<PAGE>
PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULE 424(b)(2)
(TO PROSPECTUS DATED DECEMBER 4, 1995) REGISTRATION NO. 33-98136
$100,000,000
CHELSEA GCA REALTY PARTNERSHIP, L.P.
REMARKETED FLOATING RATE RESET NOTES DUE OCTOBER 23, 2001
UNCONDITIONALLY GUARANTEED
BY
CHELSEA GCA REALTY, INC.
---------------------
The Remarketed Floating Rate Reset Notes due October 23, 2001 (the "Notes")
offered hereby are being issued by Chelsea GCA Realty Partnership, L.P., a
Delaware limited partnership (the "Operating Partnership"), in an aggregate
principal amount of $100,000,000. Chelsea GCA Realty, Inc. (the "Company") will
fully, unconditionally and irrevocably guarantee the due and punctual payment of
principal of, premium, if any, and interest on the Notes, when and as the same
shall become due and payable, whether at a maturity date, on redemption, by
declaration of acceleration or otherwise.
The interest rate on the Notes will reset quarterly, and will equal LIBOR
plus the applicable Spread. The Spread during the one year period ending October
23, 1997 is .75%. The Spread will be adjusted on October 23, 1997, and on each
October 23 thereafter which corresponds to the beginning of a Subsequent Spread
Period, pursuant to agreement between the Operating Partnership and the
Remarketing Underwriter on the Spread Determination Date for such Subsequent
Spread Period (except as otherwise provided below). If the Operating Partnership
and the Remarketing Underwriter are unable to agree on the Spread, (1) the
Subsequent Spread Period will be one year, (2) the Spread for such Subsequent
Spread Period will be the Alternate Spread and (3) the Notes will be redeemable
at the option of the Operating Partnership, in whole or in part, upon at least
10 Business Days notice given by no later than the second Business Day after the
relevant Spread Determination Date, at a redemption price equal to 100% of the
principal amount thereof, together with accrued interest to the redemption date.
Interest on the Notes is payable quarterly on January 23, April 23, July 23 and
October 23 (or, if not a Business Day, on the next succeeding Business Day
except as described herein), beginning January 23, 1997, and at maturity. See
"Certain Terms of the Notes--Interest."
If the Operating Partnership and the Remarketing Underwriter agree on the
Spread with respect to any Subsequent Spread Period, each Note may be tendered
to the Remarketing Underwriter for purchase from the tendering Noteholder at
100% of its principal amount and for remarketing by the Remarketing Underwriter
on October 23, 1997 and on any October 23 thereafter immediately following the
end of a Subsequent Spread Period (the "Tender Date"). Notice of a beneficial
owner's election to tender to the Remarketing Underwriter must be received by
the Remarketing Underwriter during the five calendar day period ending at 5:00
p.m., New York City time, on the fifth calendar day following the relevant
Spread Determination Date. The obligation of the Remarketing Underwriter to
purchase tendered Notes from the tendering Noteholders will be subject to
certain conditions and termination events customary in the Operating
Partnership's public offerings. If the Remarketing Underwriter for any reason
does not purchase all tendered Notes on the relevant Tender Date, (1) all tender
notices relating thereto will be null and void, (2) the Subsequent Spread Period
will be one year, (3) the Spread for such Subsequent Spread Period will be the
Alternate Spread and (4) the Notes will be redeemable at the option of the
Operating Partnership, in whole or in part, upon at least 10 Business Days prior
notice given by no later than the second Business Day following the relevant
Tender Date, at a redemption price equal to 100% of the principal amount
thereof, together with accrued interest to the redemption date. No beneficial
owner of any Note shall have any rights or claims against the Operating
Partnership, the Company or the Remarketing Underwriter as a result of the
Remarketing Underwriter not purchasing such Notes, except as provided in clause
(3) of the preceding sentence. See "Certain Terms of the Notes--Tender at Option
of Beneficial Owners."
The Notes are also redeemable, at the option of the Operating Partnership,
on October 23, 1997 and on any October 23 thereafter immediately following the
end of a Subsequent Spread Period, in whole or in part, upon notice thereof
given at any time during the 45 calendar day period ending on the tenth calendar
day prior to the redemption date (provided that notice of any partial redemption
must be given to the Noteholders at least 15 calendar days prior to the
redemption date), at 100% of their principal amount, together with accrued
interest to the redemption date. Unless previously redeemed, the Notes will
mature on October 23, 2001. See "Certain Terms of the Notes--Redemption of the
Notes."
The Notes will be represented by a single Global Note registered in the name
of The Depository Trust Company (the "Depositary") or its nominee. Beneficial
interests in the Global Note will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary and its
participants. Except as described herein, Notes in definitive form will not be
issued.
SEE "RISK FACTORS" BEGINNING AT PAGE 3 IN THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Notes will be sold to the public at varying prices to be determined by
the Underwriter at the time of each sale. The net proceeds to the Operating
Partnership, before deducting expenses payable by the Operating Partnership
(estimated to be $150,000), will be 99.60% of the principal amount of the Notes
sold and the aggregate net proceeds will be $99.4 million. For further
information with respect to the plan of distribution and any discounts,
commissions or profits on resales of Notes that may be deemed underwriting
discounts or commissions, see "Underwriting."
------------------------------
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if issued by the Operating Partnership and delivered to and accepted by the
Underwriter, subject to approval of certain legal matters by counsel for the
Underwriter and subject to certain other conditions. The Underwriter reserves
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the Global Note will be made in
book-entry form only through the facilities of the Depositary on or about
October 23, 1996.
------------------------------
MERRILL LYNCH & CO.
---------------
The date of this Prospectus Supplement is October 18, 1996.
<PAGE>
[Map of United States showing locations of the Operating Partnership's outlet
centers]
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND
THEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, THE FINANCIAL AND STATISTICAL
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF JUNE 30,
1996. ALL REFERENCES TO THE OPERATING PARTNERSHIP IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS INCLUDE THE OPERATING PARTNERSHIP, THOSE
ENTITIES OWNED OR CONTROLLED BY THE OPERATING PARTNERSHIP AND PREDECESSORS OF
THE OPERATING PARTNERSHIP, UNLESS THE CONTEXT INDICATES OTHERWISE.
THE OPERATING PARTNERSHIP
Chelsea GCA Realty Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership"), is 68.8% owned and managed by its sole general
partner, Chelsea GCA Realty, Inc. ("Chelsea GCA" or the "Company"), a
self-administered and self-managed real estate investment trust ("REIT"). The
Operating Partnership owns, develops, redevelops, leases and manages upscale and
fashion-oriented manufacturers' outlet centers. As of June 30, 1996, the
Operating Partnership owned and operated 17 centers (the "Properties"),
containing approximately 3.3 million square feet of gross leasable area ("GLA"),
in nine states. The Properties are generally located near densely populated,
high income metropolitan areas or at or near major tourist destinations. The
Operating Partnership's existing portfolio includes properties in or near New
York, Los Angeles, San Francisco, Atlanta, Sacramento, Portland (Oregon), Kansas
City, Cleveland, the Napa Valley, Palm Springs and the Monterey Peninsula.
According to VALUE RETAIL NEWS, based on a recent survey of outlet tenants, the
Operating Partnership owns three of the top ten outlet centers in the United
States in terms of sales productivity. As of June 30, 1996, the Operating
Partnership's portfolio was 98% leased and contained over 900 stores with over
300 different tenants.
During 1995, the Properties generated weighted average reported tenant sales
of $313 per square foot. During 1995 and the first six months of 1996, the
Company's same-center sales increased 11% compared to 1994 and the first six
months of 1995, respectively (excluding sales attributable to increased GLA).
Following the completion of the offering of Notes hereby (the "Offering"),
assuming a price of $29.875 per Operating Partnership unit (based on the market
price of $29.875 per share of the Company's Common Stock (the "Common Stock") as
of October 17, 1996), the Operating Partnership's ratio of debt to total market
capitalization (defined as the value of outstanding Operating Partnership units
plus total debt) would be approximately 28.1%.
Between the Company's initial public offering of Common Stock and the
formation transactions in November 1993 ("IPO") and June 30, 1996, the Operating
Partnership developed and opened approximately 1.6 million square feet of new
GLA, contained in six new centers and the expansions of nine existing centers, a
101% increase. During 1996, the Operating Partnership opened two new centers
with 292,000 square feet and 272,000 square feet of GLA, respectively, in the
Atlanta metropolitan area in May 1996 and in Clinton, Connecticut (in the
Interstate 95/New York-New England corridor) in August 1996. The Operating
Partnership is in the process of entitling sites and planning development for
1997 and beyond. See "The Operating Partnership--Growth Strategy."
The Operating Partnership was formed through the merger in 1993 of The
Chelsea Group ("Chelsea") and Ginsburg Craig Associates ("GCA"), two leading
outlet center development companies. The Properties are owned by, and their
operations are conducted through, the Operating Partnership. The Company is the
sole general partner of, and owned as of June 30, 1996, a controlling 68.8%
interest in, the Operating Partnership. As of June 30, 1996, management and
directors of the Company owned approximately 26% of the equity interests of the
Company on a fully diluted basis (i.e., assuming conversion of Operating
Partnership units into Common Stock). The following chart illustrates the
ownership interests in the Operating Partnership:
<TABLE>
<C> <S>
CHELSEA GCA REALTY, INC.
(Company)
68.8%
General LIMITED PARTNERS
Partner 31.2% Limited Partners
CHELSEA GCA REALTY PARTNERSHIP, L.P.
(Operating Partnership)
</TABLE>
S-3
<PAGE>
THE OFFERING
All capitalized terms used herein and not defined herein have the meanings
provided in "Certain Terms of the Notes." For a more complete description of the
terms of the Notes specified in the following summary, see "Certain Terms of the
Notes" herein and "Description of Debt Securities" in the accompanying
Prospectus.
<TABLE>
<S> <C>
Securities Offered................ $100,000,000 aggregate principal amount of Remarketed
Floating Rate Reset Notes due 2001.
Maturity.......................... The Notes will mature on October 23, 2001, unless
previously redeemed.
Interest Payment Dates............ Interest on the Notes is payable quarterly on each
January 23, April 23, July 23 and October 23, commencing
January 23, 1997, and at maturity. The interest rate on
the Notes will reset quarterly.
Ranking........................... The Notes will rank pari passu with each other and with
all other unsecured and unsubordinated indebtedness of
the Operating Partnership.
Use of Proceeds................... The net proceeds to the Operating Partnership from the
Offering (approximately $99.4 million) will be used to
repay all amounts outstanding under the Credit Facility
(as defined herein) and for general corporate purposes.
Certain Covenants................. The Notes contain various covenants, including the
following:
LIMITATIONS ON INCURRENCE OF DEBT
(1) The Operating Partnership will not incur any Debt,
if, after giving effect thereto, the aggregate
principal amount of all outstanding Debt of the
Operating Partnership is greater than 60% of the sum
of (i) the Operating Partnership's Total Assets as of
the end of the most recent calendar quarter and (ii)
the increase in the Operating Partnership's Total
Assets since the end of such quarter including any
increase in the Operating Partnership's Total Assets
resulting from the incurrence of such additional Debt
(such increase together with the Operating Part-
nership's Total Assets is referred to as "Adjusted
Total Assets").
(2) The Operating Partnership will not incur any Secured
Debt if, after giving effect thereto, the aggregate
amount of all outstanding Secured Debt of the
Operating Partnership is greater than 40% of the
Operating Partnership's Adjusted Total Assets.
(3) The Operating Partnership will not incur any Debt if
the ratio of Consolidated Income Available for Debt
Service for the four consecutive fiscal quarters most
recently ended prior to the date of the incurrence of
such Debt, on a pro forma basis, shall be less than
2.0 times the Annual Service Charge on all Debt
outstanding immediately after the incurrence of such
additional Debt.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
(4) The Operating Partnership will not allow any
Restricted Subsidiary to incur any Debt other than
intercompany Debt.
LIMITATIONS ON DISTRIBUTIONS
The Operating Partnership will not make any distribution
unless, immediately after giving pro forma effect to
such distribution (a) no default under the Indenture, or
event of default under any mortgage, indenture or
instrument under which there may be issued, or by which
there may be secured or evidenced, any Debt of the
Operating Partnership, the Company or any Subsidiary,
shall have occurred or be continuing, (b) the Operating
Partnership could incur at least $1.00 of Debt under the
Indenture covenants limiting the incurrence of Debt and
(c) the aggregate sum of all distributions shall not
exceed the sum of (i) 95% of the aggregate cumulative
Funds From Operations of the Operating Partnership
accrued on a cumulative basis from the date of the
Indenture until the end of the last fiscal quarter prior
to the contemplated payment, and (ii) the aggregate Net
Cash Proceeds received after the date of the Indenture
from the issuance and sale of Capital Stock; provided,
however, that the foregoing limitations shall not apply
to any distribution which is necessary to maintain the
Company's status as a REIT if the aggregate principal
amount of all outstanding Debt of the Company and the
Operating Partnership on a consolidated basis at such
time is less than 60% of Adjusted Total Assets.
For certain defined terms and additional covenants, see
"Certain Terms of the Notes -- Certain Covenants" herein
and "Description of Debt Securities -- Certain
Covenants" in the accompanying Prospectus.
Redemption........................ The Notes may not be redeemed by the Operating Partner-
ship prior to October 23, 1997. On that date and on any
October 23 thereafter immediately following the end of a
Subsequent Spread Period, the Notes may be redeemed at
the option of the Operating Partnership, as described
herein. The Notes also may be redeemed at the option of
the Operating Partnership under certain circumstances,
as described herein. See "Certain Terms of the
Notes--Tender at Option of Beneficial Owners" and
"--Redemption of the Notes."
</TABLE>
S-5
<PAGE>
THE OPERATING PARTNERSHIP
The Operating Partnership is 68.8% owned and managed by its sole general
partner, the Company, a self-administered and self-managed REIT. All of the
Company's operations are conducted through the Operating Partnership. The
Operating Partnership owns, develops, redevelops, leases and manages upscale and
fashion-oriented manufacturers' outlet centers. As of June 30, 1996, the
Operating Partnership owned and operated 17 centers, containing approximately
3.3 million square feet of GLA, in nine states. The Properties are generally
located near densely populated, high income metropolitan areas or at or near
major tourist destinations. The Operating Partnership's existing portfolio
includes properties in or near New York, Los Angeles, San Francisco, Atlanta,
Sacramento, Portland (Oregon), Kansas City, Cleveland, the Napa Valley, Palm
Springs and the Monterey Peninsula. According to VALUE RETAIL NEWS, based on a
recent survey of outlet tenants, the Operating Partnership owns three of the top
ten outlet centers in the United States in terms of sales productivity. As of
June 30, 1996, the Operating Partnership's portfolio was 98% leased and
contained over 900 stores with over 300 different tenants.
During 1995, the Properties generated weighted average reported tenant sales
of $313 per square foot. During 1995 and the first six months of 1996, the
Operating Partnership's same-center sales increased 11% compared to 1994 and the
first six months of 1995, respectively (excluding sales attributable to
increased GLA). Following the completion of the Offering, assuming a price of
$29.875 per Operating Partnership unit (based on the market price of $29.875 per
share of Common Stock as of October 17, 1996), the Operating Partnership's ratio
of debt to total market capitalization (defined as the value of outstanding
Operating Partnership units plus total debt) will be approximately 28.1%.
Between the IPO in November 1993 and June 30, 1996, the Operating
Partnership developed and opened approximately 1.6 million square feet of new
GLA, contained in six new centers and the expansions of nine existing centers, a
101% increase in GLA. During 1996, the Operating Partnership opened two new
centers with 292,000 square feet and 272,000 square feet of GLA, respectively,
in the Atlanta metropolitan area in May 1996 and in Clinton, Connecticut (in the
Interstate 95/New York-New England corridor) in August 1996. The Operating
Partnership is in the process of entitling sites and planning development for
1997 and beyond. See "-- Growth Strategy."
The Operating Partnership was formed through the merger in 1993 of Chelsea
and GCA, two leading outlet center development companies. The Properties are
owned by, and their operations are conducted through, the Operating Partnership.
The Company is the sole general partner of, and owned as of June 30, 1996, a
controlling 68.8% interest in, the Operating Partnership. As of June 30, 1996,
management and directors of the Company owned approximately 26% of the equity
interests of the Company on a fully diluted basis (i.e. assuming conversion of
Operating Partnership units into Common Stock).
The Operating Partnership is a Delaware limited partnership. Its principal
executive offices are located at 103 Eisenhower Parkway, Roseland, New Jersey
07068, and its telephone number is (201) 228-6111.
THE MANUFACTURERS' OUTLET BUSINESS
Manufacturers' outlets are manufacturer-operated retail stores that sell
primarily first-quality, branded goods at significant discounts from regular
department store and specialty store prices. Manufacturers' outlet centers offer
numerous advantages to both the consumer and the manufacturer: by eliminating
the third-party retailer, manufacturers are generally able to charge consumers
lower prices for brand name and designer merchandise; manufacturers benefit by
being able to sell first-quality in-season, as well as out-of-season,
overstocked or discontinued merchandise without compromising their relationships
with department stores or hampering the manufacturer's brand name. In addition,
outlet stores enable manufacturers to optimize the size of production runs while
maintaining control of their distribution channels.
S-6
<PAGE>
According to published sources, manufacturers' outlets were one of the
fastest growing forms of retail distribution in 1995. During 1995, total
industry sales reached $13 billion, a 15% compounded annual growth rate since
1992. Despite such increase, industry sales remain less than 3% of general
merchandise and apparel sales in the United States.
COMPETITIVE POSITION
The Operating Partnership believes that its strong tenant relationships,
high-quality property portfolio, and management expertise give it significant
competitive advantages in the manufacturers' outlet business.
STRONG TENANT RELATIONSHIPS. The Operating Partnership maintains strong
relationships both with high-fashion, upscale manufacturers that have a
selective presence in the outlet industry, such as Ann Taylor, Brooks Brothers,
Cole-Haan, Donna Karan, Joan & David, Jones New York, Nautica, Polo/Ralph Lauren
and Tommy Hilfiger, and with national brand-name manufacturers such as Nine
West, Phillips-Van Heusen (Bass, Geoffrey Beene, Van Heusen) and Sara Lee
(Champion Hanes, Coach Leather, Mark Cross). The Operating Partnership believes
that its ability to draw from both groups is an important factor in producing
broad customer appeal and higher tenant sales.
The Operating Partnership continually monitors trends in retailing and
introduces new retail names and concepts into its centers. Because of its
dominant properties in the New York and Los Angeles metropolitan areas, the
largest fashion markets in the United States, the Operating Partnership has been
successful in attracting upscale, fashion-oriented manufacturers seeking to open
their first stores. Tenants whose first outlet stores were at one of the
Operating Partnership's centers include Anne Klein, Barneys New York, Carole
Little, Ellen Tracy, Escada, Gucci, Harry & David, Kenar, Mark Cross, Mondi and
Versace. The Operating Partnership's centers contain a significant share of
space occupied by upscale and fashion-oriented tenants. Because these tenants
tend to operate in a limited number of outlet centers, management believes that
their tenancy makes the Operating Partnership's centers more attractive to
shoppers, creates repeat traffic and generates higher sales.
HIGH QUALITY PROPERTY PORTFOLIO. The Properties generated weighted average
reported tenant sales during 1995 of $313 per square foot. A significant number
of the Operating Partnership's tenants, including Anne Klein, Ann Taylor, Bally,
Barneys New York, Bass Company Stores, Brooks Brothers, Burberrys, Calvin Klein,
Cole-Haan, Donna Karan, Ellen Tracy, Esprit, Joan & David, Jones New York,
Nautica, Polo/Ralph Lauren, Timberland, Tommy Hilfiger and Villeroy & Boch,
reported that the top store in their outlet chain during 1995, as measured by
sales per square foot or gross sales, was in one of the Operating Partnership's
centers. The Operating Partnership believes that the quality of its centers
gives it significant advantages in attracting customers and negotiating multi-
lease transactions with its tenants.
MANAGEMENT EXPERTISE. The Operating Partnership believes it has a
competitive advantage in the manufacturers' outlet business as a result of its
experience in the business, long-standing relationships with tenants and
expertise in the development and operation of manufacturers' outlet centers. The
Company's senior officers have been recognized leaders in the outlet industry
over the last two decades. The Operating Partnership was the first recipient of
the VALUE RETAIL NEWS Award of Excellence. In addition, management developed a
number of the earliest and most successful outlet centers in the industry,
including Liberty Village (one of the first manufacturers' outlet centers in the
U.S.) in 1981, Woodbury Common in 1985, and Desert Hills and Aurora Farms in
1990. Since the IPO, the Company has added significantly to its senior
management in the areas of development, leasing and property management without
increasing general and administrative expenses as a percentage of total
revenues; additionally, the Operating Partnership intends to continue to invest
in systems and controls to support the planning, coordination and monitoring of
its activities.
S-7
<PAGE>
OPERATING STRATEGY
The Operating Partnership's primary business objectives are to increase cash
generated from operations and to enhance the value of its properties and
operations. The Operating Partnership plans to achieve these objectives through
continuing efforts to improve tenant sales and profitability, and thereby
enhance the opportunity for higher base and percentage rents, using a variety of
means discussed below.
LEASING. The Operating Partnership pursues an active leasing strategy
through strong, long-standing relationships with a broad range of tenants
including manufacturers of men's, women's and children's ready-to-wear,
lifestyle apparel, footwear, accessories, tableware, housewares, linens and
domestic goods. Key tenants are placed in strategic locations to draw customers
into each center and to encourage shopping at more than one store. The Operating
Partnership continually monitors tenant mix, store size, store location and
sales performance, and works with tenants to improve each center through joint
promotion, re-sizing and re-location.
MARKET AND SITE SELECTION. To ensure a sound long-term customer base, the
Operating Partnership generally seeks to develop sites near densely-populated,
high-income metropolitan areas, or at or near major tourist destinations. While
these areas typically impose numerous restrictions on development and require
compliance with complex entitlement and regulatory processes, the Operating
Partnership intends to continue to emphasize them due to their attractive
long-term demographic characteristics.
The Operating Partnership generally seeks to develop sites that can support
200,000 to 500,000 square feet of GLA and that offer the long-term opportunity
to dominate their respective markets through a critical mass of tenants.
MARKETING. The Operating Partnership pursues an active, property-specific
marketing strategy using a variety of media including newspapers, television,
radio, billboards, regional magazines, guide books and direct mailings. The
centers are marketed to tour groups, conventions and corporations; additionally,
each property participates in joint destination marketing efforts with other
area attractions and accommodations. Virtually all consumer marketing expenses
incurred by the Operating Partnership are reimbursable by tenants.
PROPERTY DESIGN AND MANAGEMENT. The Operating Partnership believes that
effective property design and management are significant factors in the success
of its properties and works continually to maintain or enhance each center's
physical plant, original architectural theme and high level of on-site services.
Each property is designed to be compatible with its environment and is
maintained to high standards of aesthetics, ambiance and cleanliness in order to
promote longer visits and repeat visits by shoppers. Of the Operating
Partnership's 245 full-time and 59 part-time employees, 156 full-time and 59
part-time employees are involved in on-site maintenance, security,
administration and marketing; centers are generally managed by an on-site
property manager with oversight from a corporate director of property
management.
GROWTH STRATEGY
The Operating Partnership seeks growth through increasing rents in its
existing centers; developing new centers and expanding existing centers; and
acquiring and redeveloping centers.
INCREASING RENTS AT EXISTING CENTERS. The Operating Partnership's leasing
strategy includes aggressively marketing available space and maintaining a high
level of occupancy; providing for inflation-based contractual rent increases or
periodic fixed contractual rent increases in substantially all leases; renewing
leases at higher base rents per square foot; re-tenanting space occupied by
underperforming tenants; and continuing to sign leases that provide for
percentage rents.
DEVELOPING NEW CENTERS AND EXPANDING EXISTING CENTERS. The Operating
Partnership believes there will continue to be substantial opportunities to
develop manufacturers' outlet centers across the United States. The Operating
Partnership intends to undertake such development on a selective
S-8
<PAGE>
basis, and believes that it will have a competitive advantage in doing so as a
result of its development expertise, tenant relationships and access to capital.
The Operating Partnership expects that the development of new centers and the
expansion of existing centers will continue to be a substantial part of its
growth strategy. See "Recent Developments." The Operating Partnership believes
that its development experience and strong tenant relationships enable it to
determine site viability on a timely and cost-effective basis.
ACQUIRING AND REDEVELOPING CENTERS. The Operating Partnership intends
selectively to acquire individual properties and portfolios of properties that
meet its strategic investment criteria as suitable opportunities arise. The
Operating Partnership believes that its extensive experience in the outlet
center business, access to capital markets, familiarity with real estate markets
and advanced management systems will allow it to evaluate and execute
acquisitions competitively. Furthermore, management believes that the Operating
Partnership will be able to enhance the operation of acquired properties as a
result of its (i) strong tenant relationships with both national and upscale
fashion retailers, and (ii) development, marketing and management expertise as a
full-service real estate organization. Additionally, the Operating Partnership
may be able to acquire properties on a tax-advantaged basis through the issuance
of Operating Partnership units for such properties.
FINANCING
The Operating Partnership's financing strategy is to maintain a strong and
flexible financial position by: (i) maintaining a conservative level of
leverage, (ii) extending and sequencing debt maturity dates, (iii) managing its
floating rate exposure and (iv) maintaining its liquidity. Management believes
these strategies will enable the Operating Partnership to access a broad array
of capital sources, including bank or institutional borrowings, secured and
unsecured debt and equity offerings.
Following completion of the Offering and the application of the net proceeds
thereof, assuming a price of $29.875 per Operating Partnership unit (based on
the market price of $29.875 per share of Common Stock as of October 17, 1996),
the Operating Partnership's ratio of debt to total market capitalization
(defined as the value of outstanding Operating Partnership units plus total
debt) will be approximately 28.1%. It is the Operating Partnership's policy to
limit the extent of its borrowings to less than 40% of its total market
capitalization.
The Operating Partnership currently has in place an unsecured bank revolving
line of credit with a maximum borrowing amount of $100 million (the "Credit
Facility"). As a result of the Offering and the application of the net proceeds
thereof, all borrowings outstanding under the Credit Facility will be repaid and
all of the Credit Facility will be available for the Operating Partnership's
growth and liquidity needs. The Credit Facility, which expires on March 29,
1998, bears interest on the outstanding balance, payable monthly, at a rate of
The London Interbank Offered Rate plus 1.75% or the prime rate, at the Operating
Partnership's option. A fee on the unused portion of the Credit Facility is
payable quarterly at a rate of 0.25% per annum. The Credit Facility's bank group
is comprised of five domestic and international banks.
In January 1996, the Operating Partnership completed a $100 million public
debt offering of 7.75% unsecured notes due January 2001, which are guaranteed by
the Company.
ENVIRONMENTAL MATTERS
The Operating Partnership is not aware of any environmental liabilities
relating to the Properties that would have a material impact on its financial
position and results of operations.
PERSONNEL
As of June 30, 1996, the Operating Partnership had 245 full-time and 59
part-time employees. None of the employees are subject to any collective
bargaining agreements, and the Operating Partnership believes it has good
relations with its employees.
S-9
<PAGE>
RECENT DEVELOPMENTS
OPERATING RESULTS
Since the IPO, the Operating Partnership has improved its operating
performance by a number of measures. Total revenues for the year ended December
31, 1995 increased 36.4% to $72.5 million compared to total revenues of $53.1
million for 1994. Total revenues for the six months ended June 30, 1996
increased 22.1% to $40.0 million compared to $32.8 million for the six-month
period ended June 30, 1995.
The Operating Partnership increased its quarterly distribution from $0.52
per unit to $0.575 per unit as of the fourth quarter of 1995, an increase of
10.6%. Such quarterly distribution presently is equivalent to an annual
distribution of $2.30 per unit.
The Operating Partnership has maintained a portfolio occupancy rate of 98%
or more since the IPO while expanding portfolio GLA substantially (as discussed
below). The Operating Partnership's centers produced weighted average reported
tenant sales of approximately $313 per square foot in 1995, compared to $309 and
$298 per square foot in 1994 and 1993, respectively. During the first six months
of 1996, the Operating Partnership's same-center sales increased 11% compared to
the first six months of 1995, excluding sales attributable to increased GLA.
NEW DEVELOPMENTS AND EXPANSIONS
Between the IPO and June 30, 1996, the Operating Partnership added
approximately 1.6 million square feet of GLA to its portfolio as a result of new
development and expansions, an increase of 101%. Of the total new GLA, 840,000
square feet were in six newly developed centers and 812,000 square feet were in
the expansions of nine existing centers.
S-10
<PAGE>
A summary of development and expansion activity since the Company's IPO
through June 30, 1996 is contained below:
<TABLE>
<CAPTION>
GLA NUMBER
PROPERTY OPENING DATE(S) (SQ. FT.) OF STORES CERTAIN TENANTS
- ------------------------------------- ----------------- --------- ------------- -------------------------------------
<S> <C> <C> <C> <C>
As of IPO............................ 1,620,000 491
New centers:
Santa Fe Factory Stores............ 12/93 125,000 44 Brooks Brothers, Cole-Haan, Dansk,
Donna Karan, Joan & David
Petaluma Village................... 11/94 150,000 43 Ann Taylor, Brooks Brothers, Joan &
David, Levi's, Osh Kosh, Reebok
Napa Factory Stores................ 12/94 72,000 14 Esprit, Nautica, Timberland
Solvang Designer Outlets (1)....... 12/94 52,000 15 Bass, Donna Karan, Ellen Tracy,
Nautica
Camarillo Factory Stores........... 3/95 149,000 48 Barneys, Dansk, Jones New York,
Levi's
North Georgia...................... 5/96 292,000 75 Brooks Brothers, Donna Karan,
Emanuel, Saks Off 5th, GAP
--------- ---
Total newly developed centers.... 840,000 239
Expansions:
Woodbury Common.................... 12/93, 12/94, 108,000 21 Ann Taylor, Polo/Ralph Lauren, Tommy
9/95, 10/95 Hilfiger, Gucci, Versace
Desert Hills....................... 12/93, 6/95 203,000 46 Armani, J. Crew, Nautica, Tommy
Hilfiger, Coach
Aurora Farms....................... 12/93, 5/94, 195,000 35 Ann Taylor, Brooks Brothers, Liz
8/94, 12/95 Claiborne
Napa Factory Stores................ 3/95, 6/95 99,000 35 Cole-Haan, Dansk, Ellen Tracy, J.
Crew
Camarillo Factory Stores........... 12/95 77,000 20 Ann Taylor, Barneys, Saks Off 5th
Columbia Gorge..................... 6/94, 9/94 46,000 9 Bass, Levi's, Mikasa
Petaluma Village................... 12/95, 3/96, 6/96 46,000 10 Bose, Corning Revere, Saks Off 5th
Other.............................. 38,000 6 Fila, Polo/Ralph Lauren, Reebok
--------- ---
Total expansions................. 812,000 182
Center sold: Page Factory Stores..... 12/95 (14,000) (5)
--------- ---
As of June 30, 1996.................. 3,258,000 907
--------- ---
--------- ---
</TABLE>
- ------------------------------
(1) The Company is the sole general partner and has a 50% interest in the
property.
The most recent newly developed centers are discussed below:
NORTH GEORGIA PREMIUM OUTLETS, DAWSONVILLE, GEORGIA. North Georgia Premium
Outlets opened in May 1996 and is located 45 miles north of Atlanta on Georgia
State Highway 400 bordering Lake Lanier, at the gateway to the North Georgia
mountains. The populations within a 30-mile, 60-mile and 100-mile radius are
approximately 0.7 million, 3.6 million and 5.8 million, respectively. Average
household income within a 30-mile radius is approximately $55,000.
CAMARILLO FACTORY STORES, CAMARILLO, CALIFORNIA. Camarillo Factory Stores
opened in March 1995 and is located 48 miles north of Los Angeles and 55 miles
south of Santa Barbara on Highway 101. The average daily traffic count at the
site is approximately 102,000 cars. The center is positioned to serve the needs
of west Los Angeles, San Fernando Valley and Ventura County consumers as well as
tourists traveling on Highway 101. The populations within a 30-mile, 60-mile and
100-mile radius are approximately 1.2 million, 8.8 million and 14.1 million,
respectively. Average household income within a 100-mile radius is approximately
$57,000.
CURRENT AND FUTURE DEVELOPMENT AND EXPANSION
In August 1996, the Operating Partnership opened a new center in Clinton,
Connecticut (in the Interstate 95/New York-New England corridor). The center
contains 67 stores with a high concentration of the Operating Partnership's
upscale and fashion-oriented tenants, including Anne Klein,
S-11
<PAGE>
Barneys New York, Brooks Brothers, Calvin Klein, Coach Leather, Cole-Haan, Donna
Karan, Jones New York, Nautica, Polo/Ralph Lauren, Off 5th-Saks Fifth Avenue and
Tommy Hilfiger. The center also has many national brand-name manufacturers.
The Operating Partnership expects during 1996 to complete three expansions
totalling approximately 110,000 square feet of GLA. Additionally, the Operating
Partnership is in the process of developing other expansions and new centers for
completion in 1997 and beyond. The projects include a 300,000 square foot
expansion at Woodbury Common, and a new project in Wrentham, Massachusetts
(located near the junction of Interstates 95 and 495 between Boston and
Providence) with an expected initial phase of 200,000 square feet of GLA. These
projects are in various stages of development and there can be no assurance that
any of these projects will be completed or opened, or that there will not be
delays in the opening or completion of any of these projects. See "The Operating
Partnership -- Growth Strategy -- Developing New Centers and Expanding Existing
Centers" above and "Risk Factors -- General Real Estate Investment Risks --
Risks of Development Activities" in the accompanying Prospectus.
The Operating Partnership is a minority shareholder in Value Retail PLC,
which in the second quarter of 1995 completed a 107,000 square foot outlet
center in Oxfordshire, England, 60 miles northwest of London. Although the
Operating Partnership's current equity investment in Value Retail PLC is less
than $500,000, the Operating Partnership may increase its investment therein in
order to participate in the development of fashion-oriented manufacturers'
outlet centers in Europe.
S-12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Operating Partnership from the sale of the Notes
offered hereby are estimated to be approximately $99.4 million. The Operating
Partnership intends to use the proceeds of the Offering to repay existing
indebtedness presently outstanding under the Credit Facility, which indebtedness
was incurred principally to fund the cost of the Operating Partnership's
development and expansion activity. See "Recent Developments." As of October 17,
1996, amounts drawn under the Credit Facility aggregated $78 million. The
average interest rate on such indebtedness was 7.3% as of October 17, 1996 (the
indebtedness is scheduled to mature on March 29, 1998). The remaining proceeds
will be used for general corporate purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of June 30, 1996, and as adjusted to give effect to the Offering
and the anticipated use of the proceeds from the Offering as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Credit Facility......................................................................... $ 49,000 $ --
7 3/4% Notes due 2001................................................................... 99,627 99,627
Remarketed Floating Rate Reset Notes due 2001........................................... -- 100,000
----------- -----------
Total debt.......................................................................... 148,627 199,627
----------- -----------
Partners' Capital
General partner units outstanding, 11,781,000 at June 30, 1996 and as adjusted........ 177,867 177,867
Limited partner units outstanding, 5,347,000 at June 30, 1996 and as adjusted......... 80,407 80,407
----------- -----------
Total partners' capital................................................................. 258,274 258,274
----------- -----------
Total capitalization................................................................ $ 406,901 $ 457,901
----------- -----------
----------- -----------
</TABLE>
S-13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and other operating data
of the Operating Partnership and Chelsea GCA Properties (the "Predecessor
Business") on an historical basis. The information should be read in conjunction
with all of the financial statements and notes thereto included in the
accompanying Prospectus and Management's Discussion and Analysis of Financial
Condition and Results of Operation of the Company included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 and Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
The historical data as of and for the years ended December 31, 1995 and 1994
and for the period November 2, 1993 (commencement of operations) to December 31,
1993, has been derived from the historical consolidated financial statements of
the Operating Partnership audited by Ernst & Young LLP, independent auditors.
The historical data as of December 31, 1992 and for the period January 1, 1992
to November 1, 1993 has been derived from the historical combined financial
statements of the Predecessor Business also audited by Ernst & Young LLP,
independent auditors.
The financial data as of and for the six months ended June 30, 1996 and 1995
has been derived from the unaudited condensed consolidated financial statements.
In management's opinion, the financial data for the six months ended June 30,
1996 and 1995 includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations for the periods presented.
Historical operating results, including net income, may not be comparable to
future operating results. In addition, the Operating Partnership believes that
the book value of the Properties, which reflects historical costs of such real
estate assets less accumulated depreciation, is not indicative of the fair value
of the Properties.
S-14
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P. AND PREDECESSOR BUSINESS(1)
(IN THOUSANDS EXCEPT PER UNIT, RATIO AND CENTER DATA)
<TABLE>
<CAPTION>
CHELSEA GCA REALTY PARTNERSHIP, L.P. CHELSEA GCA PROPERTIES(2)
(CONSOLIDATED) (COMBINED)
----------------------------------------------------------- --------------------------
PERIOD PERIOD
SIX MONTHS ENDED YEAR ENDED NOVEMBER 2, JANUARY 1,
JUNE 30, DECEMBER 31, 1993 TO 1993 TO YEAR ENDED
-------------------- ----------------------- DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1996 1995 1995 1994 1993 1993 1992
--------- --------- --------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Base rent............ $ 26,423 $ 21,763 $ 45,986 $ 34,415 $ 4,913 $ 20,551 $ 21,370
Percentage rent...... 1,679 1,097 5,375 3,595 1,488 847 2,049
Expense
reimbursements...... 10,854 9,220 19,704 13,584 2,138 8,047 8,471
Other income......... 1,028 670 1,450 1,551 369 399 873
--------- --------- --------- ------------ ------------ ------------ ------------
Total revenues......... 39,984 32,750 72,515 53,145 8,908 29,844 32,763
Expenses:
Interest............. 3,426 803 3,129 982 163 9,947 11,201
Operating and
maintenance......... 11,596 9,698 20,984 14,337 2,176 8,917 9,422
Depreciation and
amortization........ 7,168 5,550 12,823 8,982 1,358 6,255 6,040
General and
administrative...... 1,441 1,361 2,967 2,561 718 1,860 2,120
Other................ 1,103 850 1,911 1,317 203 1,393 1,140
--------- --------- --------- ------------ ------------ ------------ ------------
Total expenses......... 24,734 18,262 41,814 28,179 4,618 28,372 29,923
Minority interest...... (139) (146) (285) (49) -- (1,128) (1,640)
Net income (loss)...... $ 14,209 $ 14,342 $ 29,365 $ 24,917 $ (5,120) $ 344 $ 1,200
Net income (loss) per
unit.................. $ 0.83 $ 0.86 $ 1.75 $ 1.50 $ (0.31) N/A N/A
Distributions
declared.............. $ 19,684 $ 17,363 $ 35,885 $ 31,618 $ 4,992 N/A N/A
Distributions declared
per unit.............. $ 1.15 $ 1.04 $ 2.135 $ 1.90 $ 0.30 N/A N/A
BALANCE SHEET DATA:
Undepreciated real
estate assets......... $ 463,539 $ 380,907 $ 415,983 $ 332,834 $ 243,218 $ 192,565 $ 158,473
Cash and equivalents... 6,949 5,745 3,987 9,109 57,889 7,236 3,683
--------- --------- --------- ------------ ------------ ------------ ------------
Adjusted total
assets.............. 470,488 386,652 419,970 341,943 301,107 199,801 162,156
Total assets........... $ 459,990 $ 371,706 $ 408,053 $ 330,775 $ 288,732 $ 188,895 $ 152,926
Mortgage notes
payable............... $ -- $ -- $ -- $ -- $ -- $ 146,199 $ 128,292
Unsecured bank line of
credit................ 49,000 -- -- -- -- -- --
Secured bank line of
credit................ -- 71,000 96,000 28,000 -- -- --
Notes payable.......... 99,627 -- -- -- -- -- --
Obligation under
capital lease......... 9,865 9,837 9,845 9,830 9,811 9,804 9,769
--------- --------- --------- ------------ ------------ ------------ ------------
Debt (including
capital lease)...... 158,492 80,837 105,845 37,830 9,811 156,003 138,061
Partners' capital...... 258,274 255,323 261,035 257,535 264,236 15,883 1,945
Total liabilities and
partners' capital..... $ 459,990 $ 371,706 $ 408,053 $ 330,775 $ 288,732 $ 188,895 $ 152,926
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
CHELSEA GCA REALTY PARTNERSHIP, L.P. CHELSEA GCA PROPERTIES(2)
(CONSOLIDATED) (COMBINED)
----------------------------------------------------------- --------------------------
PERIOD PERIOD
SIX MONTHS ENDED YEAR ENDED NOVEMBER 2, JANUARY 1,
JUNE 30, DECEMBER 31, 1993 TO 1993 TO YEAR ENDED
-------------------- ----------------------- DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1996 1995 1995 1994 1993 1993 1992
--------- --------- --------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS:
Earnings to fixed
charges (3)........... 2.9x 3.6x 3.6x 10.4x 16.7x 1.1x 1.2x
EBITDA to Annual
Service Charge
(4)(8)................ 4.6x 7.1x 6.8x 25.7x N/A N/A N/A
Debt to Adjusted Total
Assets (5)(6)......... 33.7% 20.9% 25.2% 11.1% N/A N/A N/A
Secured Debt to
Adjusted Total Assets
(6)(7)................ 0% 18.4% 22.9% 8.2% N/A N/A N/A
Consolidated Income
Available for Debt
Service to Annual
Service Charge (8).... 4.6x 7.1x 6.8x 25.7x N/A N/A N/A
WEIGHTED OWNERSHIP
INTEREST:
General partner........ 11,540 11,063 11,188 10,971 10,937 N/A N/A
Limited partners....... 5,508 5,590 5,601 5,669 5,703 N/A N/A
--------- --------- --------- ------------ ------------ ------------ ------------
Weighted average units
outstanding........... 17,048 16,653 16,789 16,640 16,640 N/A N/A
OTHER DATA:
EBITDA (4)............. $ 25,844 $ 20,841 46,653 $ 34,930 $ 5,811 $ 17,674 $ 20,081
Funds from operations
(9)................... $ 21,520 $ 19,554 41,870 $ 33,631 $ 5,648 $ 7,727 $ 8,880
Cash flows from:
Operating
activities.......... $ 23,690 $ 16,593 $ 36,330 $ 33,345 $ 5,057 $ 10,397 $ 9,487
Investing
activities.......... $ (51,651) $ (46,341) $ (81,926) $ (80,418) $ (63,918) $ (29,536) $ (14,118)
Financing
activities.......... $ 30,923 $ 26,384 $ 40,474 $ (1,707) $ 116,570 $ 22,692 $ 6,341
GLA at end of period... 3,258 2,799 2,934 2,342 1,879 1,620 1,444
Weighted average GLA... 3,023 2,522 2,680 2,001 1,743 1,550 1,401
Centers at end of
period................ 17 17 16 16 13 12 12
New center(s) opened... 1 1 1 3 1 -- 2
Centers expanded....... 2 5 7 2 3 -- 1
Centers sold........... -- -- 1 -- -- -- --
Occupancy at end of
period................ 98% 99% 98% 99% 99% 99% 98%
Operating expense
recovery ratio (10)... 94% 95% 94% 95% N/A N/A N/A
</TABLE>
- ------------------------------
(1) The selected financial data includes the combined financial statements of
Chelsea GCA Properties for the period prior to November 2, 1993 and the
consolidated financial results of the Operating Partnership for the periods
after November 1, 1993.
(2) Prior to the formation of the Operating Partnership, Chelsea GCA Properties
maintained a different capital structure than at present, and therefore
ratios for this period (other than earnings to fixed charges) would not be
meaningful.
(3) For purposes of this calculation, earnings consists of income (loss) before
minority interest and fixed charges before interest capitalized and
amortization of loan costs capitalized. Fixed charges consists of total
interest costs (expensed and capitalized), the portion of rent expense
representative of interest and total amortization of deferred financing
costs (expensed and capitalized).
(4) For purposes of this calculation, EBITDA is defined as earnings before
interest, taxes, depreciation and amortization.
(5) As specified in the Indenture, Debt consists of indebtedness in respect of
borrowed money, secured indebtedness, reimbursement obligations in
connection with letters of credit and capitalized leases.
(6) As specified in the Indenture, Adjusted Total Assets consists of the
Undepreciated Real Estate Assets and all other assets (excluding intangibles
and accounts receivable) of the Operating Partnership and its subsidiaries
on a consolidated basis. Undepreciated Real Estate Assets means the cost
(including capital improvements) of real estate assets of the Operating
Partnership and its subsidiaries, before depreciation and amortization,
determined on a consolidated basis.
(7) As specified in the Indenture, Secured Debt consists of debt secured by any
mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon any property of the Operating Partnership or any of its subsidiaries.
(8) As specified in the Indenture, Consolidated Income Available for Debt
Service consists of consolidated income of the Operating Partnership and its
consolidated subsidiaries plus amounts deducted for interest, provisions for
income taxes, amortization of debt
S-16
<PAGE>
discount, provisions for gains and losses on properties, depreciation and
amortization, non-cash charges and amortization of deferred charges. As
specified in the Indenture, Annual Service Charge as of any date means the
amount which is expensed and capitalized in such period for interest on
debt.
(9) Management believes that, to facilitate a clear understanding of the
operating results of the Operating Partnership, funds from operations
("FFO") should be considered in conjunction with net income as presented in
the selected financial data above. Management generally considers FFO an
appropriate measure of performance of an equity real estate investment
trust. FFO, as defined by the National Association of Real Estate Investment
Trusts ("NAREIT"), is net income (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. FFO does not represent net
income or cash flow from operations as defined by generally accepted
accounting principles and should not be considered an alternative to net
income as an indicator of operating performance or to cash from operations,
and is not necessarily indicative of cash flow available to fund cash needs.
In March 1995, NAREIT issued a clarification of its definition of FFO. The
Operating Partnership adopted the new method in the first quarter of 1996.
The FFO information presented in this table gives effect to the new
clarification from 1994 on. The impact on years prior to 1994 is not
considered material. See "-- Funds From Operations."
(10) The operating expense recovery ratio is computed by dividing expense
reimbursements by operating and maintenance expenses.
FUNDS FROM OPERATIONS
The following table presents the Operating Partnership's FFO calculation for
illustrative purposes:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED JUNE 30, END
-------------------- ---------
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER UNIT
AMOUNTS)
Net income before extraordinary item(1)........................................ $ 15,111 $ 14,342 $ 29,365
Add back depreciation and amortization (1)..................................... 7,065 5,487 12,645
Less amortization of deferred financing costs and depreciation of non-real
estate assets................................................................. (656) (275) (1,191)
Loss on sale of property....................................................... -- -- 1,051
--------- --------- ---------
Funds from operations.......................................................... $ 21,520 $ 19,554 $ 41,870
--------- --------- ---------
--------- --------- ---------
Weighted average units outstanding............................................. 17,048 16,653 16,789
Distributions declared per unit................................................ $ 1.15 $ 1.04 $ 2.135
</TABLE>
- ------------------------------
(1) Excludes minority interest in net income and depreciation attributed to the
limited partner's interest in Solvang Designer Outlets during the six months
ended June 30, 1996 and 1995 and the year ended 1995.
S-17
<PAGE>
BUSINESS AND PROPERTIES
The Properties are upscale, fashion-oriented manufacturers' outlet centers
located near large metropolitan areas including New York, Los Angeles, San
Francisco, Atlanta, Sacramento, Portland (Oregon), Kansas City and Cleveland, or
at or near tourist destinations including the Napa Valley, Palm Springs and the
Monterey Peninsula. The Properties were 98% leased as of June 30, 1996 and
contained over 900 stores with over 300 different tenants. During 1995, the
Properties generated weighted average tenant sales of $313 per square foot.
During 1995 and the first six months of 1996, the Operating Partnership's
same-center sales increased 11% compared to 1994 and the first six months of
1995, respectively (excluding sales attributable to increased GLA).
As of June 30, 1996, the Operating Partnership had 17 operating outlet
centers. Of the 17 operating centers, 14 are owned 100% in fee; one, Solvang
Designer Outlets, is 50%-owned through a limited partnership; and two, American
Tin Cannery Factory Outlets and Lawrence Riverfront Factory Outlets, are held
under long-term leases. The Operating Partnership manages all of its Properties.
Two of the Operating Partnership's outlet centers provided 38% of the
Operating Partnership's total revenue for the year 1995 and the six months ended
June 30, 1996. These included Woodbury Common (25% and 23%) and Desert Hills
(13% and 15%), which, according to VALUE RETAIL NEWS, based on a recent survey
of outlet tenants, are two of the top ten outlet centers in the United States in
terms of sales productivity. The Operating Partnership does not consider any of
the lessees at its centers to be anchor tenants and no individual tenant
accounts for more than 9% of the Operating Partnership's gross revenues or total
GLA. Only one tenant, combining all of its store concepts, occupies in excess of
3% of the Operating Partnership's total GLA. In view of this and the Operating
Partnership's historical ability to re-lease available space, the Operating
Partnership believes the loss of any individual tenant would not have a
significant effect on future operations.
Set forth in the table below is certain information regarding the Properties
as of June 30, 1996:
<TABLE>
<CAPTION>
YEAR GLA NO. OF
PROPERTY/LOCATION OPENED (SQ. FT.) STORES CERTAIN TENANTS
- ---------------------------------------------- --------- --------- --------- ------------------------------------
<S> <C> <C> <C> <C>
Woodbury Common (1) .......................... 1985 572,000 151 Brooks Brothers, Calvin Klein, Donna
Central Valley, NY (New York City metro area) Karan, Polo/Ralph Lauren, Van Heusen
Desert Hills (2) ............................. 1990 432,000 106 Bose, Coach, Donna Karan, Eddie
Cabazon, CA (Palm Springs -- Los Angeles Bauer, Nautica, Tommy Hilfiger
area)
Aurora Farms (3) ............................. 1987 294,000 66 Ann Taylor, Brooks Brothers,
Aurora, OH (Cleveland metro area) Carters, Jones New York, Liz
Claiborne, Reebok
North Georgia Premium Outlets (4) ............ 1996 292,000 75 Brooks Brothers, Donna Karan,
Dawsonville, GA (Atlanta metro area) Emanuel, Saks Off 5th, GAP
Camarillo Factory Stores (5) ................. 1995 226,000 68 Barneys, Dansk, Jones New York,
Camarillo, CA (Los Angeles metro area) Levi's, Nine West, Saks Off 5th
Petaluma Village (6) ......................... 1994 196,000 53 Ann Taylor, Brooks Brothers, Joan &
Petaluma, CA (San Francisco metro area) David, Levi's, Osh Kosh, Saks Off
5th
Folsom Factory Outlets ....................... 1990 189,000 57 Bass, Jones New York, Levi's, Nike,
Folsom, CA (Sacramento metro area) Nine West, Starter
Napa Factory Stores (7) ...................... 1994 171,000 49 Cole-Haan, Dansk, Ellen Tracy,
Napa, CA (Napa Valley) Esprit, J. Crew, Nautica, Timberland
Columbia Gorge (8) ........................... 1991 148,000 42 Carters, Harry & David, Levi's,
Troutdale, OR (Portland metro area) Maidenform, Mikasa, Norm Thompson
Lawrence Riverfront (9) ...................... 1990 148,000 44 Bass, J. Crew, Jones New York,
Lawrence, KS (Kansas City metro area) Mikasa
Liberty Village .............................. 1981 142,000 57 Calvin Klein, Donna Karan, Ellen
Flemington, NJ (New York -- Phila. metro Tracy, Tommy Hilfiger, Waterford
area)
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
YEAR GLA NO. OF
PROPERTY/LOCATION OPENED (SQ. FT.) STORES CERTAIN TENANTS
- ---------------------------------------------- --------- --------- --------- ------------------------------------
American Tin Cannery (10) .................... 1987 137,000 49 Anne Klein, Danskin, Joan & David,
Pacific Grove, CA (Monterey Peninsula) Joseph Abboud, Reebok, Rockport
<S> <C> <C> <C> <C>
Santa Fe Factory Stores ...................... 1993 125,000 44 Brooks Brothers, Cole-Haan, Dansk,
Santa Fe, NM Donna Karan, Joan & David, Mondi
Patriot Plaza (11) ........................... 1986 76,000 11 Lenox, Polo/Ralph Lauren, Westpoint
Williamsburg, VA (Norfolk -- Richmond area) Stevens
Solvang Designer Outlets ..................... 1994 52,000 15 Bass, Donna Karan, Ellen Tracy,
Solvang, CA (Southern California area) Nautica
Mammoth Factory Stores ....................... 1990 35,000 11 Bass, Polo/Ralph Lauren
Mammoth Lakes, CA (Yosemite National Park)
St. Helena Factory Stores .................... 1992 23,000 9 Coach, Donna Karan, Joan & David
St. Helena, CA (Napa Valley)
--------- ---------
Total..................................... 3,258,000 907
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) 85,000, 3,000, 7,000, and 14,000 square foot expansions opened in December
1993, 1994 and the third and fourth quarters of 1995, respectively.
(2) 191,000 and 12,000 square foot expansions opened in June 1995 and December
1993, respectively.
(3) 27,000, 130,000 and 38,000 square foot expansions opened during the fourth
quarter of 1995 and the second and third quarters of 1994, and the fourth
quarter of 1993, respectively.
(4) Phase I comprising 292,000 square feet opened in May 1996.
(5) Phase I comprising 149,000 square feet opened in the first and second
quarters of 1995 and a 77,000 square foot expansion opened in the fourth
quarter of 1995.
(6) Phase I comprising 150,000 square feet opened in November 1994 and a 46,000
square foot expansion opened in the fourth quarter of 1995 and the second
quarter of 1996.
(7) Phase I, comprising 72,000 square feet, opened in December 1994; a 40,000
square foot expansion opened in March 1995; a 42,000 square foot expansion
opened in June 1995; and a 19,000 square foot expansion opened in September
1995.
(8) 46,000 square feet of expansions opened during the second and third
quarters of 1994.
(9) The property is held under a long-term operating land lease expiring in
2007 (subject to renewal at the Operating Partnership's option until 2087)
which provides for an annual rental increase based on increases in the
Consumer Price Index. Management believes that the terms of this lease will
not materially limit the growth in cash flow to be received by the Operating
Partnership from this property.
(10) 10,000 square foot expansion opened in January 1994. The property is held
under a long-term lease expiring in 2012 (subject to renewal at the
Operating Partnership's option through 2022). The lease provides for annual
contingent payments to the landlord based on 20% of gross rents (as defined)
through 2004, escalating to 50% through its expiration in 2012. The
Operating Partnership has not paid contingent rent since inception of the
lease and does not expect to make a payment for 1996. Management believes
that the terms of this lease will not materially limit the growth in cash
flow to be received by the Operating Partnership from this property.
(11) A 13,000 square foot addition opened during February 1995 and a 22,000
square foot adjacent center was acquired in May 1995.
The following sets forth certain information relating to each of the
Properties:
WOODBURY COMMON, CENTRAL VALLEY, NEW YORK. Woodbury Common Factory Outlets
opened in November 1985 and is located approximately 50 miles north of New York
City at the Harriman exit of the New York State Thruway (Interstate 87). It
currently has one of the largest single-center concentrations of
upscale/designer outlet stores in the U.S. Management believes that this center
is the most successful outlet center in the New York-New Jersey metropolitan
area.
S-19
<PAGE>
DESERT HILLS, CABAZON, CALIFORNIA. Desert Hills Factory Stores opened in
August 1990 and is located on Interstate 10, 16 miles west of Palm Springs and
75 miles east of Los Angeles. The center serves the population of southern
California as well as tourists. Management believes that this center is the most
successful outlet center in southern California.
AURORA FARMS, AURORA, OHIO. Founded over sixty years ago, Aurora Farms
Factory Outlets opened as a manufacturers' outlet center in 1987 and is located
approximately 30 miles southeast of Cleveland.
NORTH GEORGIA PREMIUM OUTLETS, DAWSONVILLE, GEORGIA. North Georgia Premium
Outlets opened in May 1996 and is located 45 miles north of Atlanta on Georgia
State Highway 400 bordering Lake Lanier, at the gateway to the North Georgia
mountains.
CAMARILLO FACTORY STORES, CAMARILLO, CALIFORNIA. Camarillo Factory Stores
opened in March 1995 and is located 48 miles north of Los Angeles and 55 miles
south of Santa Barbara on Highway 101.
PETALUMA VILLAGE, PETALUMA, CALIFORNIA. Petaluma Village Factory Outlets
opened in November 1994 and is located one hour north of San Francisco, 40 miles
north of the Golden Gate Bridge, in Sonoma County on Highway 101. The center
reflects the area's heritage through its theme as an agrarian village and serves
as a shopping destination for regional residents from the San Francisco
metropolitan area and tourists visiting the Sonoma Valley.
FOLSOM FACTORY OUTLETS (FORMERLY KNOWN AS NATOMA STATION FACTORY OUTLETS),
FOLSOM, CALIFORNIA. Folsom Factory Outlets opened in March 1990 and is located
approximately 20 miles east of Sacramento.
NAPA FACTORY STORES, NAPA, CALIFORNIA. Napa Factory Stores opened in
December 1994 and is located on Highway 29, the main corridor of the Napa Valley
wine region in Northern California, 20 miles south of St. Helena Factory Stores,
a smaller Operating Partnership-owned center with which it performs joint
marketing efforts.
COLUMBIA GORGE, TROUTDALE, OREGON. Columbia Gorge Factory Stores opened in
April 1991 and is located on Interstate 84, 20 miles east of Portland, along the
Columbia River Gorge.
LAWRENCE RIVERFRONT, LAWRENCE, KANSAS. Lawrence Riverfront Factory Outlets
opened in April 1990 and is located approximately 40 miles west of Kansas City
and 30 miles east of Topeka. Lawrence is home to the University of Kansas.
LIBERTY VILLAGE, FLEMINGTON, NEW JERSEY. Liberty Village Factory Outlets
opened in May 1981 and is located approximately 60 miles southwest of New York
City and 40 miles north of Philadelphia. Designed in an authentic colonial
style, Liberty Village was the industry's first architecturally themed outlet
village.
AMERICAN TIN CANNERY, PACIFIC GROVE, CALIFORNIA. The Operating Partnership
introduced the manufacturers' outlet center concept to California in 1987 with
the opening of American Tin Cannery Factory Outlets on the Monterey Peninsula.
The center is a renovation of an existing structure along Cannery Row and is
located near the Monterey Bay Aquarium, minutes away from Carmel. It is
approximately 110 miles south of San Francisco.
SANTA FE FACTORY STORES, SANTA FE, NEW MEXICO. Santa Fe Factory Stores
opened in December 1993 and is located on Interstate 25 at the intersection of
Route 68, the main road into historic Santa Fe.
PATRIOT PLAZA, WILLIAMSBURG, VIRGINIA. Patriot Plaza Factory Stores opened
in December 1986 and is located near historic Colonial Williamsburg, 50 miles
east of Richmond and 50 miles west of the Virginia Beach/Norfolk metro market.
Over 2 million tourists visit Williamsburg, the restored former colonial
capital, each year.
S-20
<PAGE>
SOLVANG DESIGNER OUTLETS, SOLVANG, CALIFORNIA. Solvang Designer Outlets
opened in December 1994 and is located off Highway 101, two and one-half hours
north of Los Angeles and forty-two miles northeast of Santa Barbara.
MAMMOTH FACTORY STORES, MAMMOTH LAKES, CALIFORNIA. Mammoth Factory Stores
opened in 1990 and is located 20 miles from the eastern entrance to Yosemite
National Park and five miles from the most popular skiing area in California.
ST. HELENA FACTORY STORES (FORMERLY KNOWN AS VILLAGE OUTLETS OF NAPA
VALLEY), ST. HELENA, CALIFORNIA. St. Helena Factory Stores opened in November
1992 and is located in the Napa Valley wine region in Northern California on
Route 29, the main thoroughfare in the area.
The Operating Partnership rents approximately 23,000 square feet of office
space in its headquarters facility in Roseland, New Jersey and approximately
5,000 square feet of office space for its west coast office in Newport Beach,
California.
LEASE EXPIRATIONS
The following table sets forth, as of June 30, 1996, scheduled lease
expirations, assuming none of the tenants exercise renewal options:
<TABLE>
<CAPTION>
AVG. BASE
RENT PER % OF TOTAL
NUMBER SQ. FT. TOTAL BASE GLA
OF APPROX. UNDER RENT UNDER REPRESENTED
LEASES GLA EXPIRING EXPIRING BY EXPIRING
YEAR EXPIRING (SQ. FT.) LEASES(1) LEASES(1) LEASES
- ------------------------------------- ------------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1996................................. 40 119,000 $ 13.47 $ 1,603,000 3.7%
1997................................. 93 302,000 16.11 4,864,000 9.5
1998................................. 112 368,000 17.73 6,526,000 11.6
1999................................. 107 376,000 17.04 6,406,000 11.8
2000................................. 159 507,000 17.80 9,025,000 16.0
2001................................. 122 414,000 17.74 7,343,000 13.1
2002................................. 75 241,000 19.69 4,746,000 7.6
2003................................. 64 316,000 17.84 5,639,000 10.0
2004................................. 26 148,000 15.70 2,323,000 4.7
2005................................. 46 169,000 19.18 3,241,000 5.3
2006................................. 28 112,000 22.18 2,484,000 3.5
Thereafter........................... 8 101,000 9.43 952,000 3.2
--- ----------- ----------- -------------- -----
Total............................ 880 3,173,000 $ 17.38 $ 55,152,000 100.0%
--- ----------- ----------- -------------- -----
--- ----------- ----------- -------------- -----
</TABLE>
- ------------------------------
(1) Base rent is defined as the minimum payments due as of June 30, 1996
excluding periodic fixed contractual increases.
S-21
<PAGE>
RENTAL AND OCCUPANCY RATES
The following table sets forth the average base rental rate increases per
square foot upon re-leasing stores that were turned over or renewed during each
of the last five calendar years and the first six months of 1996:
<TABLE>
<CAPTION>
STORES RE-LEASED TO NEW TENANTS RENEWALS OF EXISTING LEASES
--------------------------------------- ---------------------------------------
AVERAGE ANNUALIZED AVERAGE ANNUALIZED
BASE RENTS ($ PER BASE RENTS ($ PER
NUMBER OF SQUARE FOOT) NUMBER OF SQUARE FOOT)
STORES ---------------------- STORES ----------------------
YEAR TURNED OVER EXPIRING NEW RENEWED EXPIRING NEW
- -------------------------------------- --------------- ----------- --------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996 (through June 30)................ 13 $ 16.58 $ 24.63 28 $ 15.92 $ 17.04
1995.................................. 57 18.07 20.09 70 16.23 17.03
1994.................................. 35 15.90 17.10 46 15.39 16.33
1993.................................. 60 15.52 18.33 60 15.21 16.10
1992.................................. 30 15.82 18.97 39 16.00 16.80
1991.................................. 10 14.94 18.04 28 14.10 15.85
</TABLE>
The following table shows certain information on rents and occupancy rates
for the Operating Partnership over the last five years:
<TABLE>
<CAPTION>
AVERAGE NUMBER OF AGGREGATE
BASE RENT OPERATING PERCENTAGE
YEAR OCCUPANCY PER SQ. FT. GLA PROPERTIES RENTS
- -------------------------------------- --------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1995.................................. 98% $ 17.55 2,934,000 16 $ 4,327,000
1994.................................. 99 17.20 2,342,000 16 3,595,000
1993.................................. 99 16.09 1,879,000 13 2,335,000
1992.................................. 98 15.25 1,444,000 12 2,049,000
1991.................................. 98 14.35 1,327,000 10 2,057,000
</TABLE>
S-22
<PAGE>
OCCUPANCY COSTS
The Operating Partnership believes that its average occupancy cost (which
includes base rent, common area maintenance, real estate taxes, insurance and
promotions) to average sales per square foot ratio is low relative to other
forms of retail distribution. The following table sets forth, for each of the
last five years, occupancy costs per square foot as a percentage of reported
tenant sales per square foot.
<TABLE>
<CAPTION>
YEAR OCCUPANCY COSTS
- ----------------------------------------------------------------------------- -------------------
<S> <C>
1995......................................................................... 8.5%
1994......................................................................... 8.4
1993......................................................................... 8.1
1992......................................................................... 8.3
1991......................................................................... 8.1
</TABLE>
SALES
Management believes that increasing tenant sales is an important element in
its ability to maintain occupancy levels and to obtain higher average base
rents. The Operating Partnership's same-center sales increased 11% during 1995
compared to 1994. During the first six months of 1996, same-center sales
increased 11% compared to the same period in the previous year. Same-center
sales includes weighted average sales per square foot reported in space open for
the full duration of both comparison periods.
The following table compares weighted average sales per square foot, during
each of the last five years, for tenants that report sales:
<TABLE>
<CAPTION>
REPORTED TENANT WEIGHTED AVERAGE
YEAR SALES (000'S) SALES PER SQ. FT.
- ----------------------------------------------------------- --------------- -----------------
<S> <C> <C>
1995....................................................... $ 748,256 $ 313
1994....................................................... 534,427 309
1993....................................................... 391,388 298
1992....................................................... 301,058 274
1991....................................................... 269,599 268
</TABLE>
TENANTS
The Operating Partnership has a diversified mix of tenants, with no single
tenant accounting for more than 9% of the Operating Partnership's revenue or
total GLA. Only one tenant, combining all of its store concepts, occupies more
than 3% of the Operating Partnership's GLA. In addition, only four individual
store concepts each account for more than 2% of the Operating Partnership's
revenue or total GLA.
The following table sets forth certain information with respect to the
Operating Partnership's ten largest tenants and their store concepts as of June
30, 1996.
<TABLE>
<CAPTION>
NUMBER OF GLA % OF TOTAL
TENANT STORES (SQ. FT.) GLA
- ---------------------------------------------------------- ------------- --------- -------------
<S> <C> <C> <C>
PHILLIPS-VAN HEUSEN CORPORATION:
Bass Company Store...................................... 10 77,004 2.4%
Van Heusen.............................................. 15 69,294 2.1
Geoffrey Beene Co. Store................................ 7 33,897 1.0
Izod.................................................... 11 22,447 0.7
Geoffrey Beene Mens'.................................... 7 21,408 0.7
Gant.................................................... 6 18,474 0.6
Bass Apparel............................................ 4 17,255 0.5
Bass Shoes.............................................. 2 8,255 0.2
Geoffrey Beene Ladies'.................................. 1 2,804 0.1
--- --------- ---
Tenant total.......................................... 63 270,838 8.3%
SARA LEE CORPORATION:
L'Eggs, Hanes Bali...................................... 11 49,987 1.5%
Champion Hanes.......................................... 5 14,373 0.5
Coach Leather........................................... 4 10,639 0.3
Socks Galore............................................ 5 6,215 0.2
Mark Cross.............................................. 2 4,078 0.1
--- --------- ---
Tenant total.......................................... 27 85,292 2.6%
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF GLA % OF TOTAL
TENANT STORES (SQ. FT.) GLA
- ---------------------------------------------------------- ------------- --------- -------------
MELRU CORPORATION:
<S> <C> <C> <C>
Jones New York.......................................... 7 21,655 0.7%
Jones NY Country........................................ 8 21,062 0.6
Jones NY Factory Finale................................. 3 8,825 0.3
Jones NY Sport.......................................... 3 8,174 0.3
Jones NY Executive Suite................................ 4 6,224 0.2
Jones NY/Woman.......................................... 1 5,499 0.1
Evan Picone............................................. 2 4,517 0.1
Jones NY Dress/Saville.................................. 1 2,754 0.1
Jones Suit Store........................................ 1 2,072 0.1
Bristol Cafe............................................ 1 364 --
--- --------- ---
Tenant total.......................................... 31 81,146 2.5 %
AMERICAN COMMERCIAL, INCORPORATED:
Mikasa Factory Store.................................... 8 69,686 2.2 %
Studio Nova............................................. 1 7,699 0.2
--- --------- ---
Tenant total.......................................... 9 77,385 2.4 %
WESTPOINT STEVENS......................................... 4 76,083 2.3 %
DRESS BARN, INC.:
Westport Woman.......................................... 6 27,621 0.8 %
Westport Ltd............................................ 6 25,417 0.8
Dress Barn Outlet....................................... 4 19,355 0.6
--- --------- ---
Tenant total.......................................... 16 72,393 2.2 %
OSH KOSH B'GOSH, INC.:
Osh Kosh B'Gosh......................................... 7 42,023 1.3 %
Genuine Kids............................................ 8 22,181 0.7
--- --------- ---
Tenant total.......................................... 15 64,204 2.0 %
NINE WEST GROUP:
Banister Shoe........................................... 6 29,656 0.9 %
Nine West............................................... 11 27,516 0.8
Capezio................................................. 2 6,069 0.2
--- --------- ---
Tenant total.......................................... 19 63,241 1.9 %
BROWN RETAIL GROUP, INC.:
Factory Brand Shoes..................................... 11 56,522 1.7 %
Naturalizer............................................. 1 2,248 0.1
--- --------- ---
Tenant total.......................................... 12 58,770 1.8 %
LIZ CLAIBORNE............................................. 4 58,173 1.8 %
--- ---------
TOTAL..................................................... 200 907,525 27.8 %
--- --------- ---
--- --------- ---
</TABLE>
S-24
<PAGE>
CERTAIN TERMS OF THE NOTES
The following description of the particular terms of the Notes offered
hereby (which are a series of "Debt Securities" described in the accompanying
Prospectus) supplements, and to the extent inconsistent therewith replaces,
insofar as such description relates to the Notes, the description of the general
terms and provisions of the Debt Securities set forth in the accompanying
Prospectus, to which description reference is hereby made. The statements under
this caption "Certain Terms of the Notes" are subject to the detailed provisions
of the Indenture referred to below, a copy of which is filed as an exhibit to
the Registration Statement of which the Prospectus forms a part, and of the
Remarketing Agreement and the Remarketing Underwriting Agreement referred to
below, the forms of each of which will be filed, pursuant to a Current Report on
Form 8-K, as an exhibit to such Registration Statement. Whenever particular
provisions of the Indenture, the Remarketing Agreement or the Remarketing
Underwriting Agreement, or terms defined therein, are referred to, such
provisions or definitions are incorporated by reference as part of the
statements made and the statements are qualified in their entirety by such
reference. Capitalized terms not defined herein have the meanings ascribed to
them in the accompanying Prospectus and the Indenture.
GENERAL
The Notes will be issued under an Indenture, dated as January 23, 1996, as
amended or supplemented (the "Indenture"), among the Operating Partnership, the
Company and State Street Bank and Trust Company, as trustee (the "Trustee"), and
are a series of Debt Securities described in the accompanying Prospectus. The
Notes will be limited to $100,000,000 aggregate principal amount and will
mature, unless previously redeemed, on October 23, 2001.
The Notes will be direct, unsecured obligations of the Operating Partnership
and will rank pari passu with each other and with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. The Operating Partnership does not presently have outstanding any
secured indebtedness. Subject to certain limitations set forth in the Indenture,
and as described under "Description of Debt Securities--Certain
Covenants--Limitations on Incurrence of Debt" in the accompanying Prospectus,
the Indenture will permit the Operating Partnership to incur secured and
additional unsecured indebtedness.
Except as described under "--Merger, Consolidation or Sale" and "--Certain
Covenants" below and under "Description of Debt Securities--Merger,
Consolidation or Sale" and "--Certain Covenants" in the accompanying Prospectus,
the Indenture does not contain any other provisions that would limit the ability
of the Operating Partnership to incur indebtedness or that would afford holders
of the Notes protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the Company as general partner
of the Operating Partnership, or any Affiliate of either such party, (ii) a
change of control, or (iii) a reorganization, restructuring, merger or similar
transaction involving the Operating Partnership that may adversely affect the
holders of the Notes. In addition, subject to the limitations set forth under
"--Merger, Consolidation or Sale" and "--Certain Covenants" below or under
"Description of Debt Securities--Merger, Consolidation or Sale" and "-- Certain
Covenants" in the accompanying Prospectus, the Operating Partnership may, in the
future, enter into certain transactions such as the sale of all or substantially
all of its assets or the merger or consolidation of the Operating Partnership
that would increase the amount of the Operating Partnership's indebtedness or
substantially reduce or eliminate the Operating Partnership's assets, which may
have an adverse effect on the Operating Partnership's ability to service its
indebtedness, including the Notes. The Operating Partnership and its management
have no present intention of engaging in a highly leveraged or similar
transaction involving the Operating Partnership.
BOOK-ENTRY, DELIVERY AND FORM
Upon issuance, the Notes will be represented by a single Global Note, which
will be deposited with, or on behalf of, the Depositary and will be registered
in the name of the Depositary or a nominee of the Depositary. The Global Note
may not be transferred except as a whole by the Depositary to a
S-25
<PAGE>
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary, or by the Depositary or any such nominee to a
successor depositary or a nominee of such successor depositary.
So long as the Depositary or its nominee is the registered owner of the
Global Note, the Depositary or its nominee, as the case may be, will be the sole
owner of the Notes represented thereby for all purposes under the Indenture and
may be treated by the Operating Partnership or the Trustee as the owner of the
Global Note for all purposes whatsoever. Except as otherwise provided in this
section, owners of beneficial interests in the Global Note will not be entitled
to receive physical delivery of certificated Notes and will not be considered
the owners thereof for any purpose under the Indenture, and the Global Note
shall not be exchangeable or transferable. Accordingly, each beneficial owner
must rely on the procedures of the Depositary and, if such beneficial owner is
not a Participant (as defined herein), on the procedures of the Participant
through which such beneficial owner owns its interest in order to exercise any
rights of an owner under the Global Note or the Indenture. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. Such limits and such laws may
impair the ability to transfer beneficial interests in the Global Note.
None of the Operating Partnership, the Company, the Trustee, any Paying
Agent or the Registrar will have responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership in
the Global Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Global Note will be exchangeable for certificated Notes of like tenor
and terms and of differing authorized denominations aggregating a like principal
amount, only if the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Operating Partnership within 90 days of the Operating Partnership's receipt of
notice to such effect or if the Operating Partnership, in its sole discretion,
at any time determines that the Notes shall no longer be represented by such
Global Note, then in either event the Global Note shall be exchanged for Notes
in definitive form pursuant to the Indenture.
The following is based on information furnished by the Depositary:
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934. The Depositary holds securities that
its participants ("Participants") deposit with the Depositary. The
Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities
certificates. Direct Participants of the Depositary ("Direct Participants")
include securities brokers and dealers (including Merrill Lynch, Pierce,
Fenner & Smith Incorporated), banks, trust companies, clearing corporations
and certain other organizations. The Depositary is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers,
Inc. Access to the Depositary's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Securities and
Exchange Commission.
Purchasers of Notes under the Depositary's system must be made by or
through Direct Participants, which will receive a credit for such Notes on
the Depositary's records. The ownership interest of each actual purchaser of
each Note represented by the Global Note ("Beneficial Owner") is in turn to
be recorded on the Direct and Indirect Participants' records. Beneficial
S-26
<PAGE>
Owners will not receive written confirmation from the Depositary of their
purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants
through which such Beneficial Owner entered into the transaction. Transfers
of beneficial ownership interests in the Global Note are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificated Notes representing
their beneficial ownership interests in the Global Note, except in the event
that use of the book-entry system for the Global Note is discontinued.
To facilitate subsequent transfers, the Global Note deposited with, or
on behalf of, the Depositary will be registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of the Global Note
with the Depositary and the registration thereof in the name of Cede & Co.
effect no change in beneficial ownership. The Depositary has no knowledge of
the actual Beneficial Owners of the Notes represented by the Global Note;
the Depositary's records reflect only the identity of the Direct
Participants to whose accounts such Notes are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, the Depositary's practice is to determine by lot
the amount of the interest of each Direct Participant in the Global Note to
be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to the Notes. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the Operating Partnership as soon as possible after the applicable
record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting
rights to those Direct Participants to whose account interests in the Notes
represented by the Global Note are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made to the
Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the applicable payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason
to believe that it will not receive payment on such date. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities, held for the
accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of the Depositary,
the Trustee, the Operating Partnership or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to the Depositary is the responsibility of
the Operating Partnership or the Trustee, disbursement of such payments to
Direct Participants shall be the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its beneficial
interest in the Notes purchased or tendered, through its Participant, to the
Remarketing Underwriter and shall effect delivery of such interest in the
Notes by causing the Direct Participant to transfer the Participant's
interest in the Global Note representing such Beneficial Owner's interest in
the Notes, on the Depositary's records, to the Remarketing Underwriter. The
requirement for physical delivery of Notes in connection with an optional
tender or a mandatory purchase will be deemed satisfied when the ownership
rights in the Global Note representing such interest in the Notes are
transferred by Direct Participants on the Depositary's records and followed
by a book-entry credit of tendered Notes to the Remarketing Underwriter's
account.
S-27
<PAGE>
The Depositary may discontinue providing its services as securities
depository with respect to the Notes at any time by giving reasonable notice
to the Operating Partnership or the Trustee. Under such circumstances, in
the event that a successor securities depository is not obtained,
certificated Notes are required to be printed and delivered.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through the Depositary (or a successor securities
depository). In that event, certificated Notes will be printed and
delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry has been obtained from sources that the Operating
Partnership believes to be reliable, but the Operating Partnership takes no
responsibility for the accuracy thereof.
INTEREST
The Notes will bear interest from October 23, 1996, payable quarterly in
arrears on January 23, April 23, July 23 and October 23 of each year (or, if not
a Business Day (as defined below), on the next succeeding Business Day (except
as described below)) (each an "Interest Payment Date"), commencing January 23,
1997, and at maturity to the persons in whose names the Notes are registered at
the close of business on the January 9, April 9, July 9 and October 9 preceding
such January 23, April 23, July 23 and October 23, respectively. The interest
rate on the Notes will reset quarterly. The Notes will bear interest at a per
annum rate (computed on the basis of the actual number of days elapsed over a
360-day year) equal to LIBOR (as defined below) for the applicable Quarterly
Period (as defined below) plus the applicable Spread (as defined below). The
initial Quarterly Period will be the period from and including October 23, 1996
to but excluding the first Interest Payment Date (January 23, 1997) (the
"Initial Quarterly Period"). Thereafter, each Quarterly Period will be from and
including the most recent Interest Payment Date to which interest has been paid
to but excluding the next Interest Payment Date; the first day of a Quarterly
Period is referred to herein as an "Interest Reset Date."
The Spread applicable during the one year period ending on October 23, 1997
(the "Initial Spread Period") will be .75% (the "Initial Spread"). Thus, the
interest rate per annum during the Initial Quarterly Period will be equal to
LIBOR, determined as of October 21, 1996, plus .75%. The interest rate per annum
for each succeeding Quarterly Period during the Initial Spread Period will equal
LIBOR for such Quarterly Period plus the Initial Spread. Thereafter, the Spread
will be determined in the manner described below for each subsequent Spread
period (a "Subsequent Spread Period"), which will be the period of at least one
year and not more than four years, designated by the Operating Partnership,
commencing on an October 23 (the "Commencement Date") and ending one, two, three
or four years subsequent, as the case may be, through and including 2001 (except
that no Subsequent Spread Period may end after October 23, 2001). Unless notice
of redemption of the Notes as a whole has been given, the first Commencement
Date will be October 23, 1997.
If any Interest Payment Date (other than at maturity or upon redemption),
Interest Reset Date, Duration Determination Date (as defined below), Spread
Determination Date (as defined below), Commencement Date or Tender Date (as
defined below) would otherwise be a day that is not a Business Day, such
Interest Payment Date, Interest Reset Date, Duration Determination Date, Spread
Determination Date, Commencement Date or Tender Date will be postponed to the
next succeeding day that is a Business Day, except that if such Business Day is
in the next succeeding calendar month, such Interest Payment Date, Interest
Reset Date, Duration Determination Date, Spread Determination Date, Commencement
Date or Tender Date shall be the next preceding Business Day.
If the maturity date or a redemption date falls on a day that is not a
Business Day, the related payment of principal and interest will be made on the
next succeeding Business Day as if it were made on the date such payment was
due, and no interest will accrue on the amounts so payable for the period from
and after such dates.
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LIBOR applicable for each Quarterly Period will be determined by the Rate
Agent (as defined under "Tender at Option of Beneficial Owners" below) as of the
second London Business Day (as defined below) (the "LIBOR Determination Date")
preceding each Interest Reset Date in accordance with the following provisions:
(i) LIBOR will be determined on the basis of the offered rates for
three-month deposits in U.S. Dollars of not less than U.S. $1,000,000,
commencing on the second London Business Day immediately following such
LIBOR Determination Date, which appears on the Telerate Page 3750 (as
defined below) as of approximately 11:00 a.m., London time, on such LIBOR
Determination Date. "Telerate Page 3750" means the display designated on
page "3750"on the Telerate Service (or such other page as may replace the
3750 page on that service or such other service or services as may be
nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for U.S. Dollar deposits). If no rate appears
on the Telerate Page 3750, LIBOR for such LIBOR Determination Date will be
determined in accordance with the provisions of paragraph (ii) below.
(ii) With respect to a LIBOR Determination Date on which no rate appears
on Telerate Page 3750 as of approximately 11:00 a.m., London time, on such
LIBOR Determination Date, the Rate Agent shall request the principal London
offices of each of four major reference banks in the London interbank market
selected by the Rate Agent to provide the Rate Agent with a quotation of the
rate at which three-month deposits in U.S. Dollars, commencing on the second
London Business Day immediately following such LIBOR Determination Date, are
offered by it to prime banks in the London interbank market as of
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than U.S. $1,000,000
that is representative for a single transaction in such market at such time.
If at least two such quotations are provided, LIBOR for such LIBOR
Determination Date will be the arithmetic mean of such quotations as
calculated by the Rate Agent. If fewer than two quotations are provided,
LIBOR for such LIBOR Determination Date will be the arithmetic mean of the
rates quoted as of approximately 11:00 a.m., New York City time, on such
LIBOR Determination Date by three major banks in The City of New York
selected by the Rate Agent (after consultation with the Operating
Partnership) for loans in U.S. Dollars to leading European banks, having a
three-month maturity commencing on the second London Business Day
immediately following such LIBOR Determination Date and in a principal
amount equal to an amount of not less than U.S. $1,000,000 that is
representative for a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by the Rate Agent
are not quoting as mentioned in this sentence, LIBOR for such LIBOR
Determination Date will be the LIBOR determined with respect to the
immediately preceding LIBOR Determination Date, or in the case of the first
LIBOR Determination Date, LIBOR for the Initial Quarterly Period.
The Spread that will be applicable during each Subsequent Spread Period will
be the percentage (a) recommended by the Remarketing Underwriter (as defined
under "Tender at Option of Beneficial Owners" below) so as to result in a rate
that, in the opinion of the Remarketing Underwriter, will enable tendered Notes
to be remarketed by the Remarketing Underwriter at 100% of the principal amount
thereof, as described under "Tender at Option of Beneficial Owners" below, and
(b) agreed to by the Operating Partnership.
Unless notice of redemption of the Notes as a whole has been given, the
duration of each Subsequent Spread Date will be established by 3:00 p.m., New
York City time, on the 15th calendar day prior to the Commencement Date of each
Subsequent Spread Period (the "Duration Determination Date"). In addition, the
Spread for each Subsequent Spread Period will be established by 3:00 p.m., New
York City time, on the 10th calendar day prior to the Commencement Date of such
Subsequent Spread Period (the "Spread Determination Date"). The Operating
Partnership will request, not later than 7 nor more than 15 calendar days prior
to any Spread Determination Date, that the Depositary notify its Participants of
such Spread Determination Date and of the procedures that must be followed if
any beneficial owner of a Note wishes to tender such Note as described under
"Tender at Option of Beneficial Owners" below. The term "Business Day" means any
day other than
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a Saturday or Sunday or a day on which banking institutions in The City of New
York are required or authorized to close and that is also a London Business Day.
The term "London Business Day" means any day on which dealings in U.S. Dollars
are transacted in the London interbank market.
In the event that the Operating Partnership and the Remarketing Underwriter
do not agree on the Spread for any Subsequent Spread Period, then (1) the
Subsequent Spread Period will be one year, (2) the Spread for such Subsequent
Spread Period will be the Alternate Spread and (3) the Notes will be redeemable
at the option of the Operating Partnership, in whole or in part, upon at least
10 Business Days notice given by no later than the second Business Day after the
Spread Determination Date in the manner described under "Redemption of Notes"
below, at a redemption price equal to 100% of the principal amount thereof,
together with accrued interest to the redemption date. The Alternate Spread will
be the percentage equal to LIBOR (determined as described above) for the
Quarterly Period beginning on the Commencement Date for such Subsequent Spread
Period.
Unless notice of redemption of the Notes as a whole has been given, the
Operating Partnership will cause a notice to be published on the New York
Business Day (as defined below) following the Spread Determination Date for each
Subsequent Spread Period in the manner described below, specifying (1) the term
of such Subsequent Spread Period, (2) the Spread for such Subsequent Spread
Period, (3) that LIBOR for the initial Quarterly Period of such Subsequent
Spread Period will be determined as of the relevant LIBOR Determination Date
(which date shall be specified in such notice) and (4) the identity of the
Remarketing Underwriter, if applicable. Such notice will be given by publication
in a daily newspaper in the English language of general circulation in The City
of New York, which is expected to be THE WALL STREET JOURNAL. The term "New York
Business Day" means any day other than a Saturday or Sunday or a day on which
banking institutions in The City of New York are required or authorized to
close.
All percentages resulting from any calculation of any interest rate for the
Notes will be rounded, if necessary, to the nearest one hundred thousandth of a
percentage point, with five one millionths of a percentage point rounded upward
and all dollar amounts will be rounded to the nearest cent, with one-half cent
being rounded upward.
TENDER AT OPTION OF BENEFICIAL OWNERS
In the event the Operating Partnership and the Remarketing Underwriter agree
on the Spread on the Spread Determination Date with respect to any Subsequent
Spread Period, the Operating Partnership and the Remarketing Underwriter will
enter into a Remarketing Underwriting Agreement (the "Remarketing Underwriting
Agreement") on such Spread Determination Date, under which the Remarketing
Underwriter will agree, subject to the terms and conditions set forth therein,
to purchase from tendering Noteholders on October 23, 1997 and on any October 23
thereafter immediately following the end of a Subsequent Spread Period (the
"Tender Date") all Notes with respect to which the Remarketing Underwriter
receives a Tender Notice as described below at 100% of the principal amount
thereof (the "Purchase Price"). In such event (except as otherwise provided in
the next succeeding paragraph), each beneficial owner of a Note may, at such
owner's option, upon giving notice as provided below (the "Tender Notice"),
tender such Note for purchase by the Remarketing Underwriter on the Tender Date
at the Purchase Price. The Purchase Price will be paid by the Remarketing
Underwriter in accordance with the standard procedures of the Depositary, which
currently provide for payments in same-day funds. Interest accrued on the Notes
with respect to the preceding interest period will be paid in the manner
described under "Book-Entry, Delivery and Form" and "Interest" above. If such
beneficial owner has an account at the Remarketing Underwriter and tenders such
Note through such account, such beneficial owner will not be required to pay any
fee or commission to the Remarketing Underwriter. If such Note is tendered
through a broker, dealer, commercial bank, trust company or other institution,
other than the Remarketing Underwriter, such holder may be required to pay fees
or commissions to such other institution. It is currently anticipated that Notes
so purchased by the Remarketing Underwriter will be remarketed by it.
The Tender Notice must be received by the Remarketing Underwriter during the
period commencing on the calendar day following the Spread Determination Date
(or, if not a Business Day, on
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the next succeeding Business Day) and ending at 5:00 p.m., New York City time,
on the fifth calendar day following the Spread Determination Date (or, if not a
Business Day, on the next succeeding Business Day) (the "Notice Date"). In order
to ensure that a Tender Notice is received on a particular day, the beneficial
owner of Notes must direct his broker or other designated Participant or
Indirect Participant to give such Tender Notice before the broker's cut-off time
for accepting instructions for that day. Different firms may have different
cut-off times for accepting instructions from their customers. Accordingly,
beneficial owners should consult the brokers or other Participants or Indirect
Participants through which they own their interests in the Notes for the cut-off
times for such brokers, other Participants or Indirect Participants. See
"Book-Entry, Delivery and Form" above. Except as otherwise provided below, a
Tender Notice shall be irrevocable. If a Tender Notice is not received for any
reason by the Remarketing Underwriter with respect to any Note by 5:00 p.m., New
York City time, on the Notice Date, the beneficial owner of such Note shall be
deemed to have elected not to tender such Note for purchase by the Remarketing
Underwriter.
The obligation of the Remarketing Underwriter to purchase Notes from
tendering Noteholders will be subject to several conditions precedent set forth
in the Remarketing Underwriting Agreement that are customary in the Operating
Partnership's public offerings, including a condition that no material adverse
change in the condition of the Operating Partnership and its subsidiaries, taken
as a whole, shall have occurred since the Spread Determination Date. In
addition, the Remarketing Underwriting Agreement will provide for the
termination thereof by the Remarketing Underwriter upon the occurrence of
certain events that are also customary in the Operating Partnership's public
securities offerings. In the event that, with respect to any Subsequent Spread
Period, the Remarketing Underwriter does not for any reason purchase on the
relevant Tender Date all of the Notes for which a Tender Notice shall have been
given, (1) all such Tender Notices will be null and void, (2) none of the Notes
for which such Tender Notices shall have been given will be purchased by the
Remarketing Underwriter on such Tender Date, (3) the Subsequent Spread Period
will be one year, which Subsequent Spread Period shall be deemed to have
commenced upon the applicable Commencement Date, (4) the Spread for such
Subsequent Spread Period will be the Alternate Spread and (5) the Notes will be
redeemable at the option of the Operating Partnership, in whole or in part, upon
at least 10 Business Days prior notice given by no later than the second
Business Day following the relevant Tender Date in the manner described under
"Redemption of the Notes" below, at a redemption price equal to 100% of the
principal amount thereof, together with accrued interest to the redemption date.
No beneficial owner of any Note shall have any rights or claims under the
Remarketing Underwriting Agreement or against the Operating Partnership, the
Company or the Remarketing Underwriter as a result of the Remarketing
Underwriter not purchasing such Notes, except as provided in clause (4) of the
last sentence of the preceding paragraph. The Operating Partnership will have no
obligation under any circumstance to repurchase any Notes, except in the case of
Notes called for redemption as described below.
If the Remarketing Underwriter does not purchase all Notes tendered for
purchase on any Tender Date, it will promptly notify the Operating Partnership,
the Company and the Trustee. As soon as practicable after receipt of such
notice, the Operating Partnership will cause a notice to be published specifying
(1) the one-year term of the Subsequent Spread Period, (2) the Spread for such
Subsequent Spread Period (which shall be the Alternate Spread) and (3) LIBOR for
the initial Quarterly Period of such Subsequent Spread Period. Such notice will
be published on a New York Business Day in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to be
THE WALL STREET JOURNAL.
The term "Remarketing Underwriter" means the nationally recognized
broker-dealer selected by the Operating Partnership to act as remarketing
underwriter (the "Remarketing Underwriter"). The term "Rate Agent" means the
nationally recognized broker-dealer selected by the Operating Partnership as its
agent to determine LIBOR and the interest rate of the Notes for any Quarterly
Period (the "Rate Agent"). Pursuant to a Remarketing Agreement dated as of
October 18, 1996 with the Operating Partnership, Merrill Lynch, Pierce, Fenner &
Smith Incorporated has agreed to act as Remarketing Underwriter and Rate Agent.
The Operating Partnership, in its sole discretion, may
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change the Remarketing Underwriter and the Rate Agent for any Subsequent Spread
Period at any time on or prior to 3:00 p.m., New York City time, on the Duration
Determination Date relating thereto.
Each of the Rate Agent and the Remarketing Underwriter, in its individual or
any other capacity, may buy, sell, hold and deal in any of the Notes. Either of
such parties may exercise any vote or join in any action which any beneficial
owner of Notes may be entitled to exercise or take with like effect as if it did
not act in any capacity under the Remarketing Agreement. Either of such parties,
in its individual capacity, either as principal or agent, may also engage in or
have an interest in any financial or other transaction with the Operating
Partnership as freely as if it did not act in any capacity under the Remarketing
Agreement.
REDEMPTION OF THE NOTES
The Notes may not be redeemed prior to October 23, 1997. On that date and on
any October 23 thereafter immediately following the end of a Subsequent Spread
Period, the Notes may be redeemed, at the option of the Operating Partnership,
in whole or in part, upon notice thereof given at any time during the 45
calendar day period ending on the tenth calendar day prior to the redemption
date (provided that notice of any partial redemption must be given at least 15
calendar days prior to the redemption date), at a redemption price equal to 100%
of the principal amount thereof, together with accrued interest to such
redemption date. In the event that less than all of the outstanding Notes are to
be redeemed, the Notes to be redeemed shall be selected by such method as the
Operating Partnership shall deem fair and appropriate. So long as the Global
Note is held by the Depositary, the Operating Partnership will give notice to
the Depositary, whose nominee is the record holder of all of the Notes, and the
Depositary will determine the principal amount to be redeemed from the account
of each Participant. A Participant may determine to redeem from some beneficial
owners (which may include a Participant holding Notes for its own account)
without redeeming from the accounts of other beneficial owners. The Notes are
also subject to redemption as provided under "Tender at Option of Beneficial
Owners" above.
Notice of redemption of the Notes will be given by publication in a daily
newspaper in the English language of general circulation in The City of New
York, which is expected to be THE WALL STREET JOURNAL.
CHELSEA GCA REALTY, INC. GUARANTEE
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal of, premium, if any, and interest on the
Notes, when and as the same shall become due and payable, whether at a maturity
date, on redemption, by declaration of acceleration or otherwise.
MERGER, CONSOLIDATION OR SALE
In addition to the restrictions on merger, consolidation or sale contained
in the accompanying Prospectus (see "Description of Debt Securities -- Merger,
Consolidation or Sale"), the Operating Partnership will not consolidate with or
merge with or into any Person or sell, convey, transfer, lease or otherwise
dispose of all or substantially all of its assets to any other Person unless
after giving pro forma effect to the consolidation, merger, sale, conveyance,
transfer, lease or other disposition, the Operating Partnership or successor
entity could incur at least $1.00 of Debt (other than intercompany Debt) in
accordance with the Indenture covenants limiting the incurrence of Debt.
CERTAIN COVENANTS
LIMITATION ON INCURRENCE OF DEBT. In addition to the limitations on
incurrence of Debt contained in the accompanying Prospectus (see "Description of
Debt Securities -- Certain Covenants -- Limitations on Incurrence of Debt"), the
Operating Partnership will not allow any Restricted Subsidiary to incur any Debt
other than intercompany Debt.
LIMITATION ON DISTRIBUTIONS. In addition to the limitations on
distributions contained in the accompanying Prospectus (see "Description of Debt
Securities -- Certain Covenants -- Limitations
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on Distributions"), the Operating Partnership will not make any distribution, by
reduction of capital or otherwise (other than distributions payable in
securities evidencing interests in the Operating Partnership's capital for the
purpose of acquiring interests in real property or otherwise) unless,
immediately after giving pro forma effect to such distribution, the Operating
Partnership could incur at least $1.00 of Debt (other than intercompany Debt) in
accordance with the Indenture covenants limiting the incurrence of Debt;
provided, however, that the foregoing limitations shall not apply to any
distribution which is necessary to maintain the Company's status as a REIT if
the aggregate principal amount of all outstanding Debt of the Company and the
Operating Partnership on a consolidated basis at such time is less than 60% of
Adjusted Total Assets.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Operating Partnership will
not, and will not permit any Subsidiary to, directly or indirectly, enter into
any transaction or series of related transactions with an Affiliate unless (i)
such transaction or series of transactions is on terms that are no less
favorable than those available in an arm's-length transaction with unrelated
third parties, (ii) with respect to any transaction, or series of transactions,
with total consideration equal to or greater than $5.0 million, the Operating
Partnership shall have delivered an officer's certificate certifying that such
transaction, or series of transactions, complies with clause (i) above and such
transaction or series of transactions has been approved by a majority of the
Disinterested Directors, or in the case of transactions included in this clause
(ii) for which there are no Disinterested Directors, the Operating Partnership
shall have obtained a written opinion from a nationally recognized investment
banking firm to the effect that such transaction, or series of transactions, is
fair to the Operating Partnership or Subsidiary from a financial point of view
and (iii) with respect to any transaction, or series of transactions, with total
consideration in excess of $15.0 million, the Operating Partnership shall obtain
a written opinion from a nationally recognized investment banking firm as
described above.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Operating Partnership will not, and will not permit any
Restricted Subsidiary to, create or allow to exist any encumbrance that would
restrict the ability of a Restricted Subsidiary to (i) pay dividends on Capital
Stock, (ii) pay Debt owed to the Operating Partnership or any Subsidiary, (iii)
make loans or advances to the Operating Partnership or any Subsidiary, (iv)
transfer any property or assets to the Operating Partnership or any other
Subsidiary, or (v) guarantee any Debt of the Operating Partnership or any
Subsidiary.
LIMITATION ON THE SALE OF CAPITAL STOCK. The Operating Partnership will not
permit any Restricted Subsidiary to issue any Capital Stock (other than to the
Operating Partnership or a Restricted Subsidiary) and shall not permit any
person (other than the Operating Partnership or a Subsidiary) to own any Capital
Stock of any Restricted Subsidiary; provided, however, that the foregoing shall
not prohibit the issuance and sale of all, but not less than all, of the issued
and outstanding Capital Stock of any Subsidiary owned by the Operating
Partnership or any Subsidiary in accordance with the provisions of the
Indenture.
As used herein:
"AFFILIATE" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (ii) any other person that
owns, directly or indirectly, 10% or more of such specified person's Voting
Stock or any executive officer or director of any such specified person or other
person or, with respect to any natural person, any person having a relationship
with such person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control", when used with respect
to any specified person, means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of Voting
Stock, by contract or otherwise; and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series of
transactions which a majority of the Disinterested Directors of the Company are
required to approve under the Indenture or a supplemental indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
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"RESTRICTED SUBSIDIARY" means any Subsidiary of the Operating Partnership
unless such Subsidiary of the Operating Partnership is an Unrestricted
Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms
of the Indenture or a supplemental indenture.
"UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors, as provided below) and (b) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so
long as (i) neither the Operating Partnership nor any other Subsidiary is
directly or indirectly liable for any Debt of such Subsidiary, (ii) no default
with respect to any Debt of such Subsidiary would permit (upon notice, lapse of
time or otherwise) any holder of any other Debt of the Operating Partnership or
any other Subsidiary to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its stated maturity, (iii)
neither the Operating Partnership nor any other Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Operating Partnership and (iv)
neither the Operating Partnership nor any other Subsidiary has any obligation
(1) to subscribe for additional shares of Capital Stock or other equity interest
in such Subsidiary or (2) to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results. Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a copy of the board resolution giving
effect to such designation. The Board of Directors may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if immediately after giving
effect to such designation, there would be no event of default under the
Indenture, or any event that after notice or passage of time would be an event
of default, and the Operating Partnership could incur $1.00 of additional Debt
(other than intercompany Debt) in accordance with the Indenture covenants
limiting the incurrence of Debt.
Reference is made to the section entitled "Description of Debt Securities --
Certain Covenants" in the accompanying Prospectus for a description of
additional covenants applicable to the Notes. Compliance with the covenants
described herein and such additional covenants with respect to the Notes
generally may not be waived by the Board of Directors of the Company, as general
partner of the Operating Partnership, or by the Trustee unless the Holders of at
least a majority in principal amount of all outstanding Notes consent to such
waiver; PROVIDED, HOWEVER, that the defeasance and covenant defeasance
provisions of the Indenture described under "Description of Debt Securities --
Discharge, Defeasance and Covenant Defeasance" in the accompanying Prospectus
will apply to the Notes, including with respect to the covenants described in
this Prospectus Supplement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. The following discussion deals only with Notes held as capital
assets and does not purport to deal with persons in special tax situations, such
as financial institutions, banks, insurance companies, regulated investment
companies, dealers in securities or currencies, persons holding Notes as a hedge
against currency risks or as a position in a "straddle" for tax purposes, or
persons whose functional currency is not the United States dollar. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Notes should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any
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political subdivision thereof, (iii) an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source or
(iv) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business. As used herein,
the term "non-U.S. Holder" means a beneficial owner of a Note that is not a U.S.
Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Under general principles of current United States
Federal income tax law, payments of interest on a debt instrument generally will
be taxable to a U.S. Holder as ordinary interest income at the time such
payments are accrued or are received (in accordance with the U.S. Holder's
regular method of tax accounting).
DISPOSITION OF A NOTE. Under general principles of current United States
Federal income tax law, upon the sale, exchange or retirement of a Note, a U.S.
Holder generally would recognize taxable gain or loss in an amount equal to the
difference, if any, between the amount realized upon the sale, exchange or
retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in its Note. A U.S. Holder's adjusted tax
basis in a Note generally would equal such U.S. Holder's initial investment in
such Note. Any gain or loss realized by a U.S. Holder upon the sale, exchange or
retirement of a Note generally would be long-term or short-term capital gain or
loss, depending upon whether the U.S. Holder had held the Note for more than one
year.
GAIN OR INCOME RECEIVED BY A FOREIGN CORPORATION. A foreign corporation
whose income or gain in respect of a Note is effectively connected with the
conduct of a United States trade or business, in addition to being subject to
regular U.S. income tax, may be subject to a branch profits tax equal to 30% of
its "effectively connected earnings and profits" within the meaning of the Code
for the taxable year, as adjusted for certain items, unless it qualifies for a
lower rate under an applicable tax treaty (as modified by the branch profits tax
rules).
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium, if any, or interest on a Note, if (i) such
non-U.S. Holder does not hold a direct or indirect 10% or greater interest in
the Operating Partnership or a controlled foreign corporation related to the
Company and (ii) the last United States payor in the chain of payment (the
"Withholding Agent") has received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
signed by the beneficial owner of the Note under penalties of perjury certifying
that such owner is not a U.S. Holder and providing the name and address of the
beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the Withholding
Agent of any change in the information on the statement within 30 days of such
change. If a Note is held through a securities clearing organization or certain
other financial institutions, the organization or insitution may provide a
signed statement to the Withholding Agent. However, in such case, the signed
statement must be be accompanied by a copy of the IRS Form W-8 or the substitute
form provided by the beneficial owner to the organization or institution.
Interest received by a non-U.S. Holder which does not qualify for exemption from
taxation will be subject to United States Federal income tax and withholding tax
at a rate of 30% unless reduced or eliminated by applicable tax treaty. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
On April 22, 1996, the IRS issued proposed Treasury regulations that would
revise the procedures for securing an exemption from the 30% United States
Federal withholding tax (the "Proposed Regulations"). If adopted in final form,
the Proposed Regulations generally would apply to payments made after December
31, 1997.
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The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual holds a direct or indirect 10% or greater interest in the
Operating Partnership or, at the time of such individual's death, payments in
respect of the Notes would have been effectively connected with the conduct by
such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
S-36
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement, to purchase the Notes from the Operating Partnership at a price equal
to 99.60% of the principal amount thereof.
The Underwriter has advised the Operating Partnership that the Underwriter
proposes to offer the Notes from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriter may effect such transactions by selling Notes to or through dealers
and such dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter and any purchasers of Notes for
whom they may act as agent. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Notes may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of Notes by them may be deemed to be underwriting compensation.
The Underwriter has informed the Operating Partnership that it intends to
make a market in the Notes as permitted by applicable laws and regulations, but
is under no obligation to do so and such market making may be terminated at any
time. No assurance can be given as to the liquidity of the trading market for
the Notes.
The Underwriting Agreement provides that the Operating Partnership and the
Company will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, or
contribute to payments the Underwriter may be required to make in respect
thereof.
VALIDITY OF THE NOTES
Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Operating Partnership by Stroock & Stroock & Lavan of New
York, New York. Certain legal matters in connection with the Offering will be
passed upon for the Underwriter by Brown & Wood LLP of New York, New York.
S-37
<PAGE>
PROSPECTUS
$400,000,000
CHELSEA GCA REALTY, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
CHELSEA GCA REALTY
PARTNERSHIP, L.P.
DEBT SECURITIES
--------------
Chelsea GCA Realty, Inc. (the "Company") may offer and issue from time to
time (i) shares of its common stock, $.01 par value per share (the "Common
Stock"), (ii) shares of its preferred stock, $.01 par value per share (the
"Preferred Stock") and (iii) shares of Preferred Stock represented by depositary
shares (the "Depositary Shares"), with an aggregate public offering price of up
to $200,000,000, in amounts, at prices and on terms to be determined at the time
of offering. Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership")
may offer and issue from time to time in one or more series unsecured non-
convertible debt securities (the "Debt Securities"), with an aggregate public
offering price of up to $200,000,000, in amounts, at prices and on terms to be
determined at the time of offering. The Common Stock, Preferred Stock,
Depositary Shares and Debt Securities (collectively, the "Securities") may be
offered, separately or together, at prices and on terms to be set forth in one
or more supplements to this Prospectus (each a "Prospectus Supplement"). If any
Debt Securities issued by the Operating Partnership are rated below investment
grade at the time of issuance, such Debt Securities will be fully and
unconditionally guaranteed by the Company (the "Guarantees") as to payment of
principal, premium, if any, and interest.
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Common Stock, any initial
public offering price, (ii) in the case of Preferred Stock, the specific title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price, (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
Depositary Share and (iv) in the case of Debt Securities, the specific title,
aggregate principal amount, currency, form (which may be registered or bearer,
or certificated or global), authorized denominations, maturity, rate (or manner
of calculation thereof) and time of payment of interest, terms for redemption at
the option of the Operating Partnership or repayment at the option of the
holder, terms for sinking fund payments, covenants and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING AT PAGE 3 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
The Securities may be offered directly or through agents designated from
time to time by the Company or the Operating Partnership or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. No Securities may be sold by the Company or the Operating
Partnership through agents, underwriters or dealers without delivery of a
Prospectus Supplement describing the method and terms of the offering of such
Securities. See "Plan of Distribution."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 4, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, the Company files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission") and the Operating Partnership files reports with the Commission.
Such reports, proxy statements and other information may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as the regional offices
of the Commission at 7 World Trade Center (13th Floor), New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such information can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such materials can also be
inspected at the office of the New York Stock Exchange, Inc. ("NYSE"), 20 Broad
Street, New York, New York 10005.
The Company and the Operating Partnership have filed with the Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company, the
Operating Partnership and the Securities, reference is made to the Registration
Statement, including the exhibits filed as a part thereof and otherwise
incorporated therein. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. Copies of the
Registration Statement and the exhibits may be inspected, without charge, at the
offices of the Commission, or obtained at prescribed rates from the Public
Reference Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (Commission File No.
1-12328) with the Commission pursuant to the Exchange Act or the Securities Act
are incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K for the year ended December 31, 1994, as
amended.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995, as amended.
3. The description of the Company's Common Stock which is contained in Item
1 of the Company's registration statement on Form 8-A, as amended, filed
September 8, 1993 pursuant to Section 12 of the Exchange Act.
4. Current Report on Form 8-K dated October 9, 1995.
5. The information contained in the section "Policies With Respect to
Certain Activities" contained in the Registration Statement on Form S-11
(File No. 33-67870) filed on August 25, 1993, as amended.
All documents filed by the Company or the Operating Partnership pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Securities
hereunder shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of the filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company and the Operating Partnership will provide a copy of any or all
of such documents (exclusive of exhibits unless such exhibits are specifically
incorporated by reference therein), without charge,
2
<PAGE>
to each person to whom this Prospectus is delivered, upon written or oral
request to Investor Relations, Chelsea GCA Realty, Inc., 103 Eisenhower Parkway,
Roseland, New Jersey 07068, telephone (201) 228-6111.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed REIT which is the
managing general partner of the Operating Partnership, a partnership that owns
and provides development, leasing, marketing and management for upscale and
fashion-oriented manufacturers' outlet centers (the "Properties"). The Company
also has several properties under development. The Properties are located near
large metropolitan areas or at proven tourist destinations.
All of the Company's interests in the Properties are held by, and all of its
operations relating to the Properties are conducted through, the Operating
Partnership. The description of business, property information, policies with
respect to certain activities and management information for the Operating
Partnership are virtually identical to that of the Company. Such information may
be found in the Company's Annual Report on Form 10-K for the year ended December
31, 1994 and in the Company's definitive prospectus dated October 26, 1993
contained in its Registration Statement on Form S-11 (File No. 33-67870). The
Company controls the Operating Partnership as the sole general partner and owner
of approximately 66% of the outstanding units of partnership interests in the
Operating Partnership (the "Units"). Each Unit, other than those held by the
Company, may be exchanged by the holder thereof for one share (subject to
certain adjustments) of Common Stock. With each such exchange, the number of
Units owned by the Company, and its percentage interest in the Operating
Partnership, will increase.
The Company is organized under the laws of the State of Maryland. The
Operating Partnership is a Delaware limited partnership. Their principal
executive office is located at 103 Eisenhower Parkway, Roseland, New Jersey
07068, telephone (201) 228-6111.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing Securities in the Offering.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The Company intends to limit the extent of its borrowing to less than 40% of
its total market capitalization (i.e., the market value of issued and
outstanding shares of Common Stock and Units plus total debt), but the
organizational documents of the Company do not contain any limitation on the
amount or percentage of indebtedness the Company might incur. The Indenture,
however, will contain limits on the Company's ability to incur indebtedness. If
the Company's policy limiting borrowing were changed, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's funds from operations and ability to make
expected distributions to stockholders and in an increased risk of default on
its obligations.
CONCENTRATION OF COMPANY'S REVENUE
Approximately 45% and 39% of the Company's revenues for the year ended
December 31, 1994 and the nine-month period ended September 30, 1995,
respectively, were derived from the Company's two centers with the highest
revenues, Woodbury Common Factory Outlets and Desert Hills Factory Stores. The
loss of either of these centers or a material decrease in the revenues received
from either of such centers for any reason could have a material adverse effect
on the Company. In addition, approximately 32% and 47% of the Company's revenues
for the year ended December 31, 1994 and the nine-month period ended September
30, 1995, respectively, were derived from the Company's nine centers in
California.
ABILITY OF THE COMPANY TO PAY ON GUARANTEES
All operations of the Company are conducted by the Operating Partnership,
and the only asset of the Company is its 66% interest in the Operating
Partnership. As a result, the Company is dependent upon the receipt of
distributions or other payments from the Operating Partnership in order to meet
its financial
3
<PAGE>
obligations, including its obligations under any Guarantees. Any Guarantees will
be effectively subordinated to existing and future liabilities of the Operating
Partnership. At September 30, 1995, the Operating Partnership had $81 million of
indebtedness outstanding, all of which is secured by interests in certain real
estate assets. The Operating Partnership is a party to a loan agreement with
various bank lenders which requires the Operating Partnership to comply with
various financial and other covenants before it may make distributions to the
Company. Although the Operating Partnership presently is in compliance with such
covenants, there is no assurance that it will continue to be in compliance and
that it will be able to continue to make distributions to the Company.
RISKS IN THE EVENT OF CERTAIN TRANSACTIONS BY THE OPERATING PARTNERSHIP OR THE
COMPANY
The Indenture does not contain any provisions that would afford holders of
Debt Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the management of the Operating
Partnership or the Company, or any affiliate of any such party, (ii) a change of
control, or (iii) certain reorganizations, restructurings, mergers or similar
transactions involving the Operating Partnership or the Company.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers beneficially own approximately 30% of the
Common Stock on a fully diluted basis. Accordingly, such persons will have
substantial influence over the Company and on the outcome of any matters
submitted to the Company's stockholders for approval.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
OWNERSHIP LIMIT. The Company's Articles of Incorporation prohibit ownership
of more than 7% of the outstanding Common Stock by any person. Such restriction
is likely to have the effect of precluding acquisition of control of the Company
by a third party without consent of the Board of Directors even if a change in
control were in the interest of stockholders.
REQUIRED CONSENT OF THE OPERATING PARTNERSHIP FOR MERGER OR OTHER
SIGNIFICANT CORPORATE ACTION. So long as the limited partners own at least 10%
of the capital of the Operating Partnership, the Operating Partnership may not
merge, consolidate or engage in any combination with another person or sell all
or substantially all of its assets unless approved by the holders of a majority
of the limited partnership Units.
STAGGERED BOARD. The Board of Directors of the Company has three classes of
directors, the terms of which will expire in 1996, 1997 and 1998. Directors for
each class will be chosen for a three-year term. The staggered terms for
directors may affect the stockholders' ability to change control of the Company
even if a change in control were in the stockholders' interest.
DISTRIBUTIONS TO STOCKHOLDERS
To obtain the favorable tax treatment associated with REITs, the Company
generally will be required each year to distribute to its stockholders at least
95% of its net taxable income. The ability of the Company to make such
distributions is dependent upon the receipt of distributions or other payments
from the Operating Partnership.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
The Company and the Operating Partnership intend to operate in a manner so
as to permit the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"). Although the Company believes that it will
operate in such a manner, no assurance can be given that the Company will
qualify or remain qualified as a REIT. If in any taxable year the Company were
to fail to qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
RISKS RELATED TO THE MANUFACTURERS' OUTLET CENTER INDUSTRY
COMPETITION FROM OTHER MANUFACTURERS' OUTLET CENTERS. Numerous developers
and real estate companies are engaged in the development or ownership of
manufacturers' outlet centers and other commercial
4
<PAGE>
properties and compete with the Company in seeking tenants for outlet centers.
This results in competition for the acquisition of prime properties and for
tenants who will lease space in the manufacturers' outlet centers that the
Company and its competitors own or operate.
THE RELATIVELY SHORT HISTORY OF MANUFACTURERS' OUTLET CENTERS MAY NOT BE
INDICATIVE OF FUTURE PERIODS. Although the manufacturers' outlet center industry
has grown over the last several years, the industry represents a relatively new
and rapidly growing segment of the retailing industry and, therefore, the long-
term performance of these centers may not be comparable to, and cash flows may
not be as predictable as, traditional retail malls.
GENERAL REAL ESTATE INVESTMENT RISKS
ECONOMIC PERFORMANCE AND VALUE OF CENTERS DEPENDENT ON MANY FACTORS. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climate, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
RISKS OF DEVELOPMENT ACTIVITIES. The Company intends to actively pursue
manufacturers' outlet center development projects, including the expansion of
existing centers. Such projects generally require expenditure of capital as well
as various forms of government and other approvals, the receipt of which cannot
be assured.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company were unable to lease a significant
amount of space in its Properties on economically favorable lease terms. In
addition, the terms of manufacturers' outlet store tenant leases traditionally
have been significantly shorter than in traditional segments of retailing. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to re-lease space on economically
advantageous terms.
CONSEQUENCES OF INABILITY TO SERVICE MORTGAGE DEBT. Pursuant to the
Company's $200 million credit facility with its bank lenders, a portion of the
Company's Properties are mortgaged to secure payment of such indebtedness, and
if the Company were to be unable to meet such payments, a loss could be
sustained as a result of foreclosure on the Properties by the bank lenders.
ENVIRONMENTAL RISKS. Under various federal, state and local laws,
ordinances and regulations, each of the Company and the Operating Partnership
may be considered an owner or operator of real property or may have arranged for
the disposal or treatment of hazardous or toxic substances and, therefore, may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property or disposed of by it, as well as
certain other potential costs which could relate to hazardous or toxic
substances (including governmental fines and injuries to persons and property).
Such liability may be imposed whether or not the Company knew of, or was
responsible for, the presence of such hazardous or toxic substances.
USE OF PROCEEDS
The net proceeds to the Company and the Operating Partnership from the sale
of the Securities offered hereby (the "Offering") will be used for general
corporate purposes, which may include the repayment of existing indebtedness,
the development or acquisition of additional properties as suitable
opportunities arise and the renovation, expansion and improvement of the
Operating Partnership's existing properties. Any proceeds from the sale of
Common Stock, Preferred Stock or Depositary Shares by the Company must be
invested in the Operating Partnership, which will use such proceeds for the
above-described purposes. Further details relating to the use of the net
proceeds will be set forth in the applicable Prospectus Supplement.
5
<PAGE>
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's and the Operating Partnership's
consolidated ratios of earnings to combined fixed charges and preferred stock
dividends for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
- ------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
3.55x 10.40x 1.45x 1.20x 0.93x(1) 0.42x(1)
</TABLE>
(1) Earnings were inadequate to cover fixed charges by $936,000 in 1991 and
$7,240,000 in 1990. These deficiencies occurred prior to the Company's
initial public offering of Common Stock in November 1993.
The ratios of earnings to combined fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income from
continuing operations before minority interest and fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized) and the
amortization of debt issuance costs. To date, the Company has not issued any
Preferred Stock.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
among the Operating Partnership, the Company and State Street Bank and Trust
Company, as trustee. The Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available for
inspection at the corporate trust office of the trustee at Two International
Place, 5th Floor, Boston, Massachusetts or as described above under "Available
Information." The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended (the "TIA"). The statements made hereunder relating to
the Indenture and the Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indenture and such Debt Securities. All section references appearing herein are
to sections of the Indenture, and capitalized terms used but not defined herein
shall have the respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At September 30, 1995, the total
outstanding debt of the Operating Partnership was $81 million, all of which was
secured debt. The Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company as sole general partner of the Operating Partnership or
as established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series (Section 301).
If any Debt Securities issued by the Operating Partnership are rated below
investment grade at the time of issuance, such Debt Securities will be fully and
unconditionally guaranteed by the Company as to payment of principal, premium,
if any, and interest.
The Indenture provides that there may be more than one trustee (the
"Trustee") thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under the Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series (Section 608). In the event that
two or more persons are acting as Trustee with respect to different series of
Debt Securities, each such Trustee shall be a trustee of a trust under the
Indenture separate and apart from the trust administered by any other Trustee
(Section 609), and, except as otherwise
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<PAGE>
indicated herein, any action described herein to be taken by a Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1)the title of such Debt Securities;
(2)the aggregate principal amount of such Debt Securities and any limit on such
aggregate principal amount;
(3)the percentage of the principal amount at which such Debt Securities will be
issued and, if other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of the
maturity thereof;
(4)the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(5)the rate or rates (which may be fixed or variable), or the method by which
such rate or rates shall be determined, at which such Debt Securities will
bear interest, if any;
(6)the date or dates, or the method for determining such date or dates, from
which any interest will accrue, the dates on which any such interest will be
payable, the record dates for such interest payment dates, or the method by
which any such date shall be determined, the person to whom such interest
shall be payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months;
(7)the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange and
notices or demands to or upon the Operating Partnership in respect of such
Debt Securities and the Indenture may be served;
(8)the period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities may be redeemed, as a
whole or in part, at the option of the Operating Partnership, if the
Operating Partnership is to have such an option;
(9)the obligation, if any, of the Operating Partnership to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the terms and conditions upon
which such Debt Securities will be redeemed, repaid or purchased, as a whole
or in part, pursuant to such obligation;
(10)if other than U.S. dollars, the currency or currencies in which such Debt
Securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(11)whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with reference
to an index, formula or other method (which index, formula or method may,
but need not be, based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts shall
be determined;
(12)the events of default or covenants of such Debt Securities, to the extent
different from or in addition to those described herein;
(13)whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14)whether such Debt Securities will be in registered or bearer form and, if in
registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof
if other than $5,000 and terms and conditions relating thereto;
7
<PAGE>
(15)with respect to any series of Debt Securities rated below investment grade
at the time of issuance, the Guarantees (the "Guaranteed Securities");
(16)if the defeasance and covenant defeasance provisions described herein are to
be inapplicable or any modification of such provisions;
(17)if such Debt Securities are to be issued upon the exercise of debt warrants,
the time, manner and place for such Debt Securities to be authenticated and
delivered;
(18)whether and under what circumstances the Operating Partnership will pay
additional amounts on such Debt Securities in respect of any tax, assessment
or governmental charge and, if so, whether the Operating Partnership will
have the option to redeem such Debt Securities in lieu of making such
payment;
(19)with respect to any Debt Securities that provide for optional redemption or
prepayment upon the occurrence of certain events (such as a change of
control of the Operating Partnership), (i) the possible effects of such
provisions on the market price of the Operating Partnership's or the
Company's securities or in deterring certain mergers, tender offers or other
takeover attempts, and the intention of the Operating Partnership to comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws in connection with such provisions; (ii) whether
the occurrence of the specified events may give rise to cross-defaults on
other indebtedness such that payment on such Debt Securities may be
effectively subordinated; and (iii) the existence of any limitation on the
Operating Partnership's financial or legal ability to repurchase such Debt
Securities upon the occurrence of such an event (including, if true, the
lack of assurance that such a repurchase can be effected) and the impact, if
any, under the Indenture of such a failure, including whether and under what
circumstances such a failure may constitute an Event of Default;
(20)if other than the Trustee, the identity of each security registrar and/or
paying agent; and
(21)any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under "Merger, Consolidation or Sale" or as may be set
forth in any Prospectus Supplement, the Indenture does not contain any other
provisions that would limit the ability of the Operating Partnership or the
Company to incur indebtedness or that would afford holders of the Debt
Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Operating Partnership, the management of the Operating
Partnership or the Company, or any affiliate of any such party, (ii) a change of
control, or (iii) a reorganization, restructuring, merger or similar transaction
involving the Operating Partnership or the Company that may adversely affect the
holders of the Debt Securities. In addition, subject to the limitations set
forth under "Merger, Consolidation or Sale," the Operating Partnership or the
Company may, in the future, enter into certain transactions, such as the sale of
all or substantially all of its assets or the merger or consolidation of the
Operating Partnership or the Company, that would increase the amount of the
Operating Partnership's indebtedness or substantially reduce or eliminate the
Operating Partnership's assets, which may have an adverse effect on the
Operating Partnership's ability to service its indebtedness, including the Debt
Securities. In addition, restrictions on ownership and transfers of the
Company's common stock and preferred stock which are designed to preserve its
status as a REIT may act to prevent or hinder a change of control. See
"Description of Common Stock -- Restrictions on Ownership" and "Description of
Preferred Stock -- Restrictions on Ownership." Reference is made to the
applicable Prospectus Supplement for information with respect to any deletions
from, modifications of or additions to the events of default or covenants that
are described below, including any addition of a covenant or other provision
providing event risk or similar protection.
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Reference is made to "-- Certain Covenants" below and to the description of
any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the Board of
Directors of the Company as sole general partner of the Operating Partnership or
by the Trustee unless the Holders of at least a majority in principal amount of
all outstanding Debt Securities of such series consent to such waiver, except to
the extent that the defeasance and covenant defeasance provisions of the
Indenture described under "-- Discharge, Defeasance and Covenant Defeasance"
below apply to such series of Debt Securities. See "-- Modification of the
Indenture."
GUARANTEES
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal of, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the Operating
Partnership, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series which are registered securities, other than registered
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $1,000 and any integral multiple thereof and the
Debt Securities which are bearer securities, other than bearer securities issued
in global form (which may be of any denomination), shall be issuable in
denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, initially located
at Two International Place, 5th Floor, Boston, Massachusetts, provided that, at
the option of the Operating Partnership, payment of interest may be made by
check mailed to the address of the Person entitled thereto as it appears in the
applicable Security Register or by wire transfer of funds to such Person at an
account maintained within the United States (Sections 301, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each place of
payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
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Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning at
the opening of business 15 days before selection of the Debt Securities to be
redeemed and ending at the close of business on the day of such selection, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of that series
and like tenor, PROVIDED that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Debt Security not to be so
repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or the Company may consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Company, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Company, as the case may
be,) formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
intercompany debt (representing Debt to which the only parties are the Company,
the Operating Partnership and any of their Subsidiaries (but only so long as
such Debt is held solely by any of the Company, the Operating Partnership and
any Subsidiary) that is subordinate in right of payment to the Debt Securities)
if, immediately after giving effect to the incurrence of such additional Debt,
the aggregate principal amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 60% of
the sum of (i) the Operating Partnership's Total Assets (as defined below) as of
the end of the calendar quarter covered in the Operating Partnership's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the Trustee) prior to the incurrence of such additional
Debt and (ii) the increase in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets resulting from the
incurrence of such additional Debt (such increase together with the Operating
Partnership's Total Assets shall be referred to as the "Adjusted Total Assets")
(Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt of the Operating Partnership and its Subsidiaries on a consolidated
basis is greater than 40% of the Operating Partnership's Adjusted Total Assets.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 2.0 to 1, on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of
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the proceeds therefrom, and calculated on the assumption that (i) such Debt and
any other Debt incurred by the Operating Partnership or its Subsidiaries since
the first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning of
such period, (ii) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter period
had been incurred, repaid or retired at the beginning of such period (except
that, in making such computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
during such period), (iii) the income earned on any increase in Adjusted Total
Assets since the end of such four-quarter period had been earned, on an
annualized basis, during such period, and (iv) in the case of any acquisition or
disposition by the Operating Partnership or any Subsidiary of any asset or group
of assets since the first day of such four-quarter period, including, without
limitation, by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments with respect to
such acquisition or disposition being included in such pro forma calculation.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
LIMITATIONS ON DISTRIBUTIONS. The Operating Partnership will not make any
distribution, by reduction of capital or otherwise (other than distributions
payable in securities evidencing interests in the Operating Partnership's
capital for the purpose of acquiring interests in real property or otherwise)
unless, immediately after giving pro forma effect to such distribution (a) no
default under the Indenture or event of default under any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any Debt of the Operating Partnership, the Company or any Subsidiary
shall have occurred or be continuing, and (b) the aggregate sum of all
distributions made after the date of the Indenture shall not exceed the sum of
(i) 95% of the aggregate cumulative Funds From Operations of the Operating
Partnership accrued on a cumulative basis from the date of the Indenture until
the end of the last fiscal quarter prior to the contemplated payment, and (ii)
the aggregate Net Cash Proceeds received by the Operating Partnership after the
date of the Indenture from the issuance and sale of Capital Stock of the
Operating Partnership or the Company; provided, however, that the foregoing
limitation shall not apply to any distribution or other action which is
necessary to maintain the Company's status as a REIT, under the Code, if the
aggregate principal amount of all outstanding Debt of the Company and the
Operating Partnership on a consolidated basis at such time is less than 60% of
Adjusted Total Assets (Section 1012).
Notwithstanding the foregoing, the Operating Partnership will not be
prohibited from making the payment of any distribution within 30 days of the
declaration thereof if at such date of declaration such payment would have
complied with the provisions of the immediately preceding paragraph.
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," the
Operating Partnership and the Company are required to do or cause to be done all
things necessary to preserve and keep in full force and effect their existence,
rights and franchises; PROVIDED, HOWEVER, that the Operating Partnership or the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities (Section 1007).
MAINTENANCE OF PROPERTIES. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the
Operating Partnership and its Subsidiaries shall not be prevented from selling
or otherwise disposing for value their respective properties in the ordinary
course of business (Section 1005).
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INSURANCE. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1006).
PAYMENT OF TAXES AND OTHER CLAIMS. The Operating Partnership and the
Company are required to pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon them or any Subsidiary or upon their
income, profits or property or that of any Subsidiary, and (ii) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Operating Partnership, the Company or any
Subsidiary; PROVIDED, HOWEVER, that the Operating Partnership and the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings (Section 1013).
PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Commission the annual reports,
quarterly reports and other documents which the Operating Partnership would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if the Operating Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Operating Partnership would have been
required so to file such documents if the Operating Partnership were so subject.
The Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents which the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1014).
As used herein and in the Prospectus Supplement:
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed
and capitalized in any 12-month period for interest on Debt.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of this Prospectus.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c) amortization
of debt discount, (d) depreciation and amortization, (e) the effect of any
noncash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period, (f) amortization of deferred charges
and (g) provisions for or realized losses on properties and (ii) less amounts
which have been included for gains on properties.
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"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
"DEBT" means any indebtedness, whether or not contingent, in respect of (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property, (iii) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the purchase
price of any property except any such balance that constitutes an accrued
expense or trade payable or (iv) any lease of property which would be reflected
on a consolidated balance sheet as a capitalized lease in accordance with
generally accepted accounting principles, in the case of items of indebtedness
under (i) through (iii) above to the extent that any such items (other than
letters of credit) would appear as a liability on a consolidated balance sheet
in accordance with generally accepted accounting principles, and also includes,
to the extent not otherwise included, any obligation to be liable for, or to
pay, as obligor, guarantor or otherwise (other than for purposes of collection
in the ordinary course of business), indebtedness of another person.
"FUNDS FROM OPERATIONS" ("FFO") for any period means the Consolidated Net
Income of the Operating Partnership and its Subsidiaries for such period without
giving effect to depreciation and amortization, gains or losses from
extraordinary items, gains or losses on sales of real estate, gains or losses on
investments in marketable securities and any provision/benefit for income taxes
for such period, plus the allocable portion, based on the Operating
Partnership's ownership interest, of funds from operations of unconsolidated
joint ventures, all determined on a consistent basis. Management considers FFO
an appropriate measure of performance of an equity REIT. FFO does not represent
net income or cash flows as defined by generally accepted accounting principles
("GAAP") and should not be considered an alternative to net income as an
indicator of operating performance or to cash from operations under GAAP, and is
not necessarily indicative of cash available to fund cash needs.
"NET CASH PROCEEDS" means the proceeds of any issuance or sale of Capital
Stock or options, warrants or rights to purchase Capital Stock, in the form of
cash or Cash Equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Operating Partnership or any Subsidiary),
net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"SUBSIDIARY" means any entity of which the Operating Partnership or one or
more other Subsidiaries owns or controls, directly or indirectly, more than 50%
of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (i) the Operating
Partnership's and its Subsidiaries' Undepreciated Real Estate Assets and (ii)
all other assets of the Operating Partnership and its Subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles (but excluding intangibles and accounts receivable).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees, provided that stock that carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock.
ADDITIONAL COVENANTS. Any additional or different covenants of the
Operating Partnership or the Company with respect to any series of Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (b) default in the payment of the principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance of any other covenant of the Operating Partnership or
the Company contained in the Indenture (other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), such default having continued for 60 days
after written notice as provided in the Indenture; (e) default in the payment of
an aggregate principal amount exceeding $5,000,000 of any evidence of recourse
indebtedness of the Operating Partnership or the Company or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled; (f) certain
events of bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of the Operating Partnership, the Company or any
Significant Subsidiary or any of their respective property; and (g) any other
Event of Default provided with respect to a particular series of Debt
Securities. The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Operating Partnership or the Company (Section 501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of all of the Debt Securities of that series to
be due and payable immediately by written notice thereof to the Operating
Partnership and the Company (and to the Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
the Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the
Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (a) the Operating Partnership or the Company shall have
deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be), plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the non-payment of accelerated principal of (or
specified portion thereof), or premium (if any) or interest on the Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be) have been cured or waived as provided in the
Indenture (Section 502). The Indenture also provides that the Holders of not
less than a majority in principal amount of the Outstanding Debt Securities of
any series (or of all Debt Securities then Outstanding under the Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Debt
Security affected thereby (Section 513).
The Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture unless such default
has been cured or waived; PROVIDED, HOWEVER, that the Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except a default in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders (Section 602).
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The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series, as well as
an offer of reasonable indemnity (Section 507). This provision will not prevent,
however, any holder of Debt Securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 601). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, or which may be
unduly prejudicial to the holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership or the Company must deliver to the Trustee a certificate, signed by
one of several specified officers of the Company, stating whether or not such
officer has knowledge of any default under the Indenture and, if so, specifying
each such default and the nature and status thereof (Sections 1009 and 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities which are affected by such modification or amendment; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or premium (if any) or any installment of interest
on, any such Debt Security, reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
maturity thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any such Debt Security, change the place of
payment, or the coin or currency, for payment of principal of, premium, if any,
or interest on any such Debt Security or impair the right to institute suit for
the enforcement of any payment on or with respect to any such Debt Security; (b)
reduce the above-stated percentage of outstanding Debt Securities of any series
necessary to modify or amend the Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the Indenture; (c) modify or
affect in any manner adverse to the Holders the terms and conditions of the
obligations of the Company in respect of the payment of principal (and premium,
if any) and interest on any Guaranteed Securities; or (d) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership and/or the Company with certain
covenants relating to such series of Debt Securities in the Indenture (Section
1008).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, the Company and the Trustee without the consent of
any Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another Person to the Operating Partnership as obligor or the
Company as guarantor under the Indenture; (ii) to add to the covenants of the
Operating
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Partnership or the Company for the benefit of the Holders of all or any series
of Debt Securities or to surrender any right or power conferred upon the
Operating Partnership or the Company in the Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt Securities;
(iv) to add or change any provisions of the Indenture to facilitate the issuance
of, or to liberalize certain terms of, Debt Securities in bearer form, or to
permit or facilitate the issuance of Debt Securities in uncertificated form,
PROVIDED that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
amend or supplement any provisions of the Indenture, PROVIDED that no such
amendment or supplement shall materially adversely affect the interests of the
Holders of any Debt Securities then Outstanding; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities of any
series; (viii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in
the Indenture, PROVIDED that such action shall not adversely affect the
interests of Holders of Debt Securities of any series in any material respect;
or (x) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, PROVIDED that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901). In addition, with respect to Guaranteed Securities,
without the consent of any Holder of Debt Securities the Company, or a
subsidiary thereof, may directly assume the due and punctual payment of the
principal of, any premium and interest on all the Guaranteed Securities and the
performance of every covenant of the Indenture on the part of the Operating
Partnership to be performed or observed. Upon any such assumption, the Company
or such subsidiary shall succeed to, and be substituted for and may exercise
every right and power of, the Operating Partnership under the Indenture with the
same effect as if the Company or such subsidiary had been the issuer of the
Guaranteed Securities and the Operating Partnership shall be released from all
obligations and covenants with respect to the Guaranteed Securities. No such
assumption shall be permitted unless the Company has delivered to the Trustee
(i) an officers' certificate and an opinion of counsel, stating, among other
things, that the Guarantee and all other covenants of the Company in the
Indenture remain in full force and effect and (ii) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no United States
federal tax consequences as a result of such assumption, and that, if any Debt
Securities are then listed on the New York Stock Exchange, that such Debt
Securities shall not be delisted as a result of such assumption.
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture, and (iv) Debt Securities owned by the Operating Partnership or any
other obligor upon the Debt Securities or any affiliate of the Operating
Partnership or of such other obligor shall be disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership, the Company (in respect of a series of Guaranteed Securities) or
the holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
the Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present will be permitted to be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
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Outstanding Debt Securities of that series; PROVIDED, HOWEVER, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; PROVIDED, HOWEVER, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a specified
percentage which is less than a majority in principal amount of the Outstanding
Debt Securities of a series may be taken at a meeting at which a quorum is
present by the affirmative vote of Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of such series (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be (Section 401).
The Indenture provides that, unless the provisions of Section 402 are made
inapplicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership may elect either (a) to defease
and discharge itself and the Company (if such Debt Securities are Guaranteed
Securities) from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 402) or (b) to release itself and the Company (if such
Debt Securities are Guaranteed Securities) from their obligations with respect
to such Debt Securities under certain sections of the Indenture (including the
restrictions described under "Certain Covenants") and, if provided pursuant to
Section 301 of the Indenture, their obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities ("covenant
defeasance") (Section 402), in either case upon the irrevocable deposit by the
Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) with the Trustee, in trust, of an amount, in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable at Stated Maturity, or Government Obligations
(as defined below), or both, applicable to such Debt Securities which through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and premium,
if any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
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Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Company (if such Debt Securities are
Guaranteed Securities) has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law occurring
after the date of the Indenture (Section 402).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company (if the Debt Securities are Guaranteed
Securities) has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the Indenture or the terms of such Debt Security to receive payment
in a currency, currency unit or composite currency other than that in which such
deposit has been made in respect of such Debt Security, or (b) a Conversion
Event (as defined below) occurs in respect of the currency, currency unit or
composite currency in which such deposit has been made, the indebtedness
represented by such Debt Security shall be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest on such Debt Security as they become due out of
the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Community or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default other than the Event
of Default described in clause (d) under "Event of Default, Notice and Waiver"
with respect to sections no longer applicable to such Debt Securities or
described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due
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on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Operating
Partnership and the Company (if such Debt Securities are Guaranteed Securities)
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 5,000,000 shares of preferred stock, $.01
par value per share, of which no Preferred Stock was outstanding at the date
hereof.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation (the "Articles
of Incorporation") and Bylaws and any applicable articles supplementary to the
Articles of Incorporation designating terms of a series of Preferred Stock (a
"Designating Amendment").
The issuance of Preferred Stock could adversely affect the voting power,
dividend rights and other rights of holders of Common Stock. Issuance of
Preferred Stock also could, depending on the terms of such issue, either impede,
delay, prevent or facilitate a merger, tender offer or change in control of the
Company. Although the Board of Directors is required to make a determination as
to the best interests of the stockholders of the Company when issuing Preferred
Stock, the Board could act in a manner that would discourage an acquisition
attempt or other transaction that some, or a majority, of the stockholders might
believe to be in the best interests of the Company or in which stockholders
might receive a premium for their shares over the then prevailing market price.
Management believes that the availability of Preferred Stock will provide the
Company with increased flexibility in structuring possible future financing and
acquisitions and in meeting other needs that might arise.
TERMS
Subject to the limitations prescribed by the Articles of Incorporation, the
Board of Directors is authorized to fix the number of shares constituting each
series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of the Board of Directors. The Preferred Stock will, when
issued, be fully paid and nonassessable by the Company and will have no
preemptive rights.
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Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1)
The title and stated value of such Preferred Stock;
(2)
The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3)
The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4)
The date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5)
The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6)
The provision for a sinking fund, if any, for such Preferred Stock;
(7)
The provision for redemption, if applicable, of such Preferred Stock;
(8)
Any listing of such Preferred Stock on any securities exchange;
(9)
The terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10)
Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11)
Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12)
A discussion of federal income tax considerations applicable to such
Preferred Stock;
(13)
The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(14)
Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15)
Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are
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non-cumulative, then the holders of such series of the Preferred Stock will have
no right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and the Company will have no obligation to pay the
dividend accrued for such period, whether or not dividends on such series are
declared payable on any future dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any shares of Common Stock, or any other capital shares of the Company ranking
junior to or on a parity with the Preferred Stock of such series as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital shares of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in
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cash or other property, as specified in the applicable Prospectus Supplement. If
the redemption price for Preferred Stock of any series is payable only from the
net proceeds of the issuance of capital shares of the Company, the terms of such
Preferred Stock may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends on
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
Preferred Stock shall be redeemed unless all outstanding Preferred Stock of such
series is simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
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LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
shares of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of capital shares of the Company ranking on a parity
with the Preferred Stock in the distribution of assets, then the holders of the
Preferred Stock and all other such classes or series of capital shares shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board of Directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such Preferred Stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify any authorized capital stock of the
Company into such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares;
or (ii) amend, alter or repeal the provisions of the Company's Articles of
Incorporation or the Designating Amendment for
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<PAGE>
such series of Preferred Stock, whether by merger, consolidation or otherwise
(an "Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; PROVIDED, HOWEVER, with respect to the occurrence of any of the Events
set forth in (ii) above so long as the Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Stock and provided further that (x) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions on
Ownership," for the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year. Therefore, the Designating Amendment for each series of
Preferred Stock may contain provisions restricting the ownership and transfer of
the Preferred Stock. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by the
Depositary Shares will be deposited under a separate Deposit Agreement (each, a
"Deposit Agreement") among the Company, the depositary named therein (the
"Preferred Stock Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary
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Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at such office, to or upon such holders' order, of the number of whole
or fractional shares of the Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Stock on the basis of the proportion of
Preferred Stock represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such shares of Preferred Stock
will not thereafter be entitled to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
shares of Preferred Stock to be withdrawn, the Preferred Stock Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of Depositary Shares representing shares of the
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary
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Shares so called for redemption will cease, except the right to receive any
moneys payable upon such redemption and any money or other property to which the
holders of such Depositary Receipts were entitled upon such redemption upon
surrender thereof to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Stock Depositary in order to enable the Preferred Stock Depositary to
do so. The Preferred Stock Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Stock Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or wilful misconduct of the
Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, are not convertible into Common Stock or any
other securities or property of the Company, except in connection with certain
conversions in connection with the preservation of the Company's status as a
REIT. See "Description of Preferred Stock -- Restrictions on Ownership."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the Preferred Stock Depositary with written instructions
to the Preferred Stock Depositary to instruct the Company to cause conversion of
the Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of capital stock, and the Company has
agreed that upon receipt of such instructions and any amounts payable in respect
thereof, it will cause the conversion thereof utilizing the same procedures as
those provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least two-thirds of the Depositary Shares evidenced
by the Depositary Receipts then outstanding. No amendment shall impair the
right, subject to certain exceptions in the Deposit Agreement, of any holder of
Depositary Receipts to surrender any Depositary Receipt with
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instructions to deliver to the holder the related Preferred Stock and all money
and other property, if any, represented thereby, except in order to comply with
law. Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such Receipt,
to consent and agree to such amendment and to be bound by the Deposit Agreement
as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series of Preferred Stock affected by such termination consents
to such termination, whereupon the Preferred Stock Depositary shall deliver or
make available to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or fractional
shares of Preferred Stock as are represented by the Depositary Shares evidenced
by such Depositary Receipts together with any other property held by the
Preferred Stock Depositary with respect to such Depositary Receipt. The Company
has agreed that if the Deposit Agreement is terminated to preserve the Company's
status as a REIT, then the Company will use its best efforts to list the
Preferred Stock issued upon surrender of the related Depositary Shares on a
national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of the
related Preferred Stock in connection with any liquidation, dissolution or
winding up of the Company and such distribution shall have been distributed to
the holders of Depositary Receipts evidencing the Depositary Shares representing
such Preferred Stock or (iii) each share of the related Preferred Stock shall
have been converted into capital stock of the company not so represented by
Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Stock Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or shares of Preferred Stock represented
thereby unless satisfactory indemnity is furnished. The Company and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting shares of Preferred Stock
represented thereby for deposit, holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
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In the event the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company includes 50 million shares of
Common Stock, $.01 par value per share. Each outstanding share of Common Stock
will entitle the holder to one vote on all matters presented to stockholders for
a vote and cumulative voting is not permitted. Holders of the Common Stock do
not have preemptive rights. At September 29, 1995, there were 11,206,553 shares
of Common Stock outstanding.
All shares of Common Stock issued and sold will be duly authorized, fully
paid, and non-assessable. Distributions may be paid to the holders of Common
Stock if and when declared by the Board of Directors of the Company out of funds
legally available therefor. The Company has paid quarterly dividends, beginning
with a dividend for the portion of the quarter from the closing of the Company's
initial public offering in November 1993 (the "IPO").
Under Maryland law, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's Board of Directors is divided into three classes of directors,
each class constituting approximately one-third of the total number of
directors, with the classes serving staggered terms. At each annual meeting of
stockholders, the class of directors to be elected at such meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. The Company believes that classified directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board. The use of a
staggered board may render more difficult a change in control of the Company or
removal of incumbent management.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding Common Stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code) during the last half of a
taxable year and the Common Stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (or during a
proportionate part of a shorter taxable year). To satisfy the above ownership
requirements and certain other requirements for qualification as a REIT, the
Board of Directors has adopted, and the stockholders prior to the IPO approved,
a provision in the Articles of Incorporation restricting the ownership or
acquisition of shares of Common Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is BancBoston State
Street Investor Services, Boston, Massachusetts.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company and the
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Operating Partnership also may, from time to time, authorize underwriters acting
as their agents to offer and sell the Securities upon the terms and conditions
as are set forth in the applicable Prospectus Supplement. In connection with the
sale of Securities, underwriters may be deemed to have received compensation
from the Company or the Operating Partnership in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Securities for whom they may act as agent. Underwriters may sell Securities to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933 (the "Securities Act").
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company and the Operating Partnership, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company and the
Operating Partnership will authorize dealers acting as their agents to solicit
offers by certain institutions to purchase Securities from them at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Securities sold
pursuant to Contracts shall be not less nor more than, the respective amounts
stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company and the Operating Partnership. Contracts will not
be subject to any conditions except (i) the purchase by an institution of the
Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company and the Operating Partnership shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and the Operating
Partnership in the ordinary course of business.
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LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be passed
upon for the Company and the Operating Partnership by Stroock & Stroock & Lavan
of New York, New York. Certain legal matters in connection with the Securities
offered hereby will be passed upon for any underwriters, dealers or agents by
Brown & Wood of New York, New York.
EXPERTS
The consolidated financial statements and schedule of Chelsea GCA Realty,
Inc. for the period November 2, 1993 to December 31, 1993 and the year ended
December 31, 1994, incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated and
combined financial statements are incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements and schedule of Chelsea GCA Realty
Partnership, L.P. at December 31, 1994 and for the period November 2, 1993 to
December 31, 1993 and the year ended December 31, 1994 and the combined
financial statements of Chelsea GCA Properties for the period January 1, 1993 to
November 1, 1993 and the year ended December 31, 1992 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
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CHELSEA GCA REALTY PARTNERSHIP, L.P.
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS -- CHELSEA GCA REALTY PARTNERSHIP, L.P.
Report of Independent Auditors........................................................................ F-1
Consolidated Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994 and 1993....... F-3
Consolidated Statements of Operations for the nine months ended September 30, 1995 and 1994
(unaudited) and for the year ended December 31, 1994 and for the period November 2, 1993
(commencement of operations) to December 31, 1993.................................................... F-4
Consolidated Statements of Partners' Capital for the nine months ended September 30, 1995 (unaudited),
the year ended December 31, 1994 and for the period November 2, 1993 (commencement of operations) to
December 31, 1993.................................................................................... F-5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994
(unaudited), for the year ended December 31, 1994 and for the period November 2, 1993 (commencement
of operations) to December 31, 1993.................................................................. F-7
Notes to Consolidated Financial Statements............................................................ F-9
Schedule III -- Combined Real Estate and Accumulated Depreciation..................................... F-17
and F-18
COMBINED FINANCIAL STATEMENTS -- CHELSEA GCA PROPERTIES (PREDECESSOR)
Report of Independent Auditors........................................................................ F-2
Combined Statements of Operations for the period January 1, 1993 to November 1, 1993 and the year
ended December 31, 1992.............................................................................. F-4
Combined Statements of Owners' Capital (Deficit) for the period January 1, 1993 to November 1, 1993
and the year ended December 31, 1992................................................................. F-6
Combined Statements of Cash Flows for the period January 1, 1993 to November 1, 1993 and the year
ended December 31, 1992.............................................................................. F-7
Notes to Combined Financial Statements................................................................ F-9
OTHER INFORMATION
Selected Financial Data............................................................................... F-19
Management's Discussion and Analysis of Financial Condition and Results of Operations................. F-20
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE OWNERS
CHELSEA GCA REALTY PARTNERSHIP, L.P.
We have audited the accompanying consolidated balance sheets of Chelsea GCA
Realty Partnership, L.P. as of December 31, 1994 and 1993, and the related
consolidated statements of operations, partners' capital and cash flows for the
year ended December 31, 1994 and for the period November 2, 1993 (date of
commencement of operations) to December 31, 1993. Our audits also included the
financial schedule listed in the Index. These financial statements and schedule
are the responsibility of the management of Chelsea GCA Realty Partnership, L.P.
Our responsibility is to express an opinion on the financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chelsea GCA
Realty Partnership, L.P. as of December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for the year ended December 31,
1994 and for the period from November 2, 1993 (date of commencement of
operations) to December 31, 1993 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
herein.
ERNST & YOUNG LLP
HACKENSACK, NEW JERSEY
FEBRUARY 14, 1995
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE OWNERS
CHELSEA GCA PROPERTIES
We have audited the related combined statements of operations, owners'
capital (deficit) and cash flows of Chelsea GCA Properties, a non-legal entity
more fully described in Note 1 for the period January 1, 1993 to November 1,
1993 and the year ended December 31, 1992. These financial statements are the
responsibility of the management of Chelsea GCA Properties. Our responsibility
is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and the cash flows
of Chelsea GCA Properties' for the period January 1, 1993 to November 1, 1993
and the year ended December 31, 1992 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
HACKENSACK, NEW JERSEY
MARCH 4, 1994
F-2
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
SEPTEMBER 30, ------------ ------------
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Rental properties:
Land............................................................... $ 71,775 $ 62,081 $ 46,231
Depreciable property............................................... 320,839 270,753 196,987
------------- ------------ ------------
Total rental property................................................ 392,614 332,834 243,218
Less accumulated depreciation........................................ 38,378 30,439 22,119
------------- ------------ ------------
Rental properties, net............................................... 354,236 302,395 221,099
Cash and equivalents................................................. 5,032 9,109 57,889
Notes receivable-related party....................................... 8,059 3,447 --
Deferred costs, net.................................................. 5,131 6,587 2,389
Other assets......................................................... 12,788 9,237 7,355
------------- ------------ ------------
TOTAL ASSETS......................................................... $ 385,246 $ 330,775 $ 288,732
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Bank line of credit................................................ $ 81,000 $ 28,000 $ --
Construction payable............................................... 13,250 13,080 2,432
Accounts payable and accrued expenses.............................. 6,650 6,985 5,801
Obligation under capital lease..................................... 9,841 9,830 9,811
Distribution payable............................................... 8,771 8,653 4,992
Rent payable....................................................... 1,580 1,536 1,460
------------- ------------ ------------
TOTAL LIABILITIES.................................................... 121,092 68,084 24,496
Commitments and contingencies
MINORITY INTEREST.................................................... 5,398 5,156 --
Partners' capital:
General partner units outstanding, 11,207 at September 30, 1995,
11,052 in 1994 and 10,937 in 1993................................. 171,863 171,051 173,672
Limited partner units outstanding, 5,660 at September 30,1995,
5,588 in 1994 and 5,703 in 1993................................... 86,893 86,484 90,564
------------- ------------ ------------
TOTAL PARTNERS' CAPITAL.............................................. 258,756 257,535 264,236
------------- ------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL.............................. $ 385,246 $ 330,775 $ 288,732
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
CHELSEA GCA REALTY PARTNERSHIP, L.P. CHELSEA GCA PROPERTIES
(CONSOLIDATED) (COMBINED)
------------------------------------------------ -------------------------
PERIOD PERIOD
NOVEMBER 2, JANUARY 1,
NINE MONTHS YEAR ENDED 1993 TO 1993 TO YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1995 1994 1994 1993 1993 1992
--------- --------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Base rent....................... $ 34,063 $ 24,883 $ 34,415 $ 4,913 $ 20,551 $ 21,370
Percentage rent................. 2,058 1,368 3,595 1,488 847 2,049
Expense reimbursements.......... 14,443 9,158 13,584 2,138 8,047 8,471
Other income.................... 972 1,290 1,551 369 399 873
--------- --------- ------------ ------------ ----------- ------------
TOTAL REVENUES.................... 51,536 36,699 53,145 8,908 29,844 32,763
EXPENSES:
Interest........................ 1,985 736 982 163 9,947 11,201
Operating and maintenance....... 15,321 9,606 14,337 2,176 8,917 9,422
Depreciation and amortization... 9,030 6,349 8,982 1,358 6,255 6,040
General and administrative...... 2,074 1,689 2,561 718 1,860 2,120
Other........................... 1,327 610 1,317 203 1,393 1,140
--------- --------- ------------ ------------ ----------- ------------
TOTAL EXPENSES.................... 29,737 18,990 28,179 4,618 28,372 29,923
INCOME BEFORE MINORITY INTEREST... 21,799 17,709 24,966 4,290 1,472 2,840
Minority interest................. (243) -- (49) -- (1,128) (1,640)
--------- --------- ------------ ------------ ----------- ------------
INCOME BEFORE EXTRAORDINARY
ITEM............................. 21,556 17,709 24,917 4,290 344 1,200
Extraordinary item-loss on early
extinguishment of debt........... -- -- -- (9,410) -- --
--------- --------- ------------ ------------ ----------- ------------
NET INCOME (LOSS)................. $ 21,556 $ 17,709 $ 24,917 $ (5,120) $ 344 $ 1,200
--------- --------- ------------ ------------ ----------- ------------
--------- --------- ------------ ------------ ----------- ------------
NET INCOME (LOSS):
General partner................. $ 14,322 $ 11,639 $ 16,428 $ (3,365)
Limited partners................ 7,234 6,070 8,489 (1,755)
--------- --------- ------------ ------------
TOTAL............................. $ 21,556 $ 17,709 $ 24,917 $ (5,120)
--------- --------- ------------ ------------
--------- --------- ------------ ------------
NET INCOME (LOSS) PER UNIT:
General partner................. $ 1.29 $ 1.06 $ 1.50 $ (0.31)
Limited partners................ $ 1.29 $ 1.06 $ 1.50 $ (0.31)
WEIGHTED AVERAGE UNITS
OUTSTANDING:
General partner................. 11,106 10,937 10,971 10,937
Limited partners................ 5,610 5,703 5,669 5,703
--------- --------- ------------ ------------
TOTAL............................. 16,716 16,640 16,640 16,640
--------- --------- ------------ ------------
--------- --------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
CAPITAL CAPITAL CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
INITIAL CAPITAL CONTRIBUTION NOV. 2, 1993..................................... $ 266,348 $ -- $ 266,348
Contribution of the net assets of Chelsea GCA Properties in exchange for units
of the Operating Partnership net of formation transactions................... (94,030) 94,030 --
Issuance of units in exchange for the general partner's $8.0 million note..... 8,000 -- 8,000
Net loss...................................................................... (3,365) (1,755) (5,120)
Distributions................................................................. (3,281) (1,711) (4,992)
---------- ---------- ----------
BALANCE DECEMBER 31, 1993..................................................... 173,672 90,564 264,236
Net income.................................................................... 16,428 8,489 24,917
Distributions................................................................. (20,840) (10,778) (31,618)
Transfer of a limited partner's interest...................................... 1,791 (1,791) --
---------- ---------- ----------
BALANCE DECEMBER 31, 1994..................................................... 171,051 86,484 257,535
Contributions................................................................. 3,826 1,933 5,759
Net income.................................................................... 14,322 7,234 21,556
Distributions................................................................. (17,336) (8,758) (26,094)
---------- ---------- ----------
BALANCE SEPTEMBER 30, 1995 (UNAUDITED)........................................ $ 171,863 $ 86,893 $ 258,756
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CHELSEA GCA PROPERTIES
COMBINED STATEMENTS OF OWNERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1992........................................................... $ (3,589)
Net income....................................................................... 1,200
Contributions.................................................................... 5,803
Distributions.................................................................... (1,469)
---------
BALANCE, DECEMBER 31, 1992......................................................... 1,945
Net income....................................................................... 344
Contributions.................................................................... 8,557
Distributions.................................................................... (8,549)
BALANCE, NOVEMBER 1, 1993.......................................................... $ 2,297
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
(CONSOLIDATED) CHELSEA GCA PROPERTIES
------------------------------------------------- (COMBINED)
--------------------------
PERIOD PERIOD
NINE MONTHS NOVEMBER 2, JANUARY 1,
ENDED SEPTEMBER 30, YEAR ENDED 1993 TO 1993 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1995 1994 1994 1993 1993 1992
--------- --------- ------------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....................... $ 21,556 $ 17,709 $ 24,917 $ (5,120) $ 344 $ 1,200
Adjustments to reconcile net income
(loss) to net cash provided by
operating activity:
Depreciation and amortization....... 9,030 6,349 8,982 1,358 6,255 6,040
Minority interest................... 243 -- 49 -- 1,128 1,640
Loss on early extinguishment of
debt............................... -- -- -- 9,410 -- --
Other............................... 146 -- -- (26) 1,044 918
Changes in assets and liabilities:
Straight line rent receivable....... (999) (905) (1,205) (436) (339) (48)
Other assets........................ (1,652) 872 (677) 1,643 (124) (494)
Accounts payable and accrued
expenses........................... (909) 11,447 1,279 (1,772) 2,089 231
--------- --------- ------------- ------------ ----------- -------------
Net cash provided by operations......... 27,415 35,472 33,345 5,057 10,397 9,487
CASH FLOW FROM INVESTING ACTIVITIES
Additions to rental properties.......... (61,192) (59,530) (76,071) (60,171) (31,744) (11,873)
Deposits to restricted cash............. -- -- -- -- -- (1,033)
Withdrawals from restricted
cash................................... -- -- -- -- 1,033 1,044
Additions to deferred costs............. (1,167) (952) (1,578) (311) (504) (457)
Advances to affiliates.................. -- -- -- -- -- (1,437)
Advances to related parties............. -- -- (2,769) (3,436) -- (624)
Payments from related parties........... 105 -- -- -- 1,371 --
Other investing activities.............. -- -- -- -- 308 262
--------- --------- ------------- ------------ ----------- -------------
Net cash used in investing activities... (62,254) (60,482) (80,418) (63,918) (29,536) (14,118)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of units......... -- -- -- 266,348 -- --
Contributions........................... 3,826 -- 2,429 -- 9,510 2,534
Distributions........................... (25,976) (20,302) (27,957) -- (1,165) (2,493)
Loan proceeds........................... 53,000 -- 28,000 -- 17,023 9,683
Repayment of debt including prepayment
penalties.............................. -- -- -- (149,778) (1,600) (2,407)
Additions to deferred financing costs... (258) (1,784) (4,179) -- (754) (1,341)
Other financing activities.............. 170 329 -- -- (322) 365
--------- --------- ------------- ------------ ----------- -------------
Net cash (used in) provided by financing
activities............................. 30,762 (21,757) (1,707) 116,570 22,692 6,341
NET INCREASE (DECREASE) IN CASH......... (4,077) (46,767) (48,780) 57,709 3,553 1,710
Cash, beginning of period............... 9,109 57,889 57,889 180 3,683 1,973
--------- --------- ------------- ------------ ----------- -------------
Cash, end of period..................... $ 5,032 $ 11,122 $ 9,109 $ 57,889 $ 7,236 $ 3,683
--------- --------- ------------- ------------ ----------- -------------
--------- --------- ------------- ------------ ----------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES.
FOR THE PERIODS ENDING SEPTEMBER 30, 1995 (UNAUDITED), DECEMBER 31, 1994 AND
1993 -- CHELSEA GCA REALTY PARTNERSHIP, L.P. (Consolidated)
In September 1995, the Operating Partnership transferred property valued at
$4.7 million to a unitholder in exchange for two notes receivable of $4.0
million and $0.7 million, respectively. The $4.0 million note is collateralized
by the units in the Operating Partnership.
In May and July 1995, the Operating Partnership acquired properties valued
at $1.9 million through the issuance of units in the Operating Partnership
having an aggregate fair market value of $1.9 million as of such dates.
In February 1994, the Operating Partnership entered into a limited
partnership with an unrelated limited partner, as sole general partner, to
acquire property, develop and operate a manufacturers' outlet center in Solvang,
California. Land with an approximate value of $2.0 million was contributed to
the partnership by the limited partner.
During November 1994, a limited partner exchanged 115,000 Operating
Partnership units for an equal number of common shares in Chelsea GCA Realty,
Inc., the sole general partner.
During November 1993 there were significant non-cash formation transactions
as more fully described in Note 1. In November 1993, the general partner
exchanged Operating Partnership units for an $8.0 million note issued by the
general partner.
In December 1994 and 1993 the Operating Partnership declared a $0.52 and
$0.30 per unit distribution, respectively, which were paid in January of the
following year.
1992 -- CHELSEA GCA PROPERTIES (Combined)
Chelsea GCA Properties acquired the following in non-cash transactions (in
thousands):
<TABLE>
<S> <C>
ASSETS
Land and related construction in progress.............. $ 3,207
Receivable -- mortgage financing costs................. 620
Other assets........................................... 76
---------
Total assets......................................... $ 3,903
---------
---------
LIABILITIES
Advances from an affiliate, subsequently reflected as a
reduction in the investment in the affiliate.......... $ 3,877
Other liabilities...................................... 79
---------
Total liabilities.................................... $ 3,956
---------
---------
</TABLE>
Chelsea GCA Properties entered into a transaction in connection with a
restructuring of the ownership of certain of its properties in which there was
an exchange of ownership and other non-cash transactions amounting to
approximately $5.4 million. All such transfers of ownership interests were
accounted for at historical book values. The transaction resulted in a non-cash
increase in other assets of $5.4 million, a non-cash increase in liabilities of
$2.1 million and a non-cash increase in owners' equity of $3.3 million.
The seller of certain properties provided financing to Chelsea GCA
Properties in the amount of $2.4 million.
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Chelsea GCA Realty Partnership, L.P. (the "Operating Partnership"), which
commenced operations on November 2, 1993, is engaged in the development,
ownership, acquisition, leasing and operation of manufacturers' outlet centers.
As of September 30, 1995, the Operating Partnership operated 17 centers in 9
states. The sole general partner in the Operating Partnership, Chelsea GCA
Realty, Inc. (the "Company") is a self-administered and self-managed Real Estate
Investment Trust.
The Company contributed $266.3 million in cash to the Operating Partnership
and exchanged an $8.0 million note for additional partnership units. The Company
had an initial 65.72% general partnership interest in the Operating Partnership.
The predecessor of the Operating Partnership, Chelsea GCA Properties (the
"Predecessor") was a non-legal entity consisting of the following:
-Six operating manufacturers' outlet centers, including expansion projects
under development and land for the construction of an additional center,
and the property and lease management business, collectively referred to as
"Chelsea", which were under common ownership and control.
-Six operating manufacturers' outlet centers, including expansion projects
under development and one factory outlet center nearing completion of
development which were owned or managed by Ginsburg Craig Associates,
collectively referred to as "GCA."
Chelsea contributed its six existing manufacturers' outlet centers,
including expansion projects under development and land for the construction of
an additional center, and the property and lease management business, to the
Operating Partnership, in exchange for 4,375,948 partnership units which
represented a 26.3% interest in the Operating Partnership, $16.0 million in
cash, and a $6 million interest-free promissory note issued to an affiliate
which was paid by the Operating Partnership during December of 1993.
GCA contributed its six existing manufacturers' outlet centers, including
expansion projects under development, one manufacturers' outlet center nearing
completion of development, the option agreements for the purchase of Napa
Factory Stores and an agreement to purchase a property located in Riverside
County, California, to the Operating Partnership in exchange for 1,327,347
partnership units which represented a 7.98% interest in the Operating
Partnership and $14.5 million in cash.
The assets acquired for cash have been accounted for as a purchase. The
purchase price of $30.5 million exceeded the net book value of the assets
acquired by approximately $27.0 million. The excess purchase price was allocated
to the acquired land and buildings of the respective centers.
BASIS OF PRESENTATION
The consolidated financial statements of the Operating Partnership include
the accounts of Solvang Designer Outlets ("Solvang"), a limited partnership in
which the Operating Partnership has a 50% interest and has been the sole general
partner since February 24, 1994 (date of commencement of development). As the
sole general partner, the Operating Partnership has the ability to exercise both
financial and operational control over the partnership.
The accompanying financial statements of the Predecessor have been presented
on a combined basis of accounting. As a result, the financial statements of the
Predecessor include the combined historical results of operations, owners'
capital (deficit), cash flows and financial position of Chelsea and GCA. All
transactions between business entities included in the Predecessor's financial
statements have been eliminated in combination.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
RENTAL PROPERTIES
Rental properties are recorded at cost less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets. The Operating Partnership and Predecessor use 25-40 year
estimated lives for buildings, 15-year estimated life for land improvements and
5-year estimated life for equipment. Expenditures for ordinary maintenance and
repairs are charged to operations as incurred while significant renovations and
improvements that improve and/or extend the useful life of the asset are
capitalized and depreciated over their estimated useful life. Impairment in the
carrying value of rental properties would be recognized to the extent ultimate
net realizable value was less than the carrying value. Ultimate net realizable
value is determined based on the ability to fully recover costs through a future
revenue stream supported principally by rental revenues, after consideration of
related costs. The time value of money is not considered in assessing revenues
versus costs. No impairment losses have been recorded in any of the periods
presented.
CASH AND CASH EQUIVALENTS
All demand, money market accounts and certificates of deposit with an
original maturity of three months or less at date of purchase are considered to
be cash and cash equivalents. At December 31, 1994 and 1993 cash equivalents
consisted of certificates of deposit, commercial paper and repurchase
agreements. The above investments matured in January of the following year. The
carrying amount of such investments approximates fair value.
DEVELOPMENT COSTS
Development costs, which include interest, taxes, insurance and other costs
incurred in developing new properties, are capitalized. Upon completion of
construction, development costs are amortized over the useful lives of the
respective rental properties on a straight-line basis.
CAPITALIZED INTEREST
Interest including the amortization of deferred financing costs incurred on
borrowings used to fund the rental property development and construction are
capitalized as construction in progress and allocated to the individual property
cost once construction is completed.
RENTAL EXPENSE
Rental expense is recognized on a straight-line basis over the initial term
of the agreement.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.
DEFERRED FINANCING COSTS
Deferred financing costs, including fees and costs incurred to obtain
financing and interest rate caps, are being amortized as interest costs on a
straight-line basis over the terms of the respective agreements. Unamortized
deferred financing costs are charged to expense when the associated debt is
retired before the maturity date.
REVENUE RECOGNITION
Leases with tenants are accounted for as operating leases. Minimum rental
income is recognized on a straight-line basis over the term of the lease and due
and unpaid rents are included in other assets in the accompanying balance sheet.
Certain lease agreements contain provisions which provide for rents based on a
percentage of sales and certain leases provide for additional rents based on a
percentage of sales volume above a specified breakpoint. These additional rents
are reflected on the accrual basis. Virtually all lease agreements contain
provisions for reimbursement of real estate taxes, insurance, advertising and
certain common area maintenance costs.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
INCOME TAXES
No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners.
NET INCOME PER PARTNERSHIP UNIT
Net income per partnership unit is determined by allocating net income to
the general partner and the limited partners based on their weighted average
partnership units outstanding during the respective periods presented.
CONCENTRATION OF CREDIT RISK
Management of the Operating Partnership performs ongoing credit evaluations
of its tenants. Although the Operating Partnership's tenants operate principally
in the retail industry, the properties are geographically diverse and there is
no dependence upon any single tenant.
MINORITY INTEREST
Minority interest is comprised of the limited partner's 50% partnership
interest in Solvang.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in the consolidated financial statements prepared in accordance with
generally accepted accounting principles may have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading. The
unaudited consolidated financial statements as of September 30, 1995 and for the
nine month periods ended September 30, 1995 and 1994 include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial information set forth herein. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the entire year.
3. RENTAL PROPERTIES
The following summarizes the carrying values of rental properties as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land and improvements................................................. $ 96,353 $ 72,732
Buildings and improvements............................................ 205,892 166,044
Construction-in-process............................................... 28,590 3,038
Equipment............................................................. 1,999 1,404
---------- ----------
Total rental property................................................. 332,834 243,218
Accumulated depreciation and amortization............................. (30,439) (22,119)
---------- ----------
TOTAL RENTAL PROPERTY, NET............................................ $ 302,395 $ 221,099
---------- ----------
---------- ----------
</TABLE>
Interest costs capitalized as part of rental properties amounted to $918,210
for the year ended December 31, 1994, $-0- for the period from November 2, 1993
to December 31, 1993, $453,004 for the period from January 1, 1993 to November
1, 1993 and $261,558 for the year ended December 31, 1992 and are included in
buildings and improvements.
Commitments for construction of new developments and additions to existing
properties were approximately $13.0 million at December 31, 1994. Commitments
for the purchase of new properties were approximately $10.5 million at December
31, 1994.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RENTAL PROPERTIES (CONTINUED)
Depreciation expense including the amortization of the capital lease asset
amounted to $8.3 million for the year ended December 31, 1994, $1.2 million for
the period from November 2, 1993 to December 31, 1993, $4.4 million for the
period from January 1, 1993 to November 1, 1993 and $5.1 million for the year
ended December 31, 1992.
For the nine month period ended September 30, 1995, capitalized interest was
$2.8 million and depreciation expense was $8.0 million ($6.0 million-September
30, 1994). Commitments for future construction were approximately $14.2 million
at September 30, 1995.
4. DEFERRED COSTS
The following summarizes the carrying amounts for deferred costs as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Deferred lease costs..................................................... $ 5,081 $ 3,504
Deferred financing costs................................................. 4,179 --
--------- ---------
Total deferred costs..................................................... 9,260 3,504
Accumulated amortization................................................. (2,673) (1,115)
--------- ---------
TOTAL DEFERRED COSTS, NET................................................ $ 6,587 $ 2,389
--------- ---------
--------- ---------
</TABLE>
5. BANK LINE OF CREDIT
The Operating Partnership has a $200 million revolving credit facility (the
"Credit Facility"), expiring on June 30, 1996, unless converted to a three-year
term loan at the Operating Partnership's option. At December 31, 1994, the
Credit Facility was secured by five of the Operating Partnership's rental
properties which had a net book value of $136 million. Full availability under
the Credit Facility is subject to meeting certain additional collateral
requirements. Interest on the outstanding balance is payable monthly at a rate
of LIBOR (6.5% at December 31, 1994) plus 2.25% or prime plus 1%, at the
Operating Partnership's option. A fee on the unused portion of the Credit
Facility is payable quarterly at a rate of 0.25% per annum. The outstanding
balance at December 31, 1994 was $28.0 million, which approximates its fair
value.
The Credit Facility requires compliance with certain financial loan
covenants relating to debt service coverage, tangible net worth, earnings,
leasing of mortgaged properties, new development and dividends. The Operating
Partnership has remained in compliance with these covenants since inception of
the facility.
The Operating Partnership entered into an interest rate cap agreement to
substantially protect the partnership from increases in LIBOR above 7.5% per
annum. The carrying amount of the interest rate cap was $333,000 at December 31,
1994 which approximates its fair value.
Interest paid, excluding amounts capitalized, amounted to $981,992 for the
year ended December 31, 1994, $1.2 million for the period November 2, 1993 to
December 31, 1993, $9.6 million for the period January 1, 1993 to November 1,
1993, $10.7 million for the year ended December 31, 1992 and $1.7 million for
the nine months ended September 30, 1995.
On November 2, 1993 the Operating Partnership paid, with the proceeds from
capital contributions, its outstanding debt balance of $138.0 million, which had
been assumed by the Operating Partnership. As a result, the Operating
Partnership incurred penalties of $6.2 million for the early retirement of the
debt obligations. Deferred financing costs of $3.2 million were expensed in
connection with the debt retirement. Such amounts have been reflected as an
extraordinary item in the accompanying statement of operations.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASE AGREEMENTS
The Operating Partnership is the lessor and sub-lessor of retail stores
under operating leases with initial terms that expire from 1995 to 2005. Most
leases are renewable for five years at the lessee's option. Future minimum lease
receipts under noncancelable operating leases as of December 31, 1994 are as
follows (in thousands):
<TABLE>
<S> <C>
1995.............................................................. $ 35,347
1996.............................................................. 31,079
1997.............................................................. 26,637
1998.............................................................. 21,436
1999.............................................................. 19,692
Thereafter........................................................ 27,898
---------
TOTAL............................................................. $ 162,089
---------
---------
</TABLE>
On August 1, 1987 one of the Predecessor Partnership's entered into a lease
agreement for an outlet center in Monterey, California. The land represented 37%
of the fair market value of the property. As a result, the portion of the lease
attributable to the land has been classified as an operating lease and the
portion attributable to the building has been classified as a capital lease. The
initial lease term is 25 years with two options of 5 and 4 1/2 years,
respectively. The lease was amended in April 1993 to include the rental of an
adjacent parking lot.
The Operating Partnership has the option to cancel the lease upon giving six
months written notice and six months advance payment of the then fixed monthly
rent for the ensuing six months. If the lease is canceled, the building and
leasehold improvements revert to the lessor.
The lease provides for payment of overage rent based on achievement of
certain levels of rental income from tenant's occupying the outlet center. No
overage rent was paid during 1994, 1993 or 1992.
OPERATING LEASES
Future minimum rental payments payable under the operating land lease,
parking lot lease and office leases as of December 31, 1994 are as follows (in
thousands):
<TABLE>
<S> <C>
1995............................................................... $ 903
1996............................................................... 923
1997............................................................... 941
1998............................................................... 959
1999............................................................... 860
Thereafter......................................................... 10,452
---------
TOTAL.............................................................. $ 15,038
---------
---------
</TABLE>
Rental expense amounted to $812,277 for the year ended December 31, 1994,
$138,069 for the period November 2, 1993 to December 31, 1993, $691,245 for the
period January 1, 1993 to November 1, 1993 and $824,818 for the year ended
December 31, 1992 and $664,575 for the period ended September 30, 1995.
CAPITAL LEASE
Leased property included in rental properties at December 31 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Building................................................................. $ 8,621 $ 8,621
Less accumulated amortization............................................ (2,558) (2,213)
--------- ---------
LEASE PROPERTY, NET...................................................... $ 6,063 $ 6,408
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASE AGREEMENTS (CONTINUED)
The following is a schedule of future minimum lease payments under the
capitalized building lease together with the present value of the net minimum
lease payments as of December 31, 1994 (in thousands):
<TABLE>
<S> <C>
1995.............................................................. $ 969
1996.............................................................. 1,022
1997.............................................................. 1,053
1998.............................................................. 1,085
1999.............................................................. 1,117
Thereafter........................................................ 17,289
---------
Total minimum lease payments...................................... 22,535
Amount representing interest...................................... (12,705)
---------
PRESENT VALUE OF NET MINIMUM CAPITAL LEASE PAYMENTS............... $ 9,830
---------
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Operating Partnership has employment agreements which provide for
covenants not to compete for a period of one year upon termination of
employment. Two of the five employment agreements expire in November 1996 and
the remainder in November 1995. The combined salary obligation per the
employment agreements are $845,167 in 1995 and $354,167 in 1996.
During December 1993 the Operating Partnership entered into an agreement
with the City of Petaluma, California to fund a portion of an
overpass/interchange project totaling $1.2 million over 6 years commencing in
1996.
Management has determined that the foundation slab at one of its
manufacturers' outlet centers was installed improperly and will require
corrective action, which could cost approximately $1 million. Management
believes costs may be recoverable from the original contractor and/or engineers,
and any non-recoverable costs incurred will not materially affect the financial
position or operating results of the Operating Partnership.
The Operating Partnership is not presently involved in any material
litigation nor, to its knowledge, is any material litigation threatened against
the Operating Partnership or its properties, other than routine litigation
arising in the ordinary course of business. Management believes the costs, if
any, incurred by the Operating Partnership related to this litigation will not
materially affect the financial position, operating results or liquidity of the
Operating Partnership.
In connection with development of an outlet center, which commenced
operations in early 1995, the Operating Partnership as part of the land purchase
will distribute partnership units valued at approximately $1.8 million to the
seller upon tenant occupancy of 75%.
8. RELATED PARTY INFORMATION
During 1994, the Operating Partnership loaned its limited partner in Solvang
$3.1 million under a promissory note to fund a portion of its additional capital
contributions. The promissory note is due one year following the date the center
achieves 75% tenant occupancy. Interest on the outstanding balance is payable
monthly at a rate of 10% per annum. The note is collateralized by the limited
partner's interest in the outlet center.
At the date of formation, the Operating Partnership had related party
payables of $3.4 million related to partnerships of the Predecessor. As of
December 31, 1994, the Operating Partnership had related party receivables
totaling $340,000 which have been subsequently collected.
The Operating Partnership leased approximately 48,000 square feet of space
for the year ended December 31, 1994, 38,000 square feet for the period November
2, 1993 to December 31, 1993, 35,000
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY INFORMATION (CONTINUED)
square feet for the period January 1, 1993 to November 1, 1993 and 29,000 square
feet for the year ended December 31, 1992, to related parties. Annual rental
income from those tenants, including reimbursement for taxes, common area
maintenance and advertising was $1.3 million for the year ended December 31,
1994, $180,056 for the period November 2, 1993 to December 31, 1993, $730,188
for the period January 1, 1993 to November 1, 1993 and $745,926 for the year
ended December 31, 1992, respectively. For the unaudited nine month period ended
September 30, 1995 the Operating Partnership leased approximately 59,000 square
feet of space and had rental income from related parties of $1.1 million.
The Predecessor paid management fees and leasing commissions to related
management companies of $397,677 and $899,687 for the period January 1, 1993 to
November 1, 1993 and for the year ended December 31, 1992, respectively.
Two partners guarantee certain of the Operating Partnership's obligations
under a lease for one of the properties. In addition, two other partners
guarantee certain of the Operating Partnership's obligations under a lease for
the west coast administration office. The Operating Partnership has indemnified
these partners from and against any liability which they may incur pursuant to
the guaranty.
9. QUARTERLY FINANCIAL INFORMATION -- (UNAUDITED)
The following summary represents the results of operations, expressed in
thousands except per unit amounts, for each quarter during 1994.
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1994
Base rental revenue........................ $ 7,972 $ 8,144 $ 8,768 $ 9,531
Total revenues............................. 11,506 12,072 13,121 16,446
Net income................................. 5,463 5,766 6,480 7,208
Net income per weighted average limited
partnership unit.......................... $ 0.33 $ 0.35 $ 0.39 $ 0.43
</TABLE>
10. SUBSEQUENT EVENTS (UNAUDITED)
Effective July 1, 1995, the Operating Partnership obtained a reduction in
the rate of interest charged on borrowings on its credit facility to 1.75% over
LIBOR, or the prime rate plus 0.50%, at the Operating Partnership's option. The
outstanding balance at September 30, 1995 was $81.0 million. An additional $3.5
million of the Credit Facility was reserved for letters of credit issued to
secure commitments to fund a traffic mitigation plan at a new center and future
development of manufacturers' outlet centers in Europe.
In September 1995, the Operating Partnership increased its borrowing
availability under the Credit Facility by adding two previously unencumbered
rental properties to the collateral pool raising the number of secured rental
properties to seven.
In July 1995, the Operating Partnership issued 66,500 units valued at
approximately $1.8 million in connection with the development of an outlet
center which commenced operations in March 1995. The sellers will be entitled to
additional partnership units valued at $1.2 million upon completion of
expansions and achievement of certain criteria related to an additional 100,000
square feet of GLA.
In August 1995, the Operating Partnership's President (who also was the
Chief Operating Officer) resigned and entered into a separation agreement with
the Operating Partnership that includes consulting services to be provided
through 1999; certain non-compete provisions; and the acquisition of certain
undeveloped real estate assets. Upon their completion, such assets may be
re-acquired by the Operating Partnership, at its option, at a predetermined
amount based on cash flow. The transactions related to the separation agreement
are not material to the financial statements of the Operating Partnership.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
In November 1995, the Company received and accepted an offer to sell its
smallest property in Page, Arizona (Page Factory Stores - 14,000 square feet of
GLA) to an unrelated third party. The all-cash offer is required to close not
later than December 31, 1995 and will result in a non-recurring net book loss of
approximately $1.0 million.
F-16
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP L.P.
SCHEDULE III -- COMBINED REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST TO STEP-UP RELATED TO
(DISPOSED OF)
SUBSEQUENT TO ACQUISITION OF
ACQUISITION PARTNERSHIP INTEREST
COMPANY
---------------------- (IMPROVEMENTS) (1)
BUILD., ---------------------- ----------------------
FIX. BUILD., BUILD.,
DESCRIPTION ENCUM- AND FIX. AND FIX. AND
OUTLET CENTER NAME BRANCES LAND EQUIP. LAND EQUIP. LAND EQUIP.
- ---------------------------------------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
American Tin Cannery, CA................ $ 9,830 $ -- $ 8,621 $ -- $ 6,320 $ -- $ --
Lawrence Riverfront, KS................. -- -- 14,300 15 2,049 -- --
Liberty Village, NJ..................... -- 345 405 908 12,001 11,015 2,195
Folsom, CA.............................. (2) 4,169 10,465 1,283 8,070 -- --
Aurora Farms, OH........................ (2) 637 6,884 879 12,471 -- --
Woodbury Common, NY..................... (2) 4,448 16,073 2,981 42,257 -- --
Petaluma Village, CA.................... -- 3,735 -- (260) 18,951 -- --
Desert Hills, CA........................ (2) 975 -- 2,470 34,160 830 4,936
Columbia Gorge, OR...................... (2) 934 -- 428 10,979 497 2,647
Mammoth Lakes, CA....................... -- 1,180 530 -- 2,088 994 1,430
Page, AZ................................ -- 124 326 -- 597 133 620
St. Helena, CA.......................... -- 1,029 1,522 (25) 495 38 78
Patriot Plaza, VA....................... -- 789 1,854 116 1,018 -- --
Santa Fe, NM............................ -- 74 -- 1,386 10,309 491 1,772
Corporate Offices, NJ, CA............... -- -- 60 -- 867 -- --
Napa Valley, CA......................... -- 3,456 2,113 7,612 12,176 -- --
Riverside County, CA.................... -- 1,187 2,087 502 426 -- --
Solvang, CA............................. -- -- -- 2,380 7,973 -- --
Camarillo, CA........................... -- 4,000 -- 326 8,628 -- --
----------- --------- ----------- --------- ----------- --------- -----------
$ 9,830 $ 27,082 $ 65,240 $ 21,001 $ 191,835 $ 13,998 $ 13,678
----------- --------- ----------- --------- ----------- --------- -----------
----------- --------- ----------- --------- ----------- --------- -----------
<CAPTION>
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD
LIFE USED TO
DECEMBER 31, 1994 COMPUTE
---------------------- DEPRECIATION
BUILD., IN LATEST
DESCRIPTION FIX. AND ACCUMULATED DATE OF INCOME
OUTLET CENTER NAME LAND EQUIP. TOTAL DEPRECIATION CONSTRUCTION STATEMENT
- ---------------------------------------- --------- ----------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
American Tin Cannery, CA................ $ -- $ 14,941 $ 14,941 $ 4,160 1987 25
Lawrence Riverfront, KS................. 15 16,349 16,364 2,626 1990 40
Liberty Village, NJ..................... 12,268 14,601 26,869 805 1981 30
Folsom, CA.............................. 5,452 18,535 23,987 2,499 1990, 1992 & 40
1993
Aurora Farms, OH........................ 1,516 19,355 20,871 1,361 1990, 1993 & 40
1994
Woodbury Common, NY..................... 7,429 58,330 65,759 9,911 1985 & 1993 30
Petaluma Village, CA.................... 3,475 18,951 22,426 88 1993
Desert Hills, CA........................ 4,275 39,096 43,371 5,021 1990 & 1994 40
Columbia Gorge, OR...................... 1,859 13,626 15,485 1,454 1991 & 1994 40
Mammoth Lakes, CA....................... 2,174 4,048 6,222 691 1978 40
Page, AZ................................ 257 1,543 1,800 193 1960 & 1971 40
St. Helena, CA.......................... 1,042 2,095 3,137 156 1983 40
Patriot Plaza, VA....................... 905 2,872 3,777 616 1986 & 1993 40
Santa Fe, NM............................ 1,951 12,081 14,032 423 1993 40
Corporate Offices, NJ, CA............... -- 927 927 374 5
Napa Valley, CA......................... 11,068 14,289 25,357 14 1962 & 1993 40
Riverside County, CA.................... 1,689 2,513 4,202 6 1989 40
Solvang, CA............................. 2,380 7,973 10,353 41 1994 40
Camarillo, CA........................... 4,326 8,628 12,954 -- 1994 40
--------- ----------- --------- -------------
$ 62,081 $ 270,753 $ 332,834 $ 30,439
--------- ----------- --------- -------------
--------- ----------- --------- -------------
</TABLE>
- ------------------------------
The aggregate cost of the land, building, fixtures and equipment for federal tax
purposes was approximately $332 million at December 31, 1994.
(1) As part of the formation transaction assets acquired for cash have been
accounted for as a purchase. The step-up represents the amount of the
purchase price that exceeds the net book value of the assets acquired (see
Note 1).
(2) Property is collateral for the bank line of credit. Certain 1994 expansions
are not included in the collateral pool.
F-17
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
SCHEDULE III -- COMBINED REAL ESTATE
AND ACCUMULATED DEPRECIATION (CONTINUED)
THE CHANGES IN TOTAL REAL ESTATE:
<TABLE>
<CAPTION>
PERIOD PERIOD
NOVEMBER 2, JANUARY 1,
YEAR ENDED 1993 TO 1993 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1994 1993 1993 1992
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, beginning of period.......................... $ 243,218 $ 190,674 $ 158,473 $ 139,495
Additions and step-up in basis........................ 89,708 55,676 33,267 18,978
Dispositions and other................................ (92) (3,132)(1) (1,066)(2) --
Balance, end of period................................ $ 332,834 $ 243,218 $ 190,674 $ 158,473
</TABLE>
THE CHANGE IN ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
PERIOD PERIOD
NOVEMBER 2, JANUARY 1,
YEAR ENDED 1993 TO 1993 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 1, DECEMBER 31,
1994 1993 1993 1992
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, beginning of period............................ $ 22,119 $ 24,068 $ 19,659 $ 14,542
Depreciation for the period............................. 8,341 1,183 4,409 5,117
Dispositions and other.................................. (21) (3,132)(1)
------------ ------------- ------------ ------------
Balance, end of period.................................. $ 30,439 $ 22,119 $ 24,068 $ 19,659
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
- ------------------------
(1) Represents elimination of accumulated depreciation in connection with the
purchase of property from original partners (see Note 1).
(2) Represents assets not transferred to Chelsea GCA Realty Partnership, L.P.
F-18
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS EXCEPT PER UNIT)
<TABLE>
<CAPTION>
CHELSEA GCA REALTY PARTNERSHIP, L.P. CHELSEA GCA
(CONSOLIDATED) PROPERTIES
-------------------------------------------------- (COMBINED)
-----------
PERIOD PERIOD
NINE MONTHS NOVEMBER 2, JANUARY 1,
ENDED SEPTEMBER 30, YEAR ENDED 1993 TO 1993 TO
DECEMBER 31, DECEMBER 31, NOVEMBER 1,
1995 1994 1994 1993 1993
--------- --------- ------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income............................................. $ 36,121 $ 26,251 $ 38,010 $ 6,401 $ 21,398
Total revenues............................................ 51,536 36,699 53,145 8,908 29,844
Total expenses............................................ 29,737 18,990 28,179 4,618 28,372
Income (loss) before minority interest.................... 21,799 17,709 24,966 4,290 1,472
Minority interest......................................... 243 -- 49 -- 1,128
Income (loss) before extraordinary item................... 21,556 17,709 24,917 4,290 344
Extraordinary item -- loss on retirement of debt.......... -- -- -- (9,410) --
Net income (loss)......................................... 21,556 17,709 24,917 (5,120) 344
Net income (loss) per unit:...............................
General partner......................................... $ 1.29 $ 1.06 $ 1.50 $ (0.31) --
Limited partners........................................ $ 1.29 $ 1.06 $ 1.50 $ (0.31) --
WEIGHTED AVERAGE UNITS OUTSTANDING:
General partner......................................... 11,106 10,937 10,971 10,937 --
Limited partners........................................ 5,610 5,703 5,669 5,703 --
--------- --------- ------------- ------------- -----------
Total..................................................... 16,716 16,640 16,640 16,640 --
BALANCE SHEET DATA:
Rental properties before accumulated depreciation....... $ 392,614 $ 304,748 $ 332,834 $ 243,218 $ 192,565
Total assets............................................ 385,246 299,915 330,775 288,732 188,895
Total liabilities....................................... 121,092 38,606 68,084 24,496 173,012
Minority interest....................................... 5,398 -- 5,156 -- --
Partners' capital....................................... $ 258,756 $ 261,309 $ 257,535 $ 264,236 $ 15,883
Distribution declared per unit.......................... $ 1.56 $ 1.38 $ 1.90 N/A N/A
OTHER DATA:
Funds from operations(2).................................. $ 30,492 $ 24,058 $ 33,878 $ 5,648 $ 7,727
Cash flows from:
Operating activities.................................... 27,415 35,472 33,345 5,057 10,397
Investing activities.................................... (62,254) (60,482) (80,418) (63,918) (29,536)
Financing activities.................................... 30,762 (21,757) (1,707) 116,570 22,692
GLA at end of period...................................... 2,823 2,066 2,342 1,879 1,620
Weighted average GLA...................................... 2,617 1,946 2,001 1,743 1,550
Centers at end of the period.............................. 17 13 16 13 12
New centers opened........................................ 1 -- 3 1 --
Centers expanded.......................................... 4 3 2 3 --
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1991 1990
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING DATA:
Rental income............................................. $ 23,419 $ 20,620 $ 14,496
Total revenues............................................ 32,763 29,455 21,373
Total expenses............................................ 29,923 29,999 27,267
Income (loss) before minority interest.................... 2,840 (544) (5,894)
Minority interest......................................... 1,640 1,175 1,066
Income (loss) before extraordinary item................... 1,200 (1,719) (6,960)
Extraordinary item -- loss on retirement of debt.......... -- -- --
Net income (loss)......................................... 1,200 (1,719) (6,960)
Net income (loss) per unit:...............................
General partner......................................... -- -- --
Limited partners........................................ -- -- --
WEIGHTED AVERAGE UNITS OUTSTANDING:
General partner......................................... -- -- --
Limited partners........................................ -- -- --
------------- ------------- -------------
Total..................................................... -- -- --
BALANCE SHEET DATA:
Rental properties before accumulated depreciation....... $ 158,473 $ 139,495 $ 127,245
Total assets............................................ 152,926 135,815 129,412
Total liabilities....................................... 146,860 135,899 130,230
Minority interest....................................... 4,121 3,505 2,802
Partners' capital....................................... $ 1,945 $ (3,589) $ (3,620)
Distribution declared per unit.......................... N/A N/A N/A
OTHER DATA:
Funds from operations(2).................................. $ 8,880 $ 5,325 $ (1,235)
Cash flows from:
Operating activities.................................... 9,487 4,563 445
Investing activities.................................... (14,118) (12,935) (38,287)
Financing activities.................................... 6,341 9,066 36,455
GLA at end of period...................................... 1,444 1,327 1,208
Weighted average GLA...................................... 1,401 1,294 1,022
Centers at end of the period.............................. 12 10 9
New centers opened........................................ 2 1 4
Centers expanded.......................................... 1 1 --
</TABLE>
- ------------------------------
(1) The selected financial data includes: the combined financial statements of
Chelsea GCA Properties ("Predecessor Business") for the periods prior to
November 2, 1993 and the consolidated financial statements of Chelsea GCA
Realty Partnership, L.P., for the periods after November 1, 1993.
(2) Management generally considers Funds From Operations ("FFO") an appropriate
measure of performance of an equity real estate investment trust. FFO, as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), is net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments
for unconsolidated partnerships and joint ventures will be calculated to
reflect FFO on the same basis. FFO does not represent net income or cash
flow from operations as defined by generally accepted accounting principles
and should not be considered an alternative to net income as an indicator
of operating performance or to cash from operations, and is not necessarily
indicative of cash flow available to fund cash needs.
F-19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Such financial statements have been prepared so as to identify the operations of
the Operating Partnership prior and subsequent to the consummation of the
Company's inital public offering and formation transactions on November 3, 1993
("IPO"). The unaudited financial statements for the nine months ended September
30, 1995 and 1994 include all adjustments which, in the opinion of management,
are necessary to reflect a fair statement of results for the interim periods
presented, and all such adjustments are of a normal recurring nature.
The Financial Accounting Standards Board has issued Financial Accounting
Standards No. 121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of which is effective for fiscal years
beginning after December 15, 1995. The Company plans to adopt FAS 121 in the
first quarter of 1996. Management does not believe that adoption of FAS 121 will
have a material impact on the Company's financial position or results of
operations.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
GENERAL OVERVIEW
The Operating Partnership has grown by increasing rent at its existing
centers, expanding its existing centers, developing new centers and acquiring
and redeveloping centers. At September 30, 1995, the Operating Partnership
operated 17 manufacturers' outlet centers, compared to 13 at the end of the same
nine month period in the prior year. The Operating Partnership's operating GLA
at September 30, 1995, was up 36.6% to 2.8 million square feet compared to 2.1
million square feet at September 30, 1994. During the third quarter of 1995, the
Operating Partnership completed and opened 24,000 square feet of new GLA
including a 17,000 square foot expansion of Napa Factory Stores (Napa, CA) and a
5,000 square foot expansion to Woodbury Common (Central Valley, NY). During the
second quarter of 1995, the Operating Partnership completed and opened or
acquired approximately 270,000 square feet of GLA including: a 192,000 square
foot expansion of Desert Hills (Cabazon, CA); a 42,000 square foot expansion of
Napa Factory Stores (Napa, CA); the acquisition of 22,000 square feet of
existing outlet stores adjacent to Patriot Plaza (Williamsburg, VA); and the
completion of the final 15,000 square feet of Camarillo Factory Stores Phase I
(Camarillo, CA). During the first quarter of 1995, the Operating Partnership
completed: a 13,000 square foot expansion of Patriot Plaza; the first 133,000
square feet of GLA opened at a new center, Camarillo Factory Stores; and a
40,000 square foot expansion at Napa Factory Stores. During the fourth quarter
of 1994, the Operating Partnership completed three new centers totaling 274,000
square feet of GLA: Petaluma Village (150,000 square feet), Napa Factory Stores
(72,000 square feet) and Solvang Designer Outlets (52,000 square feet). During
the third quarter of 1994, the Operating Partnership expanded Aurora Farms
(70,000 square feet) and Columbia Gorge (18,000 square feet). These new centers,
expansions and acquisitions were 95% to 100% leased at September 30, 1995.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1994. Income before minority interest increased $4.1
million or 23.1% to $21.8 million for the nine months ended September 30, 1995
from $17.7 million during the same period in 1994. This increase was primarily
the result of expansions at two existing centers (Aurora Farms and Columbia
Gorge) during the second and third quarters of 1994; the opening of three new
centers (Petaluma Village, Napa Factory Stores, and Solvang Designer Outlets) in
November 1994 totaling 274,000 square feet; and 481,000 square feet of combined
GLA added at existing centers Patriot Plaza, Desert Hills, Napa Factory Stores
and Woodbury Common, and a new center, Camarillo Factory Stores, during the
first nine months of 1995.
Base rentals increased $9.2 million, or 36.9%, to $34.1 million, in the nine
months ended September 30, 1995 from $24.9 million during the nine months ended
September 30, 1994 primarily due to additional rent of $9.0 million from
expansions and new center openings and a $0.2 million increase in rents from
comparable GLA.
F-20
<PAGE>
Percentage rents increased 73.5% to $2.1 million during the nine months
ended September 30, 1995 from $1.2 million during the same period of 1994 after
considering $0.2 million of 1993 percentage rents reflected in the 1994 period
primarily as a result of strong tenant sales during the first nine months of
1995.
Expense reimbursements, representing the contractual recovery from tenants
of certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $5.3 million, or 57.7%, to $14.5 million in the
nine months ended September 30, 1995 from $9.2 million during the nine months
ended September 30, 1994, due to operating and maintenance costs at new and
expanded centers. The average recovery of reimbursable expenses was 94.3% in the
nine months ended September 30, 1995 compared to 95.3% in the same period of
1994. The decreased recovery percentage is primarily due to costs for additional
services offered by the Operating Partnership to maintain high quality tenants,
some of which are not fully recoverable.
Other income decreased $0.3 million to $1.0 million during the nine months
ended September 30, 1995 from $1.3 million for the same period in 1994 primarily
due to declining interest income from the investment of IPO proceeds, partially
offset by a lease termination settlement in the 1995 period.
Interest, in excess of amounts capitalized, increased $1.3 million to $2.0
million during the nine months ended September 30, 1995 from $0.7 million during
the same period in 1994, due to interest on Credit Facility borrowings.
Operating and maintenance expenses increased $5.7 million to $15.3 million
during the nine months ended September 30, 1995 from $9.6 million during the
nine months ended September 30, 1994. The increase was primarily due to costs
related to expansions and new centers.
General and administrative expenses increased $0.4 million or 22.8%, to $2.1
million during the nine months ended September 30, 1995 from $1.7 million during
the nine months ended September 30, 1994, primarily as a result of additional
corporate staffing and occupancy costs related to the Operating Partnership's
growth.
Other expenses increased $0.7 million to $1.3 million during the nine months
ended September 30, 1995 from $0.6 million during the same period in the prior
year. The increase was primarily attributable to additional reserves for bad
debts, tenant improvements written-off from early lease terminations and legal
fees.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
GENERAL OVERVIEW
Certain comparisons between the periods have been made on a percentage basis
and on a weighted average square foot basis, a technique which adjusts for
square footage added at different times during the year.
The Financial Accounting Standards Board issued statements of Financial
Accounting Standards No. 106 (Employer's Accounting for Post-retirement Benefits
Other Than Pensions) and No. 112 (Employer's Accounting for Post-employment
Benefits). Since the Operating Partnership provides no such benefits, these
statements have no effect on either the Operating Partnership's financial
position or results of operations.
The Operating Partnership has grown by increasing rent at its existing
centers, expanding its existing centers, developing new centers and acquiring
and redeveloping centers. At December 31, 1994, the Operating Partnership
operated 16 manufacturers' outlet centers, compared to 13 and 12 at the end of
1993 and 1992, respectively. The Operating Partnership's operating GLA at
December 31, 1994 was 2.3 million square feet compared to 1.9 million square
feet and 1.4 million square feet at December 31, 1993 and 1992, respectively. In
the second and third quarters of 1994, the Operating Partnership expanded Aurora
Farms (130,000 square feet) and Columbia Gorge (46,000 square feet).
Additionally, in November 1994, the Operating Partnership completed three new
centers totaling 274,000 square feet of GLA: Petaluma Village (150,000 square
feet), Napa Factory Stores (72,000 square feet) and Solvang Designer Outlets
(52,000 square feet). During the second quarter of 1993, the Operating
Partnership opened an expansion at Folsom Factory Outlets totaling 13,000 square
feet. During the second and fourth quarters of 1993, the Operating
F-21
<PAGE>
Partnership expanded Woodbury Common, its largest center, by 163,000 and 85,000
square feet, respectively. Also, during the fourth quarter of 1993, construction
was completed on Santa Fe Factory Stores, a new center with 124,000 square feet,
and expansions of Desert Hills (12,000 square feet) and Aurora Farms (38,000
square feet).
The Operating Partnership's centers produced weighted average reported
tenant sales of approximately $309 per square foot in 1994 compared to $298 and
$274 per square foot in 1993 and 1992, respectively.
Three of the Operating Partnership's outlet centers provided 54%, 57% and
55% of the Operating Partnership's total revenue for the years 1994, 1993 and
1992, respectively. The loss of any one of these centers or a material decrease
in revenues received from such centers for any reason could have a material
adverse effect on the Operating Partnership. The Operating Partnership does not
consider any of the lessees at its centers to be anchor tenants and no
individual tenant accounts for more than 10% of the Operating Partnership's
gross revenues or total GLA. Only one tenant, combining all of its store
concepts, occupies in excess of 4% of the Operating Partnership's total GLA. In
view of this and the Operating Partnership's historical ability to re-lease
available space, the Operating Partnership believes the loss of any individual
tenant would not have a significant effect on future operations.
RESULTS OF OPERATIONS
As a result of the Operating Partnership's formation in November, 1993
comparisons between the years 1994, 1993 (consisting of two periods, January 1
to November 1 and November 2 to December 31) and 1992 are not meaningful in
understanding the Company's results of operations unless the periods in 1993 are
combined. Accordingly, the following statements of operations are presented with
the 1993 periods combined as if the Operating Partnership was formed on January
1, 1993, and before extraordinary item which relates to the cost of retiring
indebtedness after the IPO.
F-22
<PAGE>
CHELSEA GCA REALTY PARTNERSHIP, L.P.
STATEMENTS OF OPERATION
(IN THOUSANDS EXCEPT PER SQUARE FOOT, PER UNIT AND CENTER DATA)
<TABLE>
<CAPTION>
1993
YEAR ENDED 1994 COMBINED (1) YEAR ENDED 1992
---------------------- ---------------------- ----------------------
AMOUNT $/SF (2) AMOUNT $/SF (2) AMOUNT $/SF (2)
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Base rent........................................ $ 34,415 $ 17.20 $ 25,464 $ 16.09 $ 21,370 $ 15.25
Percentage rent.................................. 3,595 1.80 2,335 1.48 2,049 1.46
Expense reimbursement............................ 13,584 6.79 10,185 6.43 8,471 6.05
Other income..................................... 1,551 0.78 768 0.49 873 .62
--------- ----------- --------- ----------- --------- -----------
TOTAL REVENUES................................. 53,145 26.57 38,752 24.49 32,763 23.38
EXPENSES:
Interest......................................... 982 0.49 10,110 6.39 11,201 8.00
Operating and maintenance........................ 14,337 7.16 11,093 7.01 9,422 6.73
Depreciation and amortization.................... 8,982 4.49 7,613 4.81 6,040 4.31
General and administrative....................... 2,561 1.28 2,578 1.63 2,120 1.51
Other expenses................................... 1,317 0.66 1,596 1.01 1,140 0.81
--------- ----------- --------- ----------- --------- -----------
TOTAL EXPENSES................................. 28,179 14.08 32,990 20.85 29,923 21.36
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEM.............................................. 24,966 5,762 2,840
MINORITY INTEREST.................................. (49) (1,128) (1,640)
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM................... $ 24,917 $ 4,634 $ 1,200
INCOME BEFORE EXTRAORDINARY ITEM PER UNIT:
General partner.................................. $ 1.50 $ .28 N/A
Limited partners................................. $ 1.50 $ .28 N/A
WEIGHTED AVERAGE UNITS OUTSTANDING:
General partner.................................. 10,971 10,937 N/A
Limited partners................................. 5,669 5,703 N/A
--------- --------- ---------
TOTAL.............................................. 16,640 16,640 N/A
OTHER DATA
FFO (3)............................................ $ 33,878 $ 13,375 $ 8,880
Cash flows from:
Operating activities............................. 33,345 15,454 9,487
Investing activities............................. (80,418) (93,454) (14,118)
Financing activities............................. (1,707) 139,262 6,341
GLA at end of period............................. 2,342 1,879 1,444
Weighted average GLA (4)......................... 2,001 1,583 1,401
Outlet centers in operation...................... 16 13 12
New centers opened............................... 3 1 2
Centers expanded................................. 2 4 1
</TABLE>
- ------------------------
(1) The 1993 combined historical financial statements consist of Chelsea GCA
Properties ("Predecessor Business") for the periods prior to November 2,
1993 and the consolidated financial statements of the Operating Partnership
for the periods after November 1, 1993.
F-23
<PAGE>
(2) Dollars per weighted average square foot of GLA.
(3) FFO is before minority interest in the Operating Partnership and is
calculated by reducing net income before minority interest by $70 in 1994
for the limited partners interest in Solvang Designer Outlets and adding
depreciation and amortization in each of the three years presented.
Management generally considers FFO an appropriate measure of performance of
an equity real estate investment trust. FFO, as defined by NAREIT, is net
income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect
FFO on the same basis. FFO does not represent net income or cash flow from
operations as defined by generally accepted accounting principles and should
not be considered an alternative to net income as an indicator of operating
performance or to cash from operations, and is not necessarily indicative of
cash flow available to fund cash needs.
(4) Average square feet of GLA weighted by months of operations.
F-24
<PAGE>
The discussion below is based upon income before minority interest and
extraordinary item. The extraordinary item relates to the cost of retiring
indebtedness concurrently with the formation of the Operating Partnership.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31,
1993
Income before minority interest and extraordinary item increased 333.0% to
$25.0 million in 1994 from $5.8 million in 1993. This increase was the result of
a $9.1 million decrease in interest expense due to the repayment of outstanding
debt using the initial public offering proceeds in November 1993, and expansions
at two existing centers (Aurora Farms and Columbia Gorge) during the second and
third quarters of 1994, totaling 176,000 square feet; the opening of three new
centers (Petaluma Village, Napa Factory Stores and Solvang Designer Outlets) in
November 1994, totaling 274,000 square feet; and a full year of operations at
the expansions of Woodbury Common, Folsom Factory Outlets, Desert Hills and
Aurora Farms opened during the second and fourth quarters of 1993, and Santa Fe
Factory Stores, a new center that opened in the fourth quarter of 1993.
Base rentals increased $8.9 million, or 35.2%, to $34.4 million in 1994 from
$25.5 million in 1993 due to expansions, new center openings and higher average
rents. Base rental revenue per weighted average square foot increased 6.9% to
$17.20 in 1994 from $16.09 in 1993 as a result of higher rental rates on
renewing and new leases.
Percentage rents increased $1.3 million, or 54.0%, to $3.6 million in 1994
from $2.3 million in 1993. On a weighted average square foot basis, percentage
rents increased 21.6% to $1.80 in 1994 from $1.48 in 1993. These increases were
primarily attributable to 1993 expansions, particularly the two expansions in
Woodbury Common and increased tenant sales at other centers.
Expense reimbursements, representing the contractual recovery from tenants
of certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $3.4 million, or 33.4%, to $13.6 million in 1994
from $10.2 million in 1993, due to increases in operating and maintenance costs
in new and expanded centers and the recovery of increased operating costs. On a
weighted average square foot basis, expense reimbursements increased 5.6% to
$6.79 in 1994 from $6.43 in 1993. The average recovery of reimbursable expenses
was 94.7% in 1994 compared to 91.8% in 1993.
Other income increased $0.8 million to $1.6 million in 1994 from $0.8
million in 1993 primarily as a result of interest income from the investment of
proceeds from the IPO.
Operating and maintenance expenses increased $3.2 million, or 29.2%, to
$14.3 million in 1994 from $11.1 million in 1993. The increase was primarily due
to costs related to expansions and new centers. On a weighted average square
foot basis, operating and maintenance expenses increased 2.1% to $7.16 in 1994
from $7.01 in 1993, primarily as a result of increased real estate taxes.
General and administrative expenses remained stable at $2.6 million in 1994
and 1993. On a weighted square foot basis, general and administrative expenses
decreased 21.5% to $1.28 in 1994 from $1.63 in 1993. The decrease was due in
part to a reduction in IPO-related professional fees and other administrative
costs; additionally, increased personnel and overhead costs were more than
absorbed by higher operating GLA.
Other expenses decreased $0.3 million, or 17.5%, to $1.3 million in 1994
from $1.6 million in 1993. On a weighted average square foot basis, other
expenses decreased 34.7% to $0.66 in 1994 from $1.01 in 1993. The decrease was
primarily attributable to bonuses paid by predecessor companies and a
non-recurring settlement in 1993, combined with increased GLA in 1994.
COMPARISON OF YEAR ENDED DECEMBER 31, 1993 TO YEAR ENDED DECEMBER 31, 1992
Income before minority interest and extraordinary item increased 102.9% to
$5.8 million in 1993 from $2.8 million in 1992. This increase was primarily the
result of a $1.0 million reduction in interest expense due to the repayment of
outstanding debt using the initial public offering proceeds in November 1993,
and the opening of a new center (Santa Fe Factory Stores) in the fourth quarter
of 1993 and the expansions of four existing centers (Woodbury Common, Folsom
Factory Outlets, Desert Hills and Aurora Farms) in the
F-25
<PAGE>
second and fourth quarters of 1993; and a full year of operations at an
expansion (Folsom Factory Outlets) opened in the second quarter of 1992, and at
two new centers (Page Factory Stores and St. Helena Factory Stores) opened
during the second and fourth quarters of 1992.
Base rental increased $4.2 million, or 19.2%, to $25.5 million in 1993 from
$21.3 million in 1992, due principally to expansions and new centers. Base
rental revenue per weighted average per square foot increased 5.5% to $16.09 in
1993 from $15.25 in 1992, principally as a result of higher rental rates on
renewing and new leases.
Percentage rents increased $0.3 million, or 14.0%, to $2.3 million in 1993
from $2.0 million in 1992. On a weighted average square foot basis, percentage
rents increased marginally to $1.48 in 1993 from $1.46 in 1992, primarily due to
higher tenant sales at newly opened centers.
Expense reimbursements, representing the contractual recovery from tenants
of certain common area maintenance, operating, real estate tax, promotional and
management expenses, increased $1.7 million, or 20.2%, to $10.2 million in 1993
from $8.5 million in 1992 due to an increase in costs related to new and
expanded centers and the recovery of increased operating costs. On a weighted
average square foot basis, expense reimbursements increased 6.3% to $6.43 in
1993 from $6.05 in 1992. The average recovery of reimbursable expenses was 91.8%
in 1993 and 89.9% in 1992.
Other income decreased $0.1 million to $0.8 million in 1993 from $0.9
million in 1992 primarily as a result of a reduction in miscellaneous income
partially offset by interest income from the investment of proceeds from the
IPO.
Operating and maintenance expenses increased $1.7 million, or 17.7%, to
$11.1 million in 1993 from $9.4 million in 1992 due to increased costs related
to expansions and new centers. On a weighted average square foot basis,
operating and maintenance expenses increased 4.2% to $7.01 in 1993 from $6.73 in
1992, principally as a result of winter weather-related operational expenses,
increased promotion expenses associated with the expansions, and higher real
estate taxes during 1993.
General and administrative expenses increased $0.5 million, or 21.6%, to
$2.6 million in 1993 from $2.1 million in 1992. On a weighted average square
foot basis, general and administrative expenses increased 7.9% to $1.63 in 1993
from $1.51 in 1992, due to increased professional fees and other administrative
costs related to the IPO.
Other expenses increased $0.5 million, or 40.0%, to $1.6 million in 1993
from $1.1 million in 1992. On a weighted average square foot basis, other
expenses increased 24.7% to $1.01 in 1993 compared to $0.81 in 1992, primarily
due to bad debt expense, bonuses and a non-recurring settlement expense.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership believes it has adequate financial resources to
fund operating expenses and distributions, and planned development and
construction activities. Operating cash flow is expected to increase during 1995
primarily due to a full year of operations from 1994 expansions and new center
openings; approximately 481,000 square feet of GLA already completed during 1995
including expansions of four existing centers (332,000 square feet) and the
opening of a new center (149,000 square feet); and scheduled openings of
additional expansions (144,000 square feet) during the remainder of 1995. In
addition, the Operating Partnership had $115.5 million remaining under its
Credit Facility (full availability under the Credit Facility is subject to
meeting certain collateral requirements) and cash and equivalents of $5.0
million at September 30, 1995.
The Operating Partnership anticipates retaining enough operating cash flow
to fund re-tenanting and lease renewal tenant improvement costs, as well as
capital expenditures to maintain the quality of its existing centers.
Distributions declared and recorded during the nine months ended September
30, 1995 were $26.1 million, or $1.56 per unit. The Operating Partnership's
payout ratio as a percentage of FFO was 86% during the nine months ended
September 30, 1995. The Credit Facility limits distributions to 95% of FFO.
F-26
<PAGE>
In July 1994, the Operating Partnership entered into a $70 million bank
revolving line of credit agreement to fund the development of new centers,
expansion of existing centers, and acquisition of centers for redevelopment. The
Credit Facility, which expires on June 30, 1996, is convertible to a three-year
term loan at the Operating Partnership's option and is collateralized by seven
centers in the Operating Partnership's existing portfolio. Interest on the
outstanding balance is payable monthly at a rate of LIBOR plus 2.25% or the
prime rate plus 1%, at the Operating Partnership's option. Effective July 1,
1995, the Operating Partnership obtained a reduction in the rate of interest
charged on borrowings to 1.75% over LIBOR, or the prime rate plus 0.50%, at the
Operating Partnership's option. A fee on the unused portion of the line is
payable quarterly at .25% per annum. In November 1994, the Operating Partnership
entered into an interest rate cap agreement to substantially protect the
Operating Partnership from increases in the LIBOR interest rate above 7.5% per
annum. In December 1994, the Operating Partnership expanded its bank group and
increased the size of the revolving line of credit to $200 million. Full
availability under the Credit Facility is subject to meeting certain collateral
requirements. The bank group is comprised of eleven domestic and international
banks. The terms of the increased line of credit are substantially the same as
the original line of credit. The outstanding balance under the line of credit
was $81 million at September 30, 1995.
At September 30, 1995, 625,000 square feet of the Operating Partnership's
planned 1995 development was completed or under construction, including one new
center and the expansions of six existing centers. The Operating Partnership is
in the process of constructing two new centers with combined GLA of 575,000
square feet that are expected to open in 1996. The Operating Partnership is also
in the process of developing and exploring additional new projects and
expansions of existing centers for delivery in 1996 and beyond. The total cost
of development and construction activities during the next twelve months is
anticipated to be approximately $100 million. Funding is currently expected
primarily from borrowings under the Credit Facility or public debt and equity
offerings.
To achieve its planned growth and favorable returns in the short-term and
long-term, the Operating Partnership's financing strategy is to maintain its
strong financial position by continually re-evaluating its balance sheet and
limiting the extent of its borrowings to less than 40% of its total market
capitalization. Management believes this strategy will enable the Operating
Partnership to access a broad array of capital sources including bank or
institutional borrowings, secured and unsecured debt and equity offerings. At
September 30, 1995 (based on the market price of $29.88 per share of the
Company's Common Stock), the Operating Partnership's ratio of debt to total
market capitalization (defined as the value of the Operating Partnership units
plus total debt) was 13.9%.
Net cash provided by operating activities was $27.4 million and $35.5
million for the nine months ended September 30, 1995 and 1994, respectively. The
1995 decrease was primarily attributable to a decrease in accounts payable
relating to construction offset by an increase in rental income due to overall
growth of the Operating Partnership's portfolio of properties. Net cash used in
investing activities increased $1.8 million to $62.3 million for the nine months
ended September 30, 1995 as compared to the same period in the prior year,
primarily as a result of increased construction activity. Net cash provided by
financing activities increased $52.5 million as a result of borrowings under the
Credit Facility related to development and construction activities.
Net cash provided by operating activities was $33.3 million and $15.5
million for the year ended December 31, 1994 and the combined periods November
2, 1993 to December 31, 1993 and January 1, 1993 to November 1, 1993,
respectively. The 1994 increase was primarily attributable to an increase in
rental income due to overall growth of the Operating Partnership's portfolio of
properties coupled with an increase in accounts payable relating to
construction. Net cash used in investing activities decreased $13.0 million to
$80.4 million for the year ended December 31, 1994 as compared to the combined
periods November 2, 1993 to December 31, 1993 and January 1, 1993 to November 1,
1993, primarily as a result of decreased construction activity. Net cash
provided by financing activities decreased $141.0 million due to proceeds from
the Company's initial public offering in the 1993 period, net of debt repayment,
offset by borrowings under the Credit Facility in 1994.
F-27
<PAGE>
Net cash provided by operating activities was $15.5 million and $9.5 million
for the combined periods November 2, 1993 to December 31, 1993 and January 1,
1993 to November 1, 1993 and the year ended December 31, 1992, respectively. The
1993 increase was primarily attributable to an increase in rental income due to
the overall growth of the Operating Partnership's portfolio of properties and a
decrease in interest expense due to the repayment of debt. Net cash used in
investing activities increased $79.3 million to $93.4 million for the combined
periods November 2, 1993 to December 31, 1993 and January 1, 1993 to November 1,
1993 and the year ended December 31, 1992, primarily as a result of increased
construction activity. Net cash provided by financing activities increased
$132.9 million as a result of proceeds from the Company's initial public
offering, net of debt repayment in the 1993 period.
Management believes that, to facilitate a clear understanding of the
operating results of the Operating Partnership, FFO should be considered in
conjunction with net income as presented in the consolidated financial
statements. Management generally considers FFO an appropriate measure of
performance of an equity real estate investment trust. FFO, as defined by
NAREIT, is net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect FFO on the same
basis. FFO does not represent net income or cash flow from operations as defined
by generally accepted accounting principles and should not be considered an
alternative to net income as an indicator of operating performance or to cash
from operations, and is not necessarily indicative of cash flow available to
fund cash needs.
In March 1995, NAREIT issued a clarification of its definition of FFO.
Although the Operating Partnership intends to adopt the new method in the first
quarter of 1996, the following table presents the Operating Partnership's FFO
under both methods of calculation for illustrative purposes:
<TABLE>
<CAPTION>
CURRENT METHOD NEW METHOD
----------------------------------- -----------------------------------
NINE MONTHS ENDED YEAR NINE MONTHS ENDED YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
-------------------- ------------- -------------------- -------------
1995 1994 1994 1995 1994 1994
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income................................... $ 21,556 $ 17,709 $ 24,917 $ 21,556 $ 17,709 $ 24,917
Add back depreciation and amortization(1).... 8,936 6,349 8,961 8,936 6,349 8,961
Less amortization of deferred financing costs
and depreciation of non-rental real estate
assets...................................... -- -- -- (708) (141) (247)
--------- --------- ------------- --------- --------- -------------
FFO.......................................... $ 30,492 $ 24,058 $ 33,878 $ 29,784 $ 23,917 $ 33,631
--------- --------- ------------- --------- --------- -------------
--------- --------- ------------- --------- --------- -------------
Average units outstanding.................... 16,716 16,640 16,640 16,716 16,640 16,640
Distributions declared per unit.............. $ 1.56 $ 1.38 $ 1.90 $ 1.56 $ 1.38 $ 1.90
</TABLE>
- ------------------------
(1) Excludes depreciation and minority interest attributed to a third-party
limited partner's interest in a partnership during the nine months ended
September 30, 1995 and the year ended December 31, 1994, respectively.
Funds from operations rose $6.4 million, or 26.7%, to $30.5 million during
the nine months ended September 30, 1995 from $24.1 million during the same
period in 1994. This increase was primarily the result of expansions at two
existing centers (Aurora Farms and Columbia Gorge) during the second and third
quarters of 1994; the opening of three new centers (Petaluma Village, Napa
Factory Stores, and Solvang Designer Outlets) in November 1994 totaling 274,000
square feet; and 481,000 square feet of combined GLA added at existing centers
Patriot Plaza, Desert Hills, Napa Factory Stores and Woodbury Common, and a new
center, Camarillo Factory Stores, during the first nine months of 1995.
Funds from operations increased $20.5 million, or 153.0%, to $33.9 million
during 1994 from $13.4 million during 1993. This increase was the result of a
$9.1 million decrease in interest expense due to the repayment of outstanding
debt using the initial public offering proceeds in November 1993, and expansions
at two existing centers (Aurora Farms and Columbia Gorge) during the second and
third quarters of 1994, totaling 176,000 square feet; the opening of three new
centers (Petaluma Village, Napa Factory Stores, and
F-28
<PAGE>
Solvang Designer Outlets) in November 1994, totaling 274,000 square feet; and a
full year of operations at the expansions of Woodbury Common, Folsom Factory
Outlets, Desert Hills and Aurora Farms opened during the second and fourth
quarters of 1993, and Santa Fe Factory Stores, a new center that opened in the
fourth quarter of 1993.
Funds from operations increased $4.5 million, or 50.6%, to $13.4 million
during 1993 from $8.9 million during 1992. This increase was primarily the
result of a $1.0 million reduction in interest expense due to the repayment of
outstanding debt using the initial public offering proceeds in November 1993,
and the opening of a new center (Santa Fe Factory Stores) in the fourth quarter
of 1993 and the expansions of four existing centers (Woodbury Common, Folsom
Factory Outlets, Desert Hills and Aurora Farms) in the second and fourth
quarters of 1993; and a full year of operations at an expansion (Folsom Factory
Outlets) opened during the second quarter of 1992, and at two new centers (Page
Factory Stores and St. Helena Factory Stores) opened during the second and
fourth quarters of 1992.
F-29
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE OPERATING
PARTNERSHIP OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Supplement Summary.................. S-3
The Operating Partnership...................... S-6
Recent Developments............................ S-10
Use of Proceeds................................ S-13
Capitalization................................. S-13
Selected Consolidated Financial Data........... S-14
Business and Properties........................ S-18
Certain Terms of the Notes..................... S-25
Certain United States Federal Income Tax
Considerations............................... S-34
Underwriting................................... S-37
Validity of the Notes.......................... S-37
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
The Company and the Operating Partnership...... 3
Risk Factors................................... 3
Use of Proceeds................................ 5
Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividends................ 6
Description of Debt Securities................. 6
Description of Preferred Stock................. 19
Description of Depositary Shares............... 24
Description of Common Stock.................... 28
Plan of Distribution........................... 28
Legal Matters.................................. 30
Experts........................................ 30
Financial Statements........................... F-1
Other Information.............................. F-19
</TABLE>
$100,000,000
CHELSEA GCA REALTY
PARTNERSHIP, L.P.
REMARKETED FLOATING RATE RESET
NOTES DUE OCTOBER 23, 2001
UNCONDITIONALLY GUARANTEED
BY
CHELSEA GCA REALTY, INC.
---------------------
PROSPECTUS SUPPLEMENT
---------------------
MERRILL LYNCH & CO.
OCTOBER 18, 1996
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