, including the following:
- - - an in-depth market knowledge, enabling it to identify the appropriate
locations for its apartment communities which provide residents with a feeling
of quality, community, security and accessibility;
- - - experience in obtaining necessary zoning, governmental permits and
authorizations for multifamily construction, which in recent years have become
increasingly costly and complex to obtain;
- - - the ability to deliver high quality construction and attractive amenities,
common areas and landscaping through control over product design, product
quality and the overall aesthetics of each community's living environment;
- - - a consistent policy of preventing deferred maintenance, which results in lower
operating costs and a higher quality living environment for the Company's
residents;
- - - responsive management which has developed a reputation for being
service-oriented and attentive to its residents' needs;
- - - economies of scale in operations, which reduce both on-site and administrative
expenses, as a result of owning and operating a large portfolio of apartment
properties; and
- - - a well trained property management team as a result of the Company's
continuing training program, which enhances the performance of on-site
personnel.
The Company's primary business objective is to increase funds available for
distribution per share, enabling the Company to pay higher dividends per share
while maintaining a low payout ratio and thus enhancing share value. The Company
pursues this objective by emphasizing specific internal and external growth
strategies. The Company pursues its internal growth plan by seeking to increase
occupancies and effective rents while reducing resident turnover, controlling
operating expenses and attempting to maximize resident satisfaction through
"hands-on" property management. Senior management of the Company is actively
involved in the daily operations of the Properties, making personal visits to
each of the Properties on a regular basis. The Company pursues its external
growth plan by designing, developing, constructing and leasing, on a timely and
cost-effective basis, attractive apartment communities with substantial
amenities in carefully chosen locations. The Company also intends to continue
its strategy of selectively acquiring apartment properties as a supplement to
its development activities.
The Company's executive offices are located at 4041 East Sunset Road, Henderson,
Nevada 89014. Its telephone number is (702) 435-9800. The Company is a Nevada
corporation which was formed on March 23, 1993.
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<PAGE> 48
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the Company
intends to use the net proceeds from the sale of Securities for general
corporate purposes, which may include the acquisition of land parcels, the
development of new apartment properties, the acquisition of existing apartment
properties, the repayment of indebtedness or the renovation of properties
already in the Company's portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of earnings to
fixed charges for the period shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................ 2.19x .88x .52x .67x .56x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs. To date, the Company has
not issued any Preferred Stock; therefore, the ratios of earnings to combined
fixed charges and preferred stock dividend requirements are the same as the
ratios of earnings to fixed charges presented above.
DESCRIPTION OF DEBT SECURITIES
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, each dated as of a date prior to the issuance of the
Debt Securities to which it relates. Senior Securities and Subordinated
Securities may be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same Trustee, and in the
form that has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, subject to such amendments or supplements as may be
adopted from time to time. The Senior Indenture and the Subordinated Indenture,
as amended or supplemented from time to time, are sometimes hereinafter referred
to collectively as the "Indentures." The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made under this heading relating to the Debt Securities and the
Indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are qualified in their entirety by reference to the
Indentures and the Debt Securities and the applicable Prospectus Supplement.
Capitalized terms used herein and not defined shall have the meanings assigned
to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The indebtedness
represented by the 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." The particular terms of the Debt Securities
offered by a Prospectus Supplement and any applicable federal income tax
considerations will be described in the applicable Prospectus Supplement, along
with any applicable modifications of or additions to the general terms of the
Debt Securities as described herein and in the applicable Indenture.
Accordingly, for a description of the terms of any series of Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and
the description of the Debt Securities set forth in this Prospectus.
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<PAGE> 49
Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time by the Company or as set forth in the
applicable Indenture or in one or more indentures supplemental to the applicable
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 the series, for issuance of additional
Debt Securities of the series.
Each Indenture will provide that the Company may, but need not, designate more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities and a successor Trustee may be
appointed to act with respect to the series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each 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 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 following summaries set forth certain general terms and provisions of the
Indentures and the Debt Securities. The Prospectus Supplement relating to the
series of Debt Securities being offered will contain further terms of such Debt
Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities are
Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount) 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, or (if applicable) the
portion of the principal amount of such Debt Securities that is convertible
into Common Stock or Preferred Stock, or the method by which any such
portion shall be determined;
(4) If convertible, the terms on which the Debt Securities are convertible,
including the initial conversion price or rate and the conversion period
and, in connection with the preservation of the Company's status as a REIT,
any applicable limitations on the ownership or transferability of the
Common Stock or Preferred Stock receivable on conversion;
(5) The date or dates, or the method for determining the date or dates, on
which the principal of the Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by which
the rate or rates shall be determined, at which the Debt Securities will
bear interest, if any;
(7) The date or dates, or the method for determining the date or dates, from
which any interest will accrue, the dates on which any interest will be
payable, the record dates for the interest payment dates, or the method by
which the dates shall be determined, the persons to whom the 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 the Debt Securities will be payable, where the 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
the Debt Securities and the applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices at which
and the other terms and conditions upon which the Debt Securities may,
pursuant to any optional or mandatory redemption provisions, be redeemed,
as a whole or in part, at the option of the Company, if the Company is to
have such an option;
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<PAGE> 50
(10) The obligation, if any, of the Company to redeem, repay or purchase the
Debt Securities pursuant to any sinking fund or analogous provision or at
the option of a holder thereof, and the period or periods within which, the
price or prices at which and the other terms and conditions upon which the
Debt Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to the obligation;
(11) If other than U.S. dollars, the currency or currencies in which the 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 the 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 the amounts
shall be determined;
(13) Whether the Debt Securities will be issued in certificated or book-entry
form and, if so, the identity of the depository for the Debt Securities;
(14) Whether the 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;
(15) The applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable Indenture, or
any modification thereof;
(16) Whether and under what circumstances the Company will pay any additional
amounts on the Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem the Debt Securities in lieu of making the payment;
(17) Any deletions from, modifications of or additions to the events of default
or covenants of the Company, to the extent different from those described
herein or set forth in the applicable Indenture with respect to the Debt
Securities, and any change in the right of any Trustee or any of the
holders to declare the principal amount of any of the Debt Securities due
and payable; and
(18) Any other terms of the Debt Securities not inconsistent with the provisions
of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities may
be issued at a discount below their principal amount and provide for less than
the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
these cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
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 Common Stock and Preferred Stock are designed to preserve its status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"Restrictions on Transfers of Capital Stock." 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.
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.
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<PAGE> 51
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 applicable
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 the Debt Securities or by wire transfer
of funds to that person at an account maintained within the United States.
Subject to certain limitations imposed upon Debt Securities issued in book-entry
form, the Debt Securities of any series will be exchangeable for any authorized
denomination of other Debt Securities of the same series and of a like aggregate
principal amount and tenor upon surrender of the Debt Securities at the
corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for that purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for conversion or
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent designated by the
Company for that purpose. Every Debt Security surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of the transfer agent or approve a change in the location
through which the transfer agent acts, except that the Company will be required
to maintain a transfer agent in each place of payment for the series. The
Company may at any time designate additional transfer agents with respect to any
series of Debt Securities.
Neither the Company nor any Trustee shall be required (i) to issue, register the
transfer of or exchange Debt Securities of any series during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any Debt Securities that may be selected for redemption and ending
at the close of business on the day of such mailing; (ii) to register the
transfer of or exchange any Debt Security, or portion thereof, so selected for
redemption, in whole or in part, except the unredeemed portion of any Debt
Security being redeemed in part; or (iii) to issue, register the transfer of or
exchange any Debt Security that has been surrendered for repayment at the option
of the holder, except the portion, if any, of the Debt Security not to be so
repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of the
holders of any outstanding Debt Securities, consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any consolidation or merger or which shall have received the
transfer of the assets is organized under the laws of any domestic jurisdiction
and assumes the Company's obligations to pay 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 the 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 the subsidiary at the
time of the transaction, no event of default under the Indentures, and no event
which, after notice or the lapse of time, or both, would become an event of
default, shall have occurred and be continuing; and (c) an officers' certificate
and legal opinion covering these conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "--Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence,
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<PAGE> 52
rights (by articles of incorporation, by-laws and statute) and franchises;
provided, however, that the Company shall not be required to preserve any right
or franchise if its Board of Directors determines that the preservation thereof
is no longer desirable in the conduct of its business.
Maintenance of Properties. The Indentures will require the Company 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; provided, however, that the Company and its subsidiaries
shall not be prevented from selling or otherwise disposing of their properties
for value in the ordinary course of business.
Insurance. The Indentures will require the Company to cause each of its and its
subsidiaries' insurable properties to be insured against loss or damage with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, in specified amounts and with insurers having a specified
rating from a recognized insurance rating service.
Payment of Taxes and Other Claims. The Indentures will require the Company 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 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 tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities, without cost to the holders,
copies of the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Company were subject to such Sections,
(ii) to file with the applicable Trustee copies of the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections and (iii) to supply, promptly upon written
request and payment of the reasonable cost of duplication and delivery, copies
of the documents to any prospective holder.
Additional Covenants. Any additional covenants of the Company with respect to
any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (a) default for 30
days in the payment of any installment of interest on any Debt Security of the
series; (b) default in the payment of principal of (or premium, if any, on) any
Debt Security of the series at its maturity; (c) default in making any sinking
fund payment as required for any Debt Security of the series; (d) default in the
performance or breach of any other covenant or warranty of the Company contained
in the Indenture (other than a covenant added to the Indenture solely for the
benefit of a series of Debt Securities issued thereunder other than the series),
continued for 60 days after written notice as provided in the applicable
Indenture; (e) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any of its subsidiaries
(including obligations under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles but not
including any indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $5,000,000 or
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or
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<PAGE> 53
evidenced any indebtedness for money borrowed by the Company or any of its
subsidiaries (including such leases, but not including the indebtedness or
obligations for which recourse is limited to property purchased) in an aggregate
principal amount in excess of $5,000,000, whether the indebtedness exists on the
date of the Indenture or shall thereafter be created, which default shall have
resulted in the indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable or the
obligations being accelerated, without the acceleration having been rescinded or
annulled; (f) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary of the Company; and (g) any other event of default
provided with respect to a particular series of Debt Securities. The term
"Significant Subsidiary" has the meaning ascribed to the term in Regulation S-X
promulgated under the Securities Act.
If an event of default under any Indenture with respect to Debt Securities of
any series at the time outstanding occurs and is continuing, then in every case
the applicable Trustee or the holders of not less than 25% in principal amount
of the Debt Securities of that series will have the right to declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or indexed securities, the 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 a declaration of acceleration with respect to Debt Securities of the
series (or of all Debt Securities then outstanding under any Indenture, as the
case may be) has been made, but before a judgment or decree for payment of the
money due has been obtained by the applicable Trustee, the holders of not less
than a majority in principal amount of outstanding Debt Securities of the 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 the 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 the 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 the Indenture. The Indentures will also
provide that the holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to the 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 the 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.
The Indentures will require each Trustee to give notice to the holders of Debt
Securities within 90 days of a default under the applicable Indenture unless the
default shall have been cured or waived; provided, however, that the Trustee may
withhold notice to the holders of any series of Debt Securities of any default
with respect to the series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of the series or in the
payment of any sinking fund installment in respect of any Debt Security of the
series) if specified responsible officers of the Trustee consider the
withholding to be in the interest of the holders.
The Indentures will provide that no holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the 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 the
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on the Debt Securities at the respective due dates
thereof.
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<PAGE> 54
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
the Indenture, unless the holders shall have offered to the Trustee thereunder
reasonable security or indemnity. 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 the Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve the Trustee in personal liability or which may be unduly prejudicial
to the holders of Debt Securities of the series not joining therein.
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 of the Company, stating whether or not the officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments 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 the Indenture affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each Debt Security affected
thereby, (a) change the stated maturity of the principal of, or any installment
of interest (or premium, if any) on, any Debt Security; (b) reduce the principal
amount of, or the rate or amount of interest on, or any premium payable on
redemption of, any Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable under 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 Debt Security; (c)
change the place of payment, or the coin or currency, for payment of principal
of, premium, if any, or interest on any Debt Security; (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any 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 the action or to
provide that certain other provisions may not be modified or waived without the
consent of the holder of the Debt Security.
The holders of a majority in aggregate principal amount of the outstanding Debt
Securities of each series may, on behalf of all holders of Debt Securities of
that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
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 the 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 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 the provision; (vi) to secure the
Debt Securities; (vii) to establish the form or terms of Debt
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<PAGE> 55
Securities of any series, including the provisions and procedures, if
applicable, for the conversion of the Debt Securities into Common Stock or
Preferred Stock; (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
the Indenture; 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 the Debt Securities, provided that such action shall not adversely affect the
interests of the holders of the outstanding Debt Securities of any series.
The Indentures 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 the 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 the Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of the
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of the indexed security at original issuance,
unless otherwise provided with respect to the indexed security pursuant to the
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.
The Indentures will contain provisions for convening meetings of the holders of
Debt Securities of a series. A meeting will be permitted to be called at any
time by the applicable Trustee, and also, upon request, by the Company or the
holders of at least 10% in principal amount of the outstanding Debt Securities
of the series, in any 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 duly reconvened at which a quorum is present by the affirmative vote of
the holders of the 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 the meeting with respect to a consent or wavier 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 the specified percentage in principal amount of the outstanding
Debt Securities of the series will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures 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 the Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
the series and one or more additional series: (i) there shall be no minimum
quorum requirement for the meeting, and (ii) the principal amount of the
outstanding Debt Securities of the series that vote in favor of the request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether the request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under the Indenture.
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SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement, Subordinated
Securities will be subject to the following subordination provisions.
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 (as defined below), but the obligation of the Company to make
payments of the principal of and interest on the Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of the Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to payment of Senior Debt. The Subordinated
Indenture will not restrict the amount of Senior Indebtedness or other
indebtedness of the Company and its subsidiaries. As a result of these
subordination provisions, in the event of a distribution of assets upon
insolvency, holders of Subordinated Indebtedness may recover less, ratably, than
general creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of and
interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (b) 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, (c) 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, (d) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (e) 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 (f) any binding
commitment of the Company to fund any real estate investment or to fund any
investment in any entity making a real estate investment, in each case other
than (1) any indebtedness, obligation or liability referred to in clauses (a)
through (f) above as to which, in the instrument creating or evidencing the same
pursuant to which the same is outstanding, it is provided that the 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
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.
There will not be any restrictions in any Indenture relating to Subordinated
Securities upon the creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the Company
will be permitted, at its option, to discharge certain obligations to holders of
any series of Debt Securities issued under any Indenture that have not already
been delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in the currency or currencies, currency unit
or units or composite currency or currencies in which the Debt Securities are
payable in an amount sufficient to pay the entire indebtedness on the Debt
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Securities in respect of principal (and premium, if any) and interest to the
date of the deposit (if the Debt Securities have become due and payable) or to
the stated maturity or redemption date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the applicable
Prospectus Supplement, the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the 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 the Debt Securities and the obligations to register the
transfer or exchange of the Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of the Debt Securities, to hold amounts for payment in trust and, with
respect to Subordinated Debt Securities which are convertible or exchangeable,
the right to convert or exchange) ("defeasance") or (b) to be released from its
obligations with respect to the Debt Securities under the applicable Indenture
(being the restrictions described under "-- Certain Covenants") or, if provided
in the applicable Prospectus Supplement, its obligations with respect to any
other covenant, and any omission to comply with the obligations shall not
constitute an event of default with respect to the Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in the currency or currencies,
currency unit or units or composite currency or currencies in which the Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to the Debt Securities, which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on the 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 the
Debt Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of the defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if the defeasance or covenant
defeasance had not occurred, and the opinion of counsel, in the case of
defeasance, will be required to refer to and be based upon a ruling received
from or published by the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the Indenture.
In the event of the defeasance, the holders of the Debt Securities would
thereafter be able to look only to the trust fund for payment of principal (and
premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations of the
United States of America or the government which issued the foreign currency in
which the Debt Securities of a particular series are payable, for the payment of
which its full faith and credit is pledged or (ii) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or the government which issued the foreign currency in
which the Debt Securities of the series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or the other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect of any Government Obligation or a specific payment of interest on or
principal of any Government Obligation held by the custodian for the account of
the holder of a depository receipt, provided that (except as required by law)
the custodian is not authorized to make any deduction from the amount payable to
the holder of the 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 the depository receipt.
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 the series is entitled to, and does, elect pursuant
to the applicable Indenture or the terms of the Debt Security to receive payment
in a currency, currency unit or composite currency other than that in which the
deposit has been made in respect of the Debt Security, or (b) a Conversion Event
(as defined below) occurs in respect of the currency, currency unit or composite
currency in which the deposit has been made, the indebtedness represented by
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the 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 the Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of the Debt Security into the
currency, currency unit or composite currency in which the Debt Security becomes
payable as a result of an election or the 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 the 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 the Debt Securities are declared due and payable because of the
occurrence of any event of default other than the event of default described in
clause (d) under "-- Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to the Debt Securities) or described in clause (g) under "-- Events of Default,
Notice and Waiver" with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which the Debt Securities are payable, and Government Obligations on
deposit with the applicable Trustee, will be sufficient to pay amounts due on
the Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on the Debt Securities at the time of the
acceleration resulting from the event of default. However, the Company would
remain liable to make payment of the amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting the 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 Stock or Preferred Stock will be set forth in the applicable
Prospectus Supplement relating thereto. The terms will include whether the Debt
Securities are convertible into shares of Common Stock or Preferred Stock, 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 the Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the 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 the Debt Securities or by wire transfer of funds to the
person at an account maintained within the United States.
All amounts paid by the Company to a paying agent or a Trustee for the payment
of the principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after the principal, premium or interest has
become due and payable will be repaid to the Company, and the holder of the Debt
Security thereafter may look only to the Company for payment thereof.
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GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the form of
one or more global securities (the "Global Securities") that will be deposited
with, or on behalf of, a depositary identified in the applicable Prospectus
Supplement relating to the series. Global Securities may be issued in either
registered or bearer form and in either temporary or permanent form. The
specific terms of the depositary arrangement with respect to a series of Debt
Securities will be described in the applicable Prospectus Supplement relating to
the series.
DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not purport
to be complete and is qualified in its entirety by reference to the Company's
Articles of Incorporation (the "Articles of Incorporation") and Bylaws (the
"Bylaws").
GENERAL
The Articles of Incorporation authorize the issuance of up to 100,000,000 shares
of Common Stock with a par value of $.01 per share. At March 1, 1995, the
Company had 16,218,134 shares of Common Stock issued and outstanding. In
addition, the Company has reserved for issuance under its 1995 Equity
Participation Plan, 1993 Stock Option Plan and Stock Option Plan for Outside
Directors an aggregate of 1,135,000 shares of Common Stock (subject to approval
of the 1995 Equity Participation Plan).
TERMS
Subject to the preferential rights of any other shares or series of stock,
holders of the Company's Common Stock are entitled to receive dividends, when
and as declared by the Board of Directors of the Company, out of funds legally
available therefor. The holders of shares of Common Stock, upon any liquidation,
dissolution or winding-up of the Company, are entitled to receive ratably any
assets remaining after payment in full of all liabilities of the Company and the
preferential amounts owing with respect to any outstanding preferred stock. The
shares of Common Stock possess ordinary voting rights for the election of
Directors and in respect of other corporate matters, each share entitling the
holder thereof to one vote. Holders of shares of Common Stock do not have
cumulative voting rights in the election of Directors, which means that holders
of more than 50% of the shares of Common Stock voting for the election of
Directors can elect all of the Directors if they choose to do so and the holders
of the remaining shares cannot elect any Directors. Holders of shares of Common
Stock do not have preemptive rights, which means they have no right to acquire
any additional shares of Common Stock that may be issued by the Company at a
subsequent date. All shares of Common Stock now outstanding are, and additional
shares of Common Stock offered will be when issued, fully paid and
nonassessable.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"), not more than 50% in value of its outstanding capital
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year. To assist the Company in meeting this requirement, the Company may
take certain actions to limit the beneficial ownership, directly or indirectly,
by a single person of the Company's outstanding equity securities. See
"Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The Common Stock is listed on the NYSE under the symbol "OAS." American Stock
Transfer and Trust is the transfer agent and registrar of the Common Stock.
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DESCRIPTION OF PREFERRED STOCK
The description of the Company's Preferred Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws.
GENERAL
The Articles of Incorporation authorize the issuance of 5,000,000 shares of
Preferred Stock with a par value of $.01 per share, none of which was
outstanding as of the date of this Prospectus. Shares of Preferred Stock may be
issued from time to time, in one or more series, as authorized by the Board of
Directors of the Company. Prior to issuance of shares of each series, the Board
of Directors is required by the Articles of Incorporation to fix for each series
the terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption. The Preferred Stock will, when issued, be fully paid
and nonassessable and will have no preemptive rights. The Board of Directors
could authorize the issuance of shares of Preferred Stock with terms and
conditions that could have the effect of discouraging a takeover or other
transaction that holders of Common Stock might believe to be in their best
interest or in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and Bylaws and
any applicable amendment to the Articles of Incorporation designating terms of a
series of Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred Stock
offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall accumulate, if
applicable;
(5) The procedures for any auction and remarketing, if any, for such Preferred
Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock, including the conversion price (or
manner of calculation thereof);
(10) The voting rights, if any, of such Preferred Stock;
(11) Any other specific terms, preferences, rights, limitations or restrictions
of such Preferred Stock;
(12) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(13) The relative ranking and preference of such Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
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(14) Any limitations on issuance of any series of Preferred Stock ranking senior
to or on a parity with such series of Preferred Stock as to dividend rights
and rights upon liquidation, dissolution or winding up of the affairs of
the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company; and (iii) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company. The term "equity securities" does not
include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive, when,
as and if declared by the Board of Directors of the Company, out of assets of
the Company legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be declared
or paid or set apart for payment on any capital stock of the Company of any
other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period, or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Preferred Stock of such series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon Preferred Stock of any series and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon Preferred Stock of such series
and on any other series of Preferred Stock ranking on a parity as to dividends
with such Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share of Preferred Stock of such series and such other
series of Preferred Stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the Preferred Stock of such series (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such Preferred Stock does not have a cumulative dividend)
and such other series
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of Preferred Stock bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
on the Preferred Stock of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other shares of
capital stock ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation, be redeemed, purchased
or otherwise acquired for any consideration (or any amounts 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 stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall first
be credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock will
be subject to mandatory redemption or redemption at the option of the Company,
as a whole or in part, in each case upon the terms, at the times and at the
redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all shares of such series of
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if a
series of Preferred Stock does not have a cumulative dividend, full dividends on
all shares of the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of such
series of Preferred Stock shall be redeemed unless all outstanding shares of
Preferred Stock of such series are simultaneously redeemed; provided, however,
that the foregoing shall not prevent the purchase or acquisition of Preferred
Stock of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series. In addition, unless (i) if such series
of Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of such series of Preferred Stock have been
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or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, and (ii) if such series of Preferred Stock does
not have a cumulative dividend, full dividends on the Preferred Stock of such
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for capital stock of the Company ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Preferred Stock of such
series.
If fewer than all of the outstanding shares of Preferred Stock of any series are
to be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by any other equitable manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each holder of record of Preferred Stock of any
series to be redeemed at the address shown on the stock transfer books of the
Company. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder
and, upon redemption, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof. If notice of redemption of
any Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Company in trust for the benefit of the
holders of any Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Preferred Stock, and all
rights of the holders of such shares will terminate, except the right to receive
the redemption price. In order to facilitate the redemption of shares of
Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Preferred Stock to be redeemed, such record date to
be not less than 30 or more than 60 days prior to the date fixed for such
redemption.
Subject to applicable law and the limitation on purchases when dividends on
Preferred Stock are in arrears, the Company may, at any time and from time to
time, purchase any shares of Preferred Stock in the open market, by tender or by
private agreement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, then, before any distribution or payment shall be made
to the holders of any Common Stock or any other class or series of capital stock
of the Company ranking junior to the Preferred Stock in the distribution of
assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share,
if any, set forth in the applicable Prospectus Supplement, plus an amount equal
to all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid noncumulative dividends for prior dividend
periods). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity
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with the Preferred Stock in the distribution of assets, then the holders of the
Preferred Stock and all other such classes or series of capital stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Articles of Incorporation or the Designating Amendment for such
series of Preferred Stock, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, with respect to the occurrence of any of the Events
set forth in (ii) above, so long as the Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Stock, and provided further that (x) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time when
the act with respect to which such vote would otherwise be required shall be
effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock is
convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
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RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in value
of its outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Stock of the Company.
Therefore, the Designating Amendment for each series of Preferred Stock may
contain provisions restricting the ownership and transfer of the Preferred
Stock. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Stock. See "Restrictions
on Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set forth in
the applicable Prospectus Supplement.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's 1993 Stock Option Plan and Stock Option Plan for Outside Directors).
The Company may issue Warrants for the purchase of Common Stock or Preferred
Stock. Warrants may be issued independently, together with any other Securities
offered by any Prospectus Supplement or through a dividend or other distribution
to the Company's stockholders and may be attached to or separate from such
Securities. Warrants may be issued under a warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent specified
in the applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Warrants of a
particular series and will not assume any obligation or relationship of agency
or trust for or with any holders or beneficial owners of Warrants. The following
sets forth certain general terms and provisions of the Warrants offered hereby.
Further terms of the Warrants and the applicable Warrant Agreement will be set
forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants in
respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will be
issued; (4) the designation, number and terms of the shares of Preferred Stock
or Common Stock purchasable upon exercise of such Warrants; (5) the designation
and terms of the other Securities, if any, with which such Warrants are issued
and the number of such Warrants issued with each such Security; (6) the date, if
any, on and after which such Warrants and the related Preferred Stock or Common
Stock, if any, will be separately transferable; (7) the price at which each
share of Preferred Stock or Common Stock purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; (10) information with respect to book-entry procedures, if any; (11) a
discussion of certain federal income tax considerations; and (12) any other
terms of such Warrants, including terms, procedures and limitations relating to
the transferability, exchange and exercise of such Warrants.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, not more than 50% in value
of its outstanding capital stock 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, the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year and
certain percentages of the Company's gross income must be from particular
activities. To ensure that the Company remains qualified as a
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REIT, certain provisions of the Articles of Incorporation restrict the
acquisition of shares of capital stock. Subject to certain exceptions specified
in the Articles of Incorporation, no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 8% by value (the
"Ownership Limit") of the Company's capital stock. If shares of capital stock in
excess of the Ownership Limit, or shares of capital stock which would cause the
REIT to be beneficially owned by less than 100 persons, are issued or
transferred to any person, such issuance or transfer shall be null and void as
to the intended transferee, and the intended transferee would acquire no rights
to the stock. Shares of capital stock transferred in excess of the Ownership
Limit will automatically be exchanged for shares of a separate class of stock
("Excess Stock") that will be transferred by operation of law to the Company as
trustee for the exclusive benefit of the person or persons to whom the shares
are ultimately transferred, until such time as the intended transferee
retransfers the shares. While these shares are held in trust, they would not be
entitled to vote or to share in any dividends or other distributions. The shares
may be retransferred by the intended transferee to any person who may hold such
shares at a price not to exceed the price paid by the intended transferee, at
which point the shares will automatically be exchanged for ordinary shares of
capital stock. In addition, such shares of Excess Stock held in trust are
purchasable by the Company for a 90-day period at a price equal to the lesser of
the price paid for the stock by the intended transferee and the market price for
the stock on the date the Company determines to purchase the stock. This
ownership limitation may have the effect of precluding acquisition of control of
the Company by a third party unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interests of the Company.
FEDERAL INCOME TAX CONSIDERATIONS TO THE COMPANY
The following summary of material federal income tax considerations to the
Company regarding the offering of Securities is based on current law, is for
general information only and is not tax advice. The tax treatment of a holder of
any of the Securities will vary depending upon the terms of the specific
Securities acquired by such holder as well as his particular situation, and this
discussion does not attempt to address any aspects of federal income taxation
relating to holders of Securities. Certain federal income tax considerations
relevant to holders of Securities will be provided in the applicable Prospectus
Supplement relating thereto.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR, REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE
SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST, 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 believes that, commencing with its taxable year ended December 31,
1993, it has been organized and was and is operated in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it will
operate in a manner so as to qualify or remain qualified.
The REIT provisions of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject to
change which may apply retroactively. Latham & Watkins has acted as tax counsel
to the Company in connection with the offering of Securities and the Company's
election to be taxed as a REIT.
In the opinion of Latham & Watkins, commencing with the Company's taxable year
ended December 31, 1993, the Company has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT. It must be emphasized that Latham & Watkins' opinion is
based on various assumptions and is conditioned upon such assumptions
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and representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depend upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any one taxable year will satisfy such requirements.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to federal
income tax as follows: First, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary course
of business or (ii) other nonqualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth, if
the Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subjected to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, with respect to an
asset (a "Built-In Gain Asset") acquired by the Company from a corporation which
is or has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the Built-In Gain
Asset in the hands of the Company is determined by reference to the basis of the
asset in the hands of the C corporation, if the Company recognizes gain on the
disposition of such asset during the ten year period (the "Recognition Period")
beginning on the date on which such asset was acquired by the Company, then, to
the extent of the Built-In Gain (i.e., the excess of (a) the fair market value
of such asset over (b) the Company's adjusted basis in such asset, determined as
of the beginning of the Recognition Period), such gain will be subject to tax at
the highest regular corporate tax pursuant to Internal Revenue Service ("IRS")
regulations that have not yet been promulgated. The results described above with
respect to the recognition of Built-In Gain assume that the Company will make an
election pursuant to IRS Notice 88-19.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for Sections 856 through 859 of the Code; (4) which 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) during
the last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities); and (7) which meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (1) to (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. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT.
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The Company has previously issued sufficient shares to allow it to satisfy
conditions (5) and (6). In addition, the Company's Articles of Incorporation
provide for restrictions regarding transfer of shares, which restrictions are
intended to assist the Company in continuing to satisfy the share ownership
requirements described in conditions (5) and (6) above. Such transfer
restrictions are described in "Restrictions on Transfers of Capital Stock."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company satisfies this requirement.
The Company owns and operates a number of properties through two subsidiaries.
Section 856(i) of the Code provides that a corporation which is a "qualified
REIT subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities and such items (as the case
may be) of the REIT. Thus, in applying the requirements described herein, the
Company's "qualified REIT subsidiaries" will be ignored, and all assets,
liabilities and items of income, deduction and credit of any such subsidiaries
will be treated as assets, liabilities and tax items of the Company. The Company
has not received a ruling from the IRS that its subsidiaries are "qualified REIT
subsidiaries."
The Company also anticipates that it will own a development property through a
limited liability company. In the case of a REIT that is a member of a
partnership, including a limited liability company that has at least two members
that is classified as a partnership for federal income tax purposes, applicable
Treasury Regulations provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership (or limited liability
company) and will be deemed to be entitled to the income of the partnership (or
limited liability company) attributable to such share. In addition, the
character of the assets and gross income of the partnership (or limited
liability company) will retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income and
asset tests. Thus, the Company's proportionate share of the assets, income and
liabilities of the limited liability company will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein.
Income Tests
In order to maintain qualification as a REIT, the Company annually must satisfy
three gross income requirements. First, at least 75% of the Company'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 Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property investments, 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 Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue.
The
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Company may, however, directly perform services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered rendered to the occupant of the property. The Company does
not and will not (i) charge rent for any property that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a percentage of receipts or sales, as described above), (ii) rent any property
to a Related Party Tenant, (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent derived
under the lease), or (iv) perform services which are not usually or customarily
rendered and which are considered to be rendered to the occupant of the
property, other than through an independent contractor from whom the Company
derives no revenue.
The term "interest" generally does not include any amount received or accrued
(directly or indirectly) if the determination of such amount depends in whole or
in part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed percentage or percentages of receipts or sales.
If the Company fails to satisfy one or both of the 75% or 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. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above in " General," even if these relief provisions apply, a tax
would be imposed with respect to the excess net income.
Asset Tests
The Company, at the close of each quarter of its taxable year, must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of the Company's total assets must be represented by real estate assets
(including (i) its allocable share of real estate assets held by partnerships in
which the Company owns an interest and (ii) stock or debt instruments held for
not more than one year purchased with the proceeds of a stock offering or
long-term (at least five years) debt offering of the Company), cash, cash items
and government securities. Second, not more than 25% of the Company's total
assets may be represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of the
Company's total assets and the Company may not own more than 10% of any one
issuer's outstanding voting securities.
The Company currently has two wholly-owned subsidiaries. As set forth above, the
ownership of more than 10% of the voting securities of any one issuer by a REIT
is prohibited by the asset tests. However, if the Company's subsidiary is a
"qualified REIT subsidiary" as defined in the Code, such subsidiary will not be
treated as a separate corporation for federal income tax purposes. Thus, the
Company's ownership of the stock of a "qualified REIT subsidiary" will not cause
the Company to fail the asset tests.
Annual Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute dividends
(other than capital gain dividends) to its stockholders 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 any, from foreclosure
property, minus (B) the sum of certain items of noncash income. In addition, if
the Company disposes of any Built-In Gain Asset during its Recognition Period,
the Company will be required, pursuant to IRS regulations which have not yet
been promulgated, to distribute at least 95% of the Built-in Gain (after tax),
if any, recognized on the disposition of such asset. 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
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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
thereon at regular ordinary and capital gains corporate tax rates. Furthermore,
if the Company should fail to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. The
Company intends to make timely distributions sufficient to satisfy this annual
distribution requirement.
It is possible that the Company, from time to time, may not have sufficient cash
or other liquid assets to meet the 95% distribution requirement due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company. In the event that such
timing differences occur, in order to meet the 95% distribution requirement, the
Company may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based on the amount of any deduction taken for
deficiency 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 stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Under the
Code and IRS rulings, the Company's earnings and profits will first be allocable
to distributions made on the Preferred Stock and then (the balance, if any) to
distributions made on the Common Stock. Unless entitled to relief under specific
statutory provisions, the Company will also 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.
OTHER TAX CONSEQUENCES
One of the Company's development projects is anticipated to be conducted through
a limited liability company. REIT investments through partnerships or limited
liability companies may involve special tax risks. Such risks include possible
challenge by the IRS to (a) allocations of income and expense items, which could
affect the computation of taxable income of the Company, and (b) the status of a
particular partnership or limited liability company as a partnership (as opposed
to an association taxable as a corporation) for income tax purposes. If a
partnership or limited liability in which the REIT is a member is treated as an
association for income tax purposes, the partnership or limited liability
company would be taxable as a corporation. In such a situation, if the Company's
ownership interest in the partnership or limited liability company exceeded 10%
of the entity's voting interests or the value of such interest exceeded 5% of
the value of the Company's assets, the Company would cease to qualify as a REIT.
Furthermore, in such a situation, distributions from the partnership or limited
liability company to the Company would be treated as dividends, which are not
taken into account in satisfying the 75% gross income test described above and
which could therefore make it more difficult for the Company to qualify as a
REIT for the taxable year in which such distribution was received. In addition,
in such a situation, the interest in the partnership or limited liability
company held by the Company would not qualify as a "real estate asset," which
could make it more difficult for the Company to meet the 75% asset test
described above. Finally, in such a situation the Company would not be able to
deduct its share of losses generated by the partnership or limited
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liability company in computing the Company's taxable income. See "-- Failure to
Qualify" above for a discussion of the effect of the Company's failure to meet
such tests for a taxable year. The Company believes that the limited liability
company in question should be treated for tax purposes as a partnership (and not
as an association taxable as a corporation). However, no assurance can be given
that the IRS may not successfully challenge the tax status of any partnership or
limited liability company of which the Company is a member.
The Company may be subject to state or local taxation in various state or local
jurisdictions, including those in which it transacts business. The state and
local tax treatment of the Company may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, directly to one or more
purchasers, through agents or through any combination of these methods of sale.
Direct sales to investors may be accomplished through subscription rights
distributed to the Company's stockholders. In connection with any distribution
of subscription rights to stockholders, if all of the underlying Securities are
not subscribed for, the Company may sell the unsubscribed Securities directly to
third parties or may engage the services of one or more underwriters, dealers or
agents, including standby underwriters, to sell the unsubscribed Securities to
third parties.
The distribution of the Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices (any of which may represent a discount
from the prevailing market prices). The Company may also offer one or all
Securities in exchange for one or more of its then outstanding issues of debt or
equity securities.
In connection with the sale of Securities, underwriters or agents may receive
compensation from the Company or from purchasers of Securities, for whom they
may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from the Company and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series of
Securities will be a new issue with no established trading market, other than
the Common Stock which is listed on the NYSE. Any shares of Common Stock sold
pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of Debt
Securities or Preferred Stock on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for the Company in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to
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contracts providing for payment and delivery on a future date. Institutions with
which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved by
the Company. The obligations of any purchaser under any such contract will be
subject to the condition that the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
In order to comply with the securities laws of certain states, if applicable,
the Securities offered hereby will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states
Securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Latham & Watkins,
Costa Mesa, California, and Streich Lang, Las Vegas, Nevada.
EXPERTS
The financial statements and schedule thereto incorporated by reference in this
Prospectus or elsewhere in the Registration Statement of which this Prospectus
is a part, to the extent and for the periods indicated in the reports, have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants,
and are included herein in reliance upon the authority of said firm as experts
in giving said reports.
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