SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MID-AMERICA APARTMENT COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1543819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
(901) 682-6600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive office)
George E. Cates
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
(901) 682-6600
(Name, address, including zip code and telephone number, including
area code, of agent for service)
Copies to:
John A. Good, Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
Telephone (901) 577-2148
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
____________________ _________ ________ ___________ _______
Aggregate Proposed Proposed Amount
Title of Securities Amount Maximum Maximum of
Being Registered Being Offering Aggregate Regist-
Registered Price Offering ration
Per Price(1) Fee
Unit(1)(2) (2)
___________________ _________ ________ ___________ _______
Common Stock, $.01 412,991 $25.9988 $10,737,250 $3,168
par value
___________________ _________ ________ ___________ _______
(1)Estimated solely for purposes of calculating the registration fee.
(2)The registration fee has been calculated in accordance with Rule
457(c) under the Securities Act of 1933, as amended, and based upon
the average of this high and low sales prices of the Common Stock as
reported on the New York Stock Exchange on June 15, 1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted without the delivery of a final prospectus. This
prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JUNE 19, 1998
PROSPECTUS
MID-AMERICA APARTMENT COMMUNITIES, INC.
412,991 Shares of Common Stock
This Prospectus relates to the offer and sale from time to
time by certain selling shareholders named herein (the "Selling
Shareholders") of up to 412,991 shares (the "Secondary Shares")
of common stock, par value $.01 per share (the "Common Stock") of
Mid-America Apartment Communities, Inc. (the "Company") that may
be issued to the Selling Shareholders upon redemption of Class A
Common Units of partnership interests ("Class A Common Units")
held by the Selling Shareholders. The registration of the
Secondary Shares does not necessarily mean that any of the
Secondary Shares will be issued by the Company or offered or sold
by the Selling Shareholders. See "The Company" and "Plan of
Distribution."
The Common Stock is traded on the New York Stock Exchange
under the symbol "MAA." To ensure that the Company maintains its
qualification as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended, ownership by any
person is limited to 9.9% of the total value of outstanding
capital stock of the Company, with certain exceptions. See "Risk
Factors -- Possible Consequences of Limits on Ownership of
Shares" and "Description of Capital Stock -- Ownership
Limitations."
See "Risk Factors" on page 3 for certain factors relating to
an investment in the Secondary Shares.
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 Selling Shareholders from time to time may offer and sell
the Secondary Shares directly or through agents or broker-dealers
on terms to be determined at the time of sale. To the extent
required, the names of any agent or broker-dealer and applicable
commissions or discounts and any other required information with
respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution."
Each of the Selling Shareholders reserves the sole right to
accept or reject, in whole or in part, any proposed purchase of
the Secondary Shares to be made directly or through agents.
The Company will not receive any cash proceeds from the sale
of any Secondary Shares by the Selling Shareholders but has
agreed to bear certain expenses of registration of the offer and
sale of the Secondary Shares under federal and state securities
laws. The Company will acquire Class A Common Units in exchange
for any Secondary Shares that the Company may issue to Class A
Common Unit holders.
The date of this Prospectus is June , 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"), pursuant to the Exchange Act. Such reports, proxy
statements and other information filed by the Company may be examined
without charge at, or copies obtained upon payment of prescribed fees
from, the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and are also
available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Electronic filings made through the
Electronic Data Gathering, Analysis and Retrieval System are publicly
available through the Securities and Exchange Commission's web site
(http://www.sec.gov). The Common Stock of the Company is listed on the
New York Stock Exchange, and such material can also be inspected and
copied at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement
on Form S-3 (of which this Prospectus is a part) under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. The Prospectus and any accompanying
Prospectus Supplement do not contain all of the information included in
the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the offered
securities, reference is hereby made to the Registration Statement,
including the exhibits and schedules thereto. Statements contained in
this Prospectus and any accompanying Prospectus Supplement concerning
the provisions or contents of any contract, agreement or other document
referred to herein or therein are not necessarily complete. With
respect to each such contract, agreement or document filed as an
exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved, and
each such statement shall be deemed qualified in its entirety by such
reference to the copy of the applicable document filed with the
Commission. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. and copies
of it or any part thereof may be obtained from such office, upon
payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-12762) are incorporated herein by reference: (a)
Annual Report on Form 10-K for year ended December 31, 1997, as amended
by Form 10-K/A dated April 2, 1998 and Form 10-K/A dated April 27,
1998; (b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1998; (c) Amended Quarterly Reports on Forms 10-Q/A for the quarter
ended March 31, 1997, dated February 2, 1998, and the quarter ended
June 30, 1997, dated February 2, 1998; (d) Current Reports on Form 8-K
dated June 16, 1998, June 12, 1998, May 26, 1998, April 30, 1998, March
13, 1998 (as amended by Form 8-K/A dated May 26, 1998) and February 19,
1998; (e) Amended Current Report on Form 8-K/A dated February 5, 1998
(amending Current Report on Form 8-K dated September 30, 1997); (f)
Proxy Statement for the Company's 1998 Annual Meeting of Shareholders;
(g) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission
on December 14, 1993; (h) the description of the Company's 9.5% Series
A Cumulative Preferred Stock contained in the Company's Registration
Statement on Form 8-A/A filed with the Commission on October 11, 1996;
and (i) the description of the Company's 8 7/8% Series B Cumulative
Preferred Stock contained in the Company's Registration Statement on
Form 8-A/A filed with the Commission on November 19, 1997.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or which
deregisters all offered securities then remaining unsold shall be
incorporated by reference in this Prospectus and made a part hereof
from the date of the filing of such 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 purposes of
this Prospectus to the extent that a statement contained herein or in
any other document subsequently filed with the Commission which also is
deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated by reference
herein (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents).
Request for such copies should be directed to: Mid-America Apartment
Communities, Inc., 6584 Poplar Avenue, Suite 340, Memphis, Tennessee,
38138, Attention: Mark S. Martini, Secretary, telephone (901) 682-6600,
e-mail [email protected].
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the financial statements and related
notes appearing elsewhere in this Prospectus or incorporated
herein by reference. Unless otherwise indicated, as used herein,
the term "Company" includes Mid-America Apartment Communities,
Inc., its predecessor and those entities owned or controlled
thereby, including Mid-America Apartments, L.P., a Tennessee
limited partnership (the "Operating Partnership"), all subsidiary
limited partnerships and all qualified REIT subsidiaries of the
Company. Where used herein, the term "Funds from Operations"
("FFO") shall mean net income (computed in accordance with
generally accepted accounting principles), excluding
extraordinary items, minority interest in Operating Partnership
income, gain or loss on disposition of real estate assets, and
certain non-cash items, primarily depreciation and amortization,
less preferred stock distributions. FFO is computed in
accordance with the current National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") definition, which eliminates
amortization of deferred financing costs and depreciation of non-
real estate assets as items added back to net income when
computing FFO. The Company adopted this method of calculating
FFO effective as of the NAREIT-suggested adoption date of January
1, 1996.
The Company
General. The Company is a Memphis, Tennessee-based self-
administered and self-managed umbrella partnership REIT
("UPREIT") which, as of March 31, 1998, owned and operated 118
apartment communities containing 31,307 apartment units in 13
states (the "Communities"). In addition, the Company manages 42
properties with 5,227 apartment units in which it does not have
an ownership interest. The Company's principal executive offices
are located at 6584 Poplar Avenue, Suite 340, Memphis, Tennessee
38138 and its telephone number is (901) 682-6600.
The Operating Structure of the Company. The Company is formed
and operates in an UPREIT structure primarily through the
Operating Partnership and certain subsidiary operating
partnerships (collectively, the "Property Partnerships"). In
addition, the Company owns 4 Communities directly and 4
Communities through wholly-owned qualified REIT subsidiaries
(each, a "QRS" and, collectively, "QRSs") as defined in Section
856(i) of the Code.
Recent Developments
On June 17, 1998, the Company announced it's intent to
offer and sell 3.2 million shares of _____% Series C Cumulative
Preferred Stock in a public offering. Managing underwriters for
the transaction are Morgan Stanley Dean Witter, Morgan Keegan &
Company, Inc., Raymond James & Associates, Inc. and The Robinson-
Humphrey Company LLC. The Series C Cumulative Preferred Stock
will have a liquidation preference of $25 per share. As of the
date of this Prospectus, no shares of the Series C Cumulative
Preferred Stock are outstanding.
Risk Factors
Prospective investors should carefully consider the matters
discussed under "Risk Factors" before making an investment
decision regarding the Secondary Shares offered hereby.
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Tax Status of the Company
The Company elected to be taxed as a REIT for federal income
tax purposes for its taxable year ended December 31, 1994, and
expects to continue to elect such status. Although the Company
believes that it was organized and has been operating in
conformity with the requirements for qualification as a REIT
("REIT Qualification") under the Internal Revenue Code of 1986,
as amended (the "Code"), no assurance can be given that the
Company will continue to qualify as a REIT. REIT Qualification
involves application of highly technical and complex Code
provisions for which there are only limited judicial or
administrative interpretations. If in any taxable year the
Company should fail to qualify as a REIT, the Company would not
be allowed a deduction for distributions to shareholders for
computing taxable income and would be subject to federal taxation
at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years
following the year during which REIT Qualification was lost. As
a result, the Company's ability to make distributions to its
shareholders would be adversely affected. See "Federal Income
Tax Considerations."
To ensure that the Company qualifies as a REIT, transfer of
the Company's capital stock is subject to certain restrictions
and ownership of the capital stock by any single person is
limited to 9.9% of the total value of outstanding capital stock,
subject to certain exceptions. See "Description of Capital
Stock -- Ownership Limitations."
Securities to be Offered
This Prospectus relates to the offer and sale from time to
time of the Secondary Shares that may be issued to the Selling
Shareholders upon the redemption of Class A Common Units.
The Operating Partnership issued a total of 412,991 Class A
Common Units in connection with the acquisition (the "FDC
Acquisition") of Flournoy Development Company and related
entities. The holders of the Class A Common Units (the
"Holders") are limited partners of the Operating Partnership.
The Operating Partnership may issue additional Class A Common
Units in connection with future acquisitions of apartment
communities.
Pursuant to the terms of the Second Amended and Restated
Agreement of Limited Partnership of the Operating Partnership
(the "Partnership Agreement"), upon notice to the Operating
Partnership, a Holder may tender Class A Common Units to the
Operating Partnership for redemption. Each Class A Common Unit
may be redeemed by the Operating Partnership in exchange for one
share of Common Stock or, at the Operating Partnership's option,
cash equal to the fair market value of one share of Common Stock
at the time of the redemption (subject to certain adjustments).
In addition, the Company, in its sole discretion, has the right
to elect to acquire directly any Class A Common Units tendered to
the Operating Partnership for redemption, rather than causing the
Operating Partnership to redeem such Class A Common Units. The
Company anticipates that it generally will elect to acquire
directly Class A Common Units tendered for redemption and that
the Company will issue shares of Common Stock rather than paying
cash. As a result, the Company may from time to time issue up to
412,991 shares of Common Stock upon the acquisition of Class A
Common Units issued in connection with the FDC Acquisition and
tendered for redemption. With each such redemption, the
Company's interest in the Operating Partnership will increase.
The Company will not receive any cash proceeds from the sale
of any Secondary Shares but will acquire Class A Common Units
tendered for redemption for which it elects to issue Secondary
Shares. The Company is registering the offer and sale of the
Secondary Shares pursuant to a Registration Rights Agreement
dated as of November 21, 1997 among the Company, the Operating
Partnership, the Selling Shareholders and others. The
registration of such shares does not necessarily mean that any of
such shares will be issued by the Company or offered or sold by
the Selling Shareholders.
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RISK FACTORS
Prospective investors should carefully consider the following
information in conjunction with the other information contained
in this Prospectus before making an investment decision regarding
the Common Stock offered hereby. Information contained or
incorporated by reference in this Prospectus and in any
Prospectus Supplement may contain forward-looking statements
within the meaning of the Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended,
which statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate,"
"estimate," or "continue" or the negative thereof or other
comparable terminology. The following matters and certain other
factors noted throughout this Prospectus, and any document
incorporated by reference herein or therein and exhibits hereto
and thereto, constitute cautionary statements identifying
important factors with respect to any such forward-looking
statements, including certain risks and uncertainties, that could
cause the Company's actual results to differ materially from
those contained in any such forward-looking statements.
Development and Acquisition Risks
In connection with the FDC Acquisition, the Company began to
pursue the development and construction of apartment communities.
Risks associated with the Company's development and construction
activities may include: the abandonment of development
opportunities explored by the Company; construction costs of an
apartment community may exceed original estimates due to
increased materials, labor or other expenses, which could make
completion of the apartment community uneconomical; operating
results at a newly completed apartment community are dependant on
a number of factors, including market and general economic
conditions, competition and market acceptance; financing may not
be available on favorable terms for the development of an
apartment community; and construction and stabilization may not
be completed on schedule, resulting in increased debt service
expense and construction costs. Development activities are also
subject to risks relating to the inability to obtain, or delays
in obtaining, all necessary zoning, land-use, building,
occupancy, and other required governmental permits and
authorizations. The occurrence of any of the events described
above could adversely affect the Company's ability to achieve its
projected yields on apartment communities under development and
could prevent the Company from making expected distributions.
Acquisitions entail risks that investments will fail to
perform in accordance with expectations and that judgments with
respect to the cost of improvements to bring an acquired
apartment community up to standards established for the market
position intended for that apartment community will prove
inaccurate, as well as general investment risks associated with
any new real estate investment. Although the Company undertakes
an evaluation of the physical condition of each new apartment
community before it is acquired, certain defects or necessary
repairs may not be detected until after the apartment community
is acquired, which would significantly increase the Company's
total acquisition costs.
Real Estate Investment Risks
General Risks. The Company's investments are subject to
varying degrees of risk generally incident to the ownership of
real property, many of which are beyond the control of the
Company. The underlying value of the Company's real estate
investments and the Company's ability to make distributions to
its shareholders is dependent upon the ability of the Company to
generate cash flow in excess of operating expenses, debt service
and capital expenditure requirements. The Company believes that
the Communities and the markets in which they are located are
typical apartment communities and markets and that the risks
discussed in this paragraph are characteristic of apartment
communities, wherever located. These risks include an oversupply
of apartments, a reduction in demand for apartments in the
Company's markets, the cost of regulation, changes in tax or
housing laws, increasing interest rate levels, the unavailability
of financing, adverse changes in national economic conditions,
adverse changes in local market conditions due to changes in
general or local economic conditions and neighborhood
characteristics, competition in local markets, declines in real
estate values, variations in supply and demand in the market for
apartments, declines in occupancy rates,
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civil unrest, acts of God, including earthquakes and other natural
disasters (which mayresult in uninsured losses), acts of war, and
adverse changes inzoning laws. Due to these and other factors, the
performance of real estate historically has been cyclical.
Such factors, including general economic conditions adversely
affecting the availability of mortgage financing, may make it
impossible to sell or refinance the Communities when desired or upon
favorable terms. Also, if any major repair or improvement is required
at the Communities, there can be no assurance that the Company will
be able to obtain funds to make such repair or improvement. As
with all real estate, if reconstruction (for example, following
fire or other casualty) or any major repair or improvement is
required at the Communities, changes in governmental controls may
be applicable and may materially affect the cost to, or ability
of, the Company to effect such reconstruction, major repair or
improvement.
Operating Risks. The Communities are subject to all operating
risks common to apartment communities in general. The Company
believes that the Communities and the markets in which they are
located are typical apartment communities and markets and that
the risks discussed in this paragraph are characteristic of
apartment communities, wherever located. Such risks include: (i)
competition from other apartment communities and alternative
housing; (ii) new construction of comparable properties or
adverse economic conditions in the areas in which the Communities
are located, either of which might adversely affect apartment
occupancy or rental rates; (iii) increases in operating costs
(including real estate taxes) due to inflation and other factors,
which increases may not necessarily be offset by increased rents;
(iv) inability or unwillingness of residents to pay rent
increases; and (v) future enactment of rent control laws or other
laws regulating multifamily housing, including present and
possible future laws relating to access by disabled persons. The
local rental market may limit the extent to which rents may be
increased in response to operating expense increases without
decreasing occupancy rates. The Company anticipates increased
operating expenses in the third calendar quarter of each year due
to planned increases in apartment unit turnover during such
quarter.
Possible Liability Relating to Environmental Matters. Under
various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain
hazardous substances released on or in its property. Such laws
often impose such liability without regard to whether the owner
or operator knew of, or was responsible for, the release of such
hazardous substances. The presence of such substances, or the
failure to properly remediate such substances, when released, may
adversely affect occupancy of the Community affected and the
Company's ability to sell such real estate or to borrow using
such real estate as collateral. In addition to investigation and
clean-up actions brought by federal, state and local agencies,
the presence of hazardous wastes on a property could result in
personal injury or similar claims by private plaintiffs. The
Company has not been notified by any governmental authority of
any noncompliance, liability or other claim in connection with
any of the Communities or developments, nor is the Company aware
of any other environmental condition with respect to any of the
Communities which could have a material adverse effect on the
Company's business, financial conditions and results of
operations. Each of the Communities has been subjected to a Phase
I environmental site assessment ("ESA") (which does not involve
invasive procedures, such as soil sampling or ground water
analysis) by independent environmental consultants. The ESAs have
not revealed any significant environmental liability that would
have a material adverse effect on the Company's business,
financial condition and results of operations. In the event that
environmental contamination has affected or will affect the
Communities, the Company believes that other parties would be
held primarily responsible for any response required and that any
environmental costs or liabilities would not be material. There
can be no assurance that the Company is correct in concluding
either that other parties would bear or be able to bear primary
responsibility, or that the environmental costs or liabilities
would not be material or would not have a material adverse effect
on the Company's business, financial condition and results of
operations.
Certain environmental and common law principles govern the
responsibility for the removal, encapsulation or disturbance of
asbestos containing materials ("ACMs") such as ceiling and floor
tiles, when these ACMs are in poor condition or when a property
with ACMs is undergoing renovation or demolition. Such laws
could also be used to impose liability upon owners and operators
of real property for the release of ACMs into the air that cause
personal injury or other damage or exceed permissible levels. At
all Communities where ACM has been identified, the ACM is being
managed in place pursuant to ACM Operation and Maintenance plans.
The Company believes that ACM at all of the Communities can be
managed or removed adequately and without significant expense.
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However, there can be no assurance that the Company will not be
required to remediate ACM in the future at significant expense,
which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Beyond statute-based environmental liability, there can be
common law causes of action (for example, actions based on
nuisance or on toxic tort resulting in death, personal injury or
damage to property) relating to hazardous environmental
conditions on a property. Unanticipated or uninsured liabilities
of the Company may have a material adverse effect on the
Company's business, financial condition and results of
operations.
No assurances can be given that all potential environmental
liabilities have been identified or properly quantified or that
no prior owner, operator, or past or current resident has created
an environmental condition not known to the Company. Moreover,
no assurances can be given that (i) future laws, ordinances, or
regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Communities
will not be affected by the condition of land or operations in
the vicinity of the Communities (such as the presence of
underground storage tanks), or by third parties unrelated to the
Company. Federal, state and local environmental regulatory
requirements change often. It is possible that compliance with a
new regulatory requirement could impose significant compliance
costs on the Company. Such costs may have a material adverse
effect on the Company's business, financial condition and results
of operations.
Compliance with Other Laws. The Communities must comply with
Title III of the Americans with Disabilities Act (the "ADA") to
the extent that the Communities are "public accommodations"
and/or "commercial facilities" as defined by the ADA. Compliance
with the ADA requirements could require removal of structural
barriers to handicapped access in certain public areas of the
Communities, where such removal is readily achievable. The ADA
does not, however, consider residential properties such as
apartment communities to be public accommodations or commercial
facilities, except to the extent portions of such facilities,
such as a leasing office, are open to the public. The Company
believes that the Communities comply with all present
requirements under the ADA and applicable state laws.
Noncompliance with the ADA could result in imposition of fines
or an award of damages to private litigants.
The Fair Housing Amendments Act of 1988 (the "FHA") requires
apartment communities first occupied after March 13, 1990 to be
accessible to the handicapped. Noncompliance with the FHA could
result in the imposition of fines or an award of damages to
private litigants. The Company believes that the Communities
that are subject to the FHA are in compliance with such law.
Risks of Leverage
The Company currently uses and intends to continue using debt
financing for acquisitions and development. Such debt financing
may include permanent mortgage financing and the use of the
Company's unsecured bank line of credit (the "Credit Line").
Payments of principal and interest on borrowings may leave the
Company with insufficient cash resources to operate the
Communities or pay distributions required to be paid in respect
of the Company's 9.5% Series A Cumulative Preferred Stock (the
"Series A Preferred Stock"), the Company's 8 7/8% Series B
Cumulative Preferred Stock (the "Series B Preferred Stock") or in
order for the Company to maintain its qualification as a REIT.
The Board of Directors has adopted a policy limiting the
Company's indebtedness to 60% of adjusted gross assets (defined
as the gross tangible book value of the Company's assets, plus
$10 million), but the organizational documents of the Company do
not contain any limitation on the amount or percentage of
indebtedness, funded or otherwise, that the Company may incur.
The Company's ratio of debt to adjusted gross assets was
approximately 51.9% at December 31, 1997. The Board of
Directors, without shareholder approval, can amend or modify its
current policy on borrowing. If this policy were changed, the
Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the
Company's FFO, cash flow and ability to make distributions to its
shareholders; increase the risk of default on the Company's
obligations and increase the risk of foreclosure on property
securing debt.
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Tax Risks
Tax Liabilities as a Consequence of the Failure to Qualify as
a REIT. The Company operates and intends to continue to operate
so as to qualify as a REIT for federal income tax purposes. The
Company has not requested, and does not expect to request, a
ruling from the Internal Revenue Service (the "Service") that it
qualifies as a REIT. The continued qualification of the Company
as a REIT will depend on the Company's continuing ability to meet
various requirements concerning, among other things, the
ownership of its outstanding capital stock, the nature of its
assets, the sources of its income and the amount of its
distributions to its shareholders. See "Federal Income Tax
Considerations."
If the Company were to fail to qualify as a REIT in any
taxable year, the Company would not be allowed a deduction for
distributions to shareholders in computing its taxable income and
would be subject to federal income tax (including any applicable
alternative minimum tax) on its resulting taxable income at
regular corporate rates. Unless entitled to relief under certain
provisions of the Code, the Company would be disqualified from
treatment as a REIT for the four taxable years following the year
during which the qualification was lost. As a result, the funds
available for distribution to shareholders would be reduced
substantially for each of the years involved. Although the
Company currently intends to continue to operate in a manner
designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause
the Company's Board of Directors, with the affirmative vote of
two-thirds of the outstanding shares of the Common Stock, to
revoke the Company's REIT election. See "Federal Income Tax
Considerations."
REIT Minimum Distribution Requirements. In order to avoid
corporate income taxation of the earnings it distributes, the
Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income (excluding
any net capital gain). In addition, the Company will be subject
to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar
year are less than the sum of (i) 85% of its ordinary income for
that year, (ii) 95% of its capital gain net income for that year;
and (iii) 100% of its undistributed income from prior years.
The Company has made and intends to continue to make
distributions to its shareholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise
tax. The Company's income will consist primarily of the
Company's share of the income of the Operating Partnership, and
the Company's cash available for distribution will consist
primarily of the Company's share of cash distributions from the
Operating Partnership. Differences in timing between the
recognition of taxable income and the receipt of cash available
for distribution due to the seasonality of the multi-family
residential industry could require the Company, through the
Operating Partnership, to borrow funds on a short-term basis to
meet the 95% distribution requirement and to avoid the
nondeductible excise tax. For federal income tax purposes,
distributions paid to shareholders may consist of ordinary
income, capital gains, nontaxable return of capital, or a
combination thereof. The Company will provide its shareholders
with an annual statement as to its designation of the tax
characterization of distributions. The requirement to distribute
a substantial portion of the Company's net taxable income could
cause the Company to distribute amounts that otherwise would be
spent on future acquisitions, unanticipated capital expenditures
or repayment of debt, which would require the Company to borrow
funds or to sell assets to fund the cost of such items.
Distributions by the Operating Partnership will be
determined by the Board of Directors of the Company, as the sole
general partner of the Operating Partnership, and will be
dependent on a number of factors, including the aggregate amount
of the Operating Partnership's cash available for distribution,
the Operating Partnership's financial condition, any decision by
the Board of Directors to reinvest funds rather than to
distribute such funds, the aggregate amount of capital
expenditures, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board of
Directors deems relevant. See "Federal Income Tax Considerations
- -- Requirements for Qualification -- Distribution Requirements."
Classification of the Property Partnerships for Federal Income
Tax Purposes; Impact on Real Estate Investment Trust Status. The
Company has not requested, and does not expect to request, a
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ruling from the Service that the Property Partnerships will be
classified as partnerships for federal income tax purposes. If
the Service were to challenge successfully the tax status of any
Property Partnership as a partnership for federal income tax
purposes, such Property Partnership would be taxable as a
corporation. In such event, the Company would cease to qualify
as a REIT for a variety of reasons. Furthermore, imposition of a
corporate income tax on any Property Partnership would
substantially reduce the amount of cash available for
distribution to the Company and its shareholders. See "Federal
Income Tax Considerations."
Other Tax Liabilities. Even if the Company qualifies as a
REIT, the Company, any QRS, or any Property Partnership may be
subject to certain federal, state, and local taxes on their
income and property which could reduce operating cash flow.
Common Stock Price Fluctuations and Trading Volume
A number of factors may adversely influence the price of
the Common Stock in public markets, many of which are beyond the
control of the Company. In particular, an increase in market
interest rates will result in higher yields on other financial
instruments and may lead purchasers of shares of Common Stock to
demand a higher annual distribution rate on the price paid for
shares from distributions by the Company, which could adversely
affect the market price of the shares of Common Stock. Although
the Common Stock is listed on the NYSE, the daily trading volume
of REITs in general and the Company's shares in particular may be
lower than the trading volume of certain other industries. As a
result, investors in the Company who desire to liquidate
substantial holdings at a single point in time may find that they
are unable to dispose of such shares in the market without
causing a substantial decline in the market value of such shares.
Ability of Board of Directors to Change Certain Policies
The major policies of the Company, including its policies with
respect to acquisitions, financing, growth, operations, debt
capitalization and distributions, will be determined by the Board
of Directors. The Board of Directors may amend or revise these
and other policies from time to time generally without a vote of
the shareholders of the Company.
Possible Adverse Consequences of Limits on Ownership of Shares
The Company's charter limits ownership of the Company's
capital stock by any single shareholder to 9.9% of the aggregate
value of the outstanding capital stock (the "Ownership Limit").
Shares acquired or transferred in breach of the Ownership Limit
shall be deemed "Excess Shares" and shall be (i) held in trust
for the exclusive benefit of the person(s) to whom such Excess
Shares may later be transferred; (ii) subject to transfer at the
direction of the Board of Directors; and (iii) subject to
redemption at a price equal to the lesser of (a) the price paid
by the holder of such Excess Shares or (b) the closing price per
share of such shares on the New York Stock Exchange (the "NYSE")
(which redemption price may be paid in Common Units). An
individual who acquires Excess Shares bears the risk that, among
other things, (i) he may lose control over the power to dispose
of such Excess Shares; (ii) he may not be able to recognize the
profit from the sale of such Excess Shares upon an increase in
the market price thereof; and (iii) he may be required to
recognize a loss from the sale of such Excess Shares upon a
decrease in the market price thereof.
Limitations on Acquisition and Change in Control
Ownership Limit. The Ownership Limit may have the effect of
precluding acquisition of control of the Company by a third party
without consent of the Board of Directors. See "Description of
Capital Stock of the Company -- Ownership Limitations."
Staggered Board of Directors. The Board of Directors has
three classes of directors. The terms of the first, second and
third classes will expire in 1999, 2000, and 2001, respectively.
Directors in each class are elected for a three-year term.
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The staggered terms for directors may affect the shareholders'
ability to change control of the Company even if a change in
control were in the shareholders' interest. See "Description of
Capital Stock of the Company -- Charter and Bylaw Provisions."
Preferred Stock. The Company's Charter authorizes the Board
of Directors to issue up to 20,000,000 shares of preferred stock
and to establish the preferences and rights of any shares issued.
The issuance of preferred stock could have the effect of delaying
or preventing a change in control of the Company even if a change
in control were in the shareholders' interest. Currently,
2,000,000 shares of the Series A Preferred Stock and 1,938,830
shares of the Series B Preferred Stock are issued and
outstanding. See "Description of Capital Stock of the Company --
Preferred Stock," "-- Series A Preferred Stock," and "--Series B
Preferred Stock."
Tennessee Anti-takeover Statutes. As a Tennessee
corporation, the Company is subject to various legislative acts
set forth in Chapter 35 of Title 48 of the Tennessee Business
Corporation Act (the "TBCA"), which impose certain restrictions
and require certain procedures with respect to certain takeover
offers and business combinations, including, but not limited to,
combinations with interested shareholders and share repurchases
from certain shareholders. These provisions may have the effect
of delaying or preventing a change in control of the Company even
if a change in control were in the shareholders' interest. See
"Description of Capital Stock of the Company -- Tennessee Anti-
Takeover Statutes."
DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the shares of the Company's
capital stock set forth below does not purport to be complete and
is subject to and qualified in its entirety by reference to the
Amended and Restated Charter of the Company as further amended,
and the Amended and Restated Bylaws of the Company, both of which
may be further amended from time to time and both of which are
incorporated herein by reference.
General
The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock and 20,000,000 shares of
Preferred Stock. As of March 31, 1998, 18,610,912 shares of
Common Stock, 2,000,000 shares of Series A Preferred Stock, and
1,938,830 shares of Series B Preferred Stock issued and
outstanding.
Common Stock
Subject to such preferential rights granted by the Board of
Directors in connection with the issuance of the Series A
Preferred Stock, the Series B Preferred Stock, and preferential
rights as may be granted by the Board of Directors in connection
with the future issuances of Preferred Stock, holders of shares
of Common Stock are entitled to one vote per share on all matters
to be voted on by shareholders and are entitled to receive
ratably such dividends as may be declared in respect of the
Common Stock by the Board of Directors in its discretion from
funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and
any liquidation preference of the holders of the Series A
Preferred Stock, the Series B Preferred Stock, and other shares
of Preferred Stock which may be issued in the future. Holders of
Common Stock have no subscription, redemption, conversion or
preemptive rights. Matters submitted for shareholder approval
generally require a majority vote of the shares present and
voting thereon. The outstanding shares of Common Stock are fully
paid and nonassessable.
Preferred Stock
Under the Charter, the Board of Directors of the Company is
authorized, without further shareholder action, to provide for
the issuance of up to 20,000,000 shares of Preferred Stock, in
such series, with such preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board
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of Directors. As a result, the Board of Directors may afford the
holders of any series or class of Preferred Stock preferences,
powers, and rights, voting or otherwise, senior to the rights of
holders of Common Stock.
The Series A Preferred Stock
Maturity. The Series A Preferred Stock has no stated maturity
and is not be subject to any sinking fund or mandatory
redemption.
Rank. The Series A Preferred Stock, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of
the Company, ranks (i) senior to all classes or series of Common
Stock, and to all equity securities ranking junior to the Series
A Preferred Stock, (ii) on 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 Series A
Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company, and (iii)
junior to all existing and future indebtedness of the Company.
Dividends. Holders of the Series A Preferred Stock are
entitled to receive, when and as declared by the Board of
Directors (or a duly authorized committee thereof), out of funds
legally available for the payment of dividends, preferential
cumulative cash distributions at the rate of 9.5% per annum of
the $25 liquidation preference per share (equivalent to a fixed
annual amount of $2.375 per share).
Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company, the holders of shares of Series A Preferred stock are
entitled to be paid out of the assets of the Company legally
available for distribution to its shareholders a liquidation
preference of $25 per share, plus an amount equal to any accrued
and unpaid distributions to the date of payment, but without
interest, before any distribution of assets is made to holders of
Common Stock or any other class or series of capital stock of the
Company that ranks junior to the Series A Preferred Stock as to
liquidation rights.
Redemption. Except in certain circumstances relating to the
preservation of the Company's status as a REIT, the Series A
Preferred Stock is not redeemable prior to November 1, 2001. On
and after such date, the Series A Preferred Stock will be
redeemable for cash at the option of the Company, in whole or in
part, at a redemption price of $25 per share, plus distributions
accrued and unpaid to the redemption date (whether or not
declared) without interest.
Voting Rights. Holders of Series A Preferred Stock generally
will have no voting rights except as required by law. However,
whenever distributions on any shares of Series A Preferred Stock
shall be in arrears for 18 or more months, the holders of such
shares (voting separately as a class with all other series of
parity 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 until all
distributions accumulated on such shares of Series A Preferred
Stock have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment. In addition, certain
changes to the terms of the Series A Preferred Stock that would
be materially adverse to the rights of holders of the Series A
Preferred Stock cannot be made without the affirmative vote of
the holders of at least two-thirds of the outstanding Series A
Preferred Stock.
Conversion. The Series A Preferred Stock is not convertible
into or exchangeable for any other property or securities of the
Company.
Series B Preferred Stock
Maturity. The Series B Preferred Stock has no stated maturity
and is not subject to any sinking fund or mandatory redemption.
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Rank. The Series B Preferred Stock, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of
the Company, ranks (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior
to the Series B Preferred Stock with respect to dividend rights
or rights upon liquidation, dissolution or winding up of the
Company; (ii) on a parity with the equity securities of the
Company ranking in parity with the Series B Preferred Stock; and
(iii) junior to all existing and future indebtedness of the
Company.
Dividends. Holders of shares of the Series B Preferred Stock
are entitled to receive, when and as declared by the Board of
Directors (or a duly authorized committee thereof), out of funds
legally available for the payment of dividends, preferential
cumulative cash dividends at the rate of 8 7/8% per annum of the
$25 liquidation preference per share (equivalent to a fixed
annual amount of $2.21875 per share).
Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company, the holders of shares of Series B Preferred Stock are
entitled to be paid out of the assets of the Company legally
available for distribution to its shareholders a liquidation
preference of $25 per share, plus an amount equal to any accrued
and unpaid dividends to the date of payment, but without
interest, before any distribution of assets is made to holders of
Common Stock or any other class or series of capital stock of the
Company that ranks junior to the Series B Preferred Stock as to
liquidation rights.
Redemption. Except in certain circumstances relating to the
preservation of the Company's status as a REIT, the Series B
Preferred Stock is not redeemable prior to December 1, 2002. On
and after such date, the Series B Preferred Stock will be
redeemable for cash at the option of the Company, in whole or in
part, at a redemption price of $25 per share, plus distributions
accrued and unpaid to the redemption date (whether or not
declared) without interest.
Voting Rights. Holders of Series B Preferred Stock generally
will have no voting rights except as required by law. However,
whenever distributions on any shares of Series B Preferred Stock
shall be in arrears for 18 or more months, the holders of such
shares (voting separately as a class with all other series of
parity 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 until all
distributions accumulated on such shares of Series B Preferred
Stock have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment. In addition, certain
changes to the terms of the Series B Preferred Stock that would
be materially adverse to the rights of holders of the Series B
Preferred Stock cannot be made without the affirmative vote of
the holders of at least two-thirds of the outstanding Series B
Preferred Stock.
Conversion. The Series B Preferred Stock is not convertible
into or exchangeable for any other property or securities of the
Company.
Charter and Bylaw Provisions
Shareholders' rights and related matters are governed by the
TBCA, the Company's Charter and its Bylaws. Certain provisions
of the Company's Charter (the "Charter") and Bylaws (the
"Bylaws") of the Company, which are summarized below, may make it
more difficult to change the composition of the Board of
Directors and may discourage or make more difficult any attempt
by a person or group to obtain control of the Company.
Voting Requirement. The Charter may not be amended without
the affirmative vote of at least a majority of the shares
entitled to vote generally in the election of directors, voting
as a single voting group. The Bylaws may be amended by either
the affirmative vote of a majority of all shares outstanding and
entitled to vote generally in the election of directors, voting
as a single group, or by an affirmative vote of a majority of the
Board of Directors then holding office, unless the shareholders
prescribe that any such bylaw may not be amended or repealed by
the Board of Directors. Notwithstanding the foregoing, the
Company cannot take any action intended to terminate its
qualification as a REIT without the affirmative vote of at least
two-thirds of the outstanding shares of Common Stock.
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Special Meetings. Under the Bylaws, special meetings of the
shareholders may be called by shareholders only if such
shareholders hold outstanding shares representing more than 50%
of all votes entitled to be cast on any issue proposed to be
considered at any such special meeting.
Staggered Board of Directors. The Company's Board of
Directors is divided into three classes of directors serving
staggered three year terms. A majority of the directors must be
persons who are not officers of the Company. The requirements
for a majority of independent directors and the provisions for
staggered terms of directors may not be changed without approval
of a majority of the shareholders or by 80% of the members of the
Board of Directors. Certain provisions of the Charter, including
the use of a staggered board, may render more difficult a change
in control of the Company or removal of incumbent management.
Advance Notice of Director Nominations and New Business. The
Bylaws provide that with respect to an annual meeting of
shareholders, the proposal of business to be considered by
shareholders may be made only (i) by or at the direction of the
Board of Directors, or (ii) by a shareholder who has complied
with the advance notice procedures set forth in the Bylaws. In
addition, with respect to any meeting of shareholders,
nominations of persons for election to the Board of Directors may
be made only (x) by or at the direction of the Board of Directors
or (y) by any shareholder of the Company who is entitled to vote
at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
The advance notice provisions of the Bylaws could have the
effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of the shares of Common Stock
might receive a premium for their shares over the then prevailing
market price or which such holders might believe to be otherwise
in their best interests.
Limitation of Directors' Liability
The Charter eliminates, subject to certain exceptions, the
personal liability of a director to the Company or its
shareholders for monetary damages for breaches of such director's
duty of care or other duties as a director. The Charter does not
provide for the elimination of or any limitation on the personal
liability of a director for (i) any breach of a director's duty
of loyalty to the Company, (ii) acts or omissions which involve
intentional misconduct or knowing violations of law, (iii)
unlawful corporate distributions, or (iv) acts or omissions which
involve transactions from which the director derived an improper
personal benefit. The Charter further provides that if the TBCA
is amended to authorize corporate action further eliminating or
limiting the personal liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by
the TBCA, as amended. These provisions of the Charter will limit
the remedies available to a shareholder in the event of breaches
of any director's duties to such shareholder of the Company.
Ownership Limitation
For the Company to qualify as a REIT under the Code, among
other things, no more than 50% in value of its outstanding shares
of capital stock may be owned, directly or indirectly, by five or
fewer shareholders (as defined in the Code to include certain
entities) during the last half of a taxable year, and such
capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during
a proportionate part of a shorter taxable year. To ensure that
the Company continues to meet the requirements for qualification
as a REIT, the Company's Charter, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, shares of the Company's
capital stock in excess of the Ownership Limit. The Board of
Directors may waive the Ownership Limit with respect to a
shareholder if evidence satisfactory to the Board of Directors
and the Company's tax counsel is presented that the changes in
ownership will not then or in the future jeopardize the Company's
status as a REIT. Any transfer of capital stock or any security
convertible into capital stock that would result in a direct or
indirect ownership of capital stock by a shareholder in excess of
the Ownership Limit or that would result in the failure of the
Company to meet the requirements for qualification as a REIT,
including any transfer that results in the capital stock being
owned by fewer than 100 persons or results in the Company being
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"closely held" within the meaning of section 856(h) of the Code,
shall be null and void, and the intended transferee will acquire
no rights to the capital stock. The foregoing restrictions on
transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify
as a REIT.
Capital stock owned, or deemed to be owned, or transferred to
a shareholder in excess of the Ownership Limit shall be deemed
Excess Shares held by such holder as agent on behalf of, and in
trust for the exclusive benefit of the transferees (which may
include the Company) to whom such capital stock may be ultimately
transferred without violating the Ownership Limit. While the
Excess Shares are held in trust, the holder thereof will not be
entitled to vote, the Excess Shares will not be considered issued
and outstanding for purposes of any shareholder vote or the
determination of a quorum for such vote and, except upon
liquidation, will not be entitled to participate in dividends or
other distributions. Any dividend or distribution paid to a
proposed transferee of Excess Shares prior to the discovery by
the Company that capital stock has been transferred in violation
of the Ownership Limitation shall be repaid to the Company upon
demand.
Excess Shares are further subject to transfer at the direction
of the Board of Directors. If the Board of Directors directs a
holder of Excess Shares to sell such Excess Shares, such holder
shall pay the Company out of the proceeds of such sale all
expenses incurred by the Company in connection with such sale
plus any remaining amount of such proceeds that exceeds that
amount paid by such holder for the Excess Shares.
In addition, the Company will have the right, for a period of
six months during the time any Excess Shares are held by the
holder in trust, to redeem all or any portion of the Excess
Shares from the holder for the lesser of the price paid for the
capital stock by the holder or the market price (as determined in
the manner set forth in the Company's charter) of the capital
stock on the date the Company give notice of its intent to redeem
such Excess Shares. The six month period begins on the date on
which the Company receives written notice of the transfer or
other event resulting in the classification of capital stock as
Excess Shares.
Each shareholder shall upon demand be required to disclose to
the Company in writing any information with respect to the
direct, indirect and constructive ownership of beneficial
interests in the Company as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to
REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The Ownership Limitation may have the effect of precluding
acquisition of control of the Company unless the Board of
Directors determines that maintenance of REIT status is no longer
in the best interests of the Company.
Tennessee Anti-Takeover Statutes
In addition to certain of the Charter provisions discussed
above, Tennessee has adopted a series of statutes which can have
an anti-takeover effect and may delay or prevent a tender offer
or takeover attempt that a shareholder might consider in its best
interest, including those attempts that might result in a premium
over the market price for the Common Stock.
Under the Tennessee Investor Protection Act, unless a
company's board of directors has recommended a takeover offer to
shareholders no offeror beneficially owning 5% or more of any
class of equity securities of the offeree company, any of which
was purchased within one year prior to the proposed takeover
offer (unless the offeror, before making such purchase, has made
a public announcement of his intention with respect to changing
or influencing the management or control of the offeree company,
has made a full, fair and effective disclosure of such intention
to the person from whom he intends to acquire such securities and
has filed with the Tennessee Commissioner of Commerce and
Insurance (the "Commissioner") and the offeree company a
statement signifying such intentions and containing such
additional information as the Commissioner by rule prescribes),
may offer to acquire any class of equity security of an offeree
company pursuant to a tender offer if after the acquisition
thereof the offeror would be directly or indirectly a beneficial
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owner of more than 10% of any class of outstanding equity
securities of the company (a "Takeover Offer"). Such an offeror
must provide that any equity securities of an offeree company
deposited or tendered pursuant to a Takeover Offer may be
withdrawn by an offeree at any time within seven days from the
date the offer has become effective following filing with the
Commissioner and the offeree company and public announcement of
the terms or after 60 days from the date the offer has become
effective. If an offeror makes a Takeover Offer for less than
all the outstanding equity securities of any class, and if the
number of securities tendered is greater than the number the
offeror has offered to accept and make for, the securities shall
be accepted pro rata. If an offeror varies the terms of a
Takeover Offer before its expiration date by increasing the
consideration offered to offeree, the offeror shall make the
increased consideration for all equity securities accepted,
whether accepted before or after the variation in the terms of
the offer.
Under the Tennessee Business Combination Act, subject to
certain exceptions, no Tennessee corporation may engage in any
"business combination" with an "interested shareholder" for a
period of five years following the date that such shareholder
became an interested shareholder unless prior to such date the
Board of Directors of the corporation approved either the
business combination or the transaction which resulted in the
shareholder becoming an interested shareholder.
A "business combination" is defined by the Tennessee Business
Combination Act as any (i) merger or consolidation; (ii) share
exchange; (iii) sale, lease, exchange, mortgage, pledge or other
transfer of assets representing 10% of more of (A) the aggregate
market value of the corporation's consolidated assets, (B) the
aggregate market value of the corporation's shares, or (C) the
corporation's consolidated net income; (iv) issuance or transfer
of shares from the corporation to the interested shareholder, (v)
plan of liquidation of dissolution proposed by the interested
shareholder, (vi) transaction or recapitalization which increases
the proportionate share of any outstanding voting securities
owned or controlled by the interested shareholder, or (vii)
financing arrangement whereby any interested shareholder
receives, directly or indirectly, a benefit except
proportionately as a shareholder.
An "Interested shareholder" is defined as (i) any person that
is the beneficial owner of 10% or more of the voting power of any
class or series of outstanding voting stock of the corporation or
(ii) an affiliate or associate of the corporation who at any time
within the five-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of any class or series of the
outstanding stock of the corporation. Consummation of a business
combination that is subject to the five-year moratorium is
permitted after such period when the transaction (a) (i) complies
with all applicable charter and bylaw requirements and (ii) is
approved by the holders of two-thirds of the voting stock not
beneficially owned by the interested shareholder, and (b) meets
certain fair price criteria.
The Tennessee Greenmail Act prohibits a Tennessee corporation
from purchasing, directly or indirectly, any of its shares at a
price above the market value of such shares (defined as the
average of the highest and lowest closing market price for such
shares during the 30 trading days preceding the purchase and sale
or preceding the commencement or announcement of a tender offer
if the seller of such shares has commenced a tender offer or
announced an intention to seek control of the corporation) from
any person who holds more than 3% of the class of securities to
be purchased if such person has held such shares for less than
two years, unless the purchase has been approved by the
affirmative vote of a majority of the outstanding shares of each
class of voting stock issued by such corporation or the
corporation makes an offer, of at least equal value per share, to
all holders of shares of such class.
Other Matters
The transfer agent and registrar for the Company's Common
Stock is AmSouth Bank of Alabama, Birmingham, Alabama.
Pursuant to the TBCA, the Company cannot merge with or sell
all or substantially all of the assets of the Company, except
pursuant to a resolution approved by the affirmative vote of a
majority of the outstanding shares of Common Stock entitled to
vote on the resolution. In addition, the Partnership Agreement
requires that any merger or sale of all or substantially all of
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the assets of or dissolution of the Operating Partnership be
approved by the affirmative vote of a majority of the outstanding
units.
SELLING SHAREHOLDERS
Because the Selling Shareholders may redeem all, some or none
of their Class A Common Units, and may receive, at the Company's
option, cash rather than Secondary Shares upon such redemptions,
no estimate can be made of the aggregate number of Secondary
Shares which may be offered and sold by the Selling Shareholders
pursuant to this Prospectus.
The table below sets forth certain information regarding the
Selling Shareholders' ownership of the shares of Secondary
Shares.
Name of Selling Shareholder Number
___________________________ of
Secondary
Shares
__________
James R. Alexander 1,402
Sally R. Allen 3,075
W.L. Amos, Jr. 1,402
James R. Andrews 9,134
Dr. Joseph P. Archie, Jr. 1,661
Dr. Jack Averett 1,537
W. Prentiss Baker 1,661
Shelton L. Barefoot 1,661
Clyde R. and Crystal W. Beals 1,402
Carol R. Bell 1,661
Jack W. Bonner, III 1,665
Dr. Stephen C. Boone 1,661
Mary Goode Nufer Braley 831
Harold J. Brody 1,402
Robert A. Buchanan, Jr. 831
Brent A. Buck 1,402
Samuel L. Buracker 3,075
Max E. Burr 4,423
Sarah T. Butler 16,176
C&H, a partnership 1,402
J. Paul & Eleanor B. Calhoun, Jr. 1,402
J. Paul Calhoun, Jr. 1,268
Calpatrick Investment Company 2,975
J. Wayne Cannady 1,661
James F. Caughman 831
Nancy C. Chancey 2,536
Elizabeth T. Corn 3,075
Morris L. and Clara M. Crafton 1,661
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Crowood, a Georgia partnership 6,317
Robert P. Crozer 1,402
Ralph H. Currie, Jr. 2,393
Stephen P. Darnell 1,661
Richard S. Deckelbaum 1,661
Stanley Deckelbaum 1,661
Frances W. Douglas 2,536
Eloise S. Eager 833
David M. Fajgenbaum 1,661
Thomas & Carole W. Fee 831
First Union National Bank of Georgia and J.W.
Feighner, as Co-Trustees of the Marital Trust 5,511
created u/w/o Margaret R. Feighner, deceased
Joe Flournoy 1,487
John F. Flournoy 41,271
James S. Forrester 1,661
Leon C. Frederick 1,661
James S. Fulghum 1,661
Robert L. Garnett 3,771
Gardiner W. Garrard 2,228
Michael T. Gilbert 1,661
William L. Graham 3,990
G&W Investment Company, a partnership 3,342
Henry J. Hall 467
Robert H. and Nancy T. Ham, as joint tenants 1,661
Walker Harris 2,975
James Madden Hatcher, Jr. 1,402
Forester L. Hodges 2,234
L. Fuller Honeycutt 1,661
George B. Hubbard, Jr. 467
William S. Hudson 4,476
Jack C. Hughston 23,778
Sarah H. Hughston 7,103
Stephen C. Hunter 4,423
Synovus Trust Company and Joan S. Redmond, as Co-
Trustees under Item XI O/W/O Louise J. Jennings 1,342
FBO Mary Colwell Jennings
Synovus Trust Company and Joan S. Redmond, as Co-
Trustees under Item XI O/W/O Louise J. Jennings 1,342
FBO Jennifer J. Mullin
Synovus Trust Company and Joan S. Redmond, as Co-
Trustees under Item XI O/W/O Louise J. Jennings 1,342
FBO Wells Wynn Mullin
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Synovus Trust Company and Joan S. Redmond, as Co-
Trustees under Item XI O/W/O Louise J. Jennings 1,342
FBO Melchoir C. Jennings III
Synovus Trust Company, as Successor Trustee u/a/w 5,467
M.C. Jennings, Jr. dated 2/25/75
M.C. Jennings, Jr. 1,402
W. Randall Jones 3,924
The Jordan Company 13,198
Jordan Properties, Inc. 4,798
Synovus Trust Company, as Successor Trustee u/a/w 5,467
Randolph Swift Jordan dated 10/978
Gerald N. Kadis 701
William D. King 2,228
Kumar Internal Medicine Associates, P.A. 831
Arne C. Lassen 2,975
Gordon B. LeGrand 1,661
Charles W. Love, Sr. 2,492
H.G. Maddox 2,975
Hector C. Manlapas 831
William M. Marshburn 831
William H. Martin 4,567
Synovus Trust Company, as Successor Trustee u/a/w 2,393
John W. Mayher, Jr. dated 12/9/77
Martin McCann 3,771
Jack W. McGuire 1,268
Harry L. and Betty R. McKaig, as joint tenants 1,661
with right of survivorship
Charles E. and Jacklyn M. Melvin, as tenants in 831
common
Josephine S. Metz 1,851
Edward G. Michaels III 2,228
Dr. W. Stacy Miller 1,661
Henry A. Mitchell 1,661
J. Leonard Morgan, Jr. 4,376
Edward Gray Murray, Jr. as executor of the will 2,030
of Edward N. Murray, Jr.
Keith R. Myers 467
Charles E. and Carolyn Hill 1,487
Joseph H. Nelson 831
Netherleigh Associates 2,975
Dr. Lyle A. Norwood, Jr. 6,454
Helen J. Olnick 3,342
Daniel M. O'Reilly 375
Claudia G. Oxnar 1,661
H. Lynn Page 1,196
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Eric W. and Dianne H. Peterson, as joint tenants 833
Ben B. Phillips 467
F. Anderson Phillips 467
Frank A. Phillips, Jr. 467
Frank A. and Mary L. Phillips 1,487
Michael R. Pike 831
Ploejo Investment Company 1,402
Joan Swift Redmond 1,671
Theodore Y. Rogers, III 1,661
James R. Rogers, III 1,661
S&H Leasing 3,075
Will Camp Sealy 3,323
Richard D. Selman 833
Louis W. Sewell 1,661
Melvin G. Shimm 831
Charles R. Simons 1,665
Frampton E. Simons 833
Larry B. and Carol R. Sitton, as joint tenants 831
with right of survivorship
Jerry Joseph Smaha 6,049
Allen A. Smith 1,661
Peter J. Sones 1,402
Camilla R. Spencer 833
Riley S. Stallings, Jr. 831
Charles C. Stamey 3,342
Dr. Joseph David Stein 7,818
George C. Stewart 1,661
Gloria R. Stipp 3,075
Henry W. Swift, Jr. 1,268
Mathews D. Swift 1,671
Dr. T. Earl Taylor 3,794
J. Harold Tharrington 1,661
Ann C. Thayer 1,268
C.K. Torrence, Jr. 1,661
Joseph L. Waldrep 3,342
John I. Waldrop 6,454
Robert G. Wallace, M.D. 1,015
Robert S. Warren, Jr. 1,661
Cecil F. Whitaker, Jr., M.D. 7,818
19
<PAGE>
William A. Wilder, Jr. 3,342
Jacob A. Williamson 1,661
William A. Wolff 1,487
Allen M. Woodall, Jr. 3,342
Robert J. Wroblewski 1,661
James D. Yancy 1,196
Rebecca K. Yarbrough 1,402
Michael Jay Zellinger 1,661
Total number of Secondary Shares 412,991
FEDERAL INCOME TAX CONSIDERATIONS
Introductory Notes
The following summary of material federal income tax
considerations that may be relevant to a prospective holder of
the Redemption Shares is based on current law, is for general
information only and is not tax advice. The discussion contained
herein does not purport to deal with all aspects of taxation that
may be relevant to particular security holders in light of their
personal investment or tax circumstances, or to certain types of
shareholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal
income tax laws.
The statements in this discussion are based on current
provisions of the Code, existing, temporary and currently
proposed Treasury regulations promulgated under the Code
("Treasury Regulations"), the legislative history of the Code,
existing administrative rulings and practices of the Service and
judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions,
which may be retroactive in effect, will not affect the accuracy
of any statements in this Prospectus with respect to the
transactions entered into or contemplated prior to the effective
date of such changes. As used in this section, the term
"Company" refers solely to Mid-America Apartment Communities,
Inc.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF
THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED SECURITIES
AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
General. The Company has elected to be taxed as a REIT under
Sections 856 through 860 of the Code effective for its short
taxable year ending on December 31, 1994. The Company believes
that, commencing with its 1994 taxable year, it has been
organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner, but no assurance can be
given that the Company will operate in a manner so as to qualify
or remain qualified as a REIT. See "Failure to Qualify."
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Baker, Donelson, Bearman & Caldwell has acted as tax counsel
to the Company. The Company has obtained an opinion of Baker,
Donelson, Bearman & Caldwell as to its REIT qualification.
Continued qualification and taxation as a REIT will depend on the
Company's ability to meet on a continuing basis, through actual
annual operating results, distribution levels, and stock
ownership, the various qualification tests imposed under the Code
discussed below. No assurance can be given that the actual
results of the Company's operation for any particular taxable
year will satisfy such requirements. For a discussion of the tax
consequences of failure to qualify as a REIT, see "-- Failure to
Qualify".
The sections of the Code relating to qualification and
operation as a REIT are highly technical and complex. The
following discussion sets forth the material aspects of the Code
sections that govern the federal income tax treatment of a REIT
and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations
promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change
prospectively or retrospectively.
If the Company qualifies for taxation as a REIT, it generally
will not be subject to federal corporate income taxes on net
income that it currently distributes to shareholders. This
treatment substantially eliminates the "double taxation" (i.e.,
taxation at both the corporate and shareholder levels) that
generally results from investment in a corporation.
Notwithstanding its REIT election, however, the Company will be
subject to federal income tax in the following circumstances.
First, the Company will be taxed at regular corporate rates on
any undistributed taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company
may be subject to the "alternative minimum tax" on its
undistributed items of tax preference. Third, if the Company has
(i) net income from the sale or other disposition of "foreclosure
property" (which is, in general, property acquired by foreclosure
or otherwise on default of a loan secured by the property) that
is held primarily for sale to customers in the ordinary course of
business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate
on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if
the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a
100% tax on the gross income attributable to the greater of the
amount by which the Company fails the 75% or 95% test, multiplied
by a fraction intended to reflect the Company's profitability.
Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income
from prior years, the Company would be subject to a non-
deductible 4% excise tax on the excess of such required
distribution over the amounts actually distributed. To the
extent that the Company elects to retain and pay income tax on
its net capital gain, such retained amounts will be treated as
having been distributed for purposes of the 4% excise tax.
Seventh, if the Company acquires any asset from a C corporation
(i.e., a corporation generally subject to full corporate-level
tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the
asset (or any other asset) in the hands of the C corporation, and
the Company recognizes gain on the disposition of such asset
during the 10-year period beginning on the date on which such
asset was acquired by the Company, then, to the extent of such
asset's "built-in" gain (i.e. the excess of the fair market value
of such property at the time of acquisition by the Company over
the adjusted basis of such asset at such time), such gain will be
subject to tax at the highest regular corporate rate applicable
(as provided in Treasury Regulations that have not yet been
promulgated). The results described above with respect to the
recognition of "built-in" gain assume that the Company would have
an election pursuant to IRS Notice 88-19 if it were to make any
such acquisition. See "-- Proposed Tax Legislation."
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) that is managed by one or
more directors or trustees; (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation, but for Sections 856 through 860 of
the Code; (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v)
the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals
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<PAGE>
(as defined in the Code to include certain entities) during the
last half of each taxable year (the "5/50 Rule"); (vii) that
makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that
must be met in order to elect and to maintain REIT status; (viii)
that uses a calendar year for federal income tax purposes and
complies with the recordkeeping requirements of the Code and
Treasury Regulations promulgated thereunder; and (ix) that meets
certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (i) through
(iv), inclusive, must be met during the entire taxable year and
that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. The Company has issued
sufficient shares of Common Stock and Preferred Stock with
sufficient diversity of ownership to allow the Company to satisfy
requirements (v) and (vi). In addition, the Company's Charter
contains restrictions regarding the transfer of its shares that
are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (v) and (vi) above. See
"Description of the Capital Stock of the Company - Ownership
Limitations."
For purposes of determining Share Ownership under the 5/50
Rule, a supplemental unemployment compensation benefits plan, a
private foundation, or a portion of a trust permanently set aside
or used exclusively for charitable purposes generally is
considered an individual. A trust that is a qualified trust
under Code Section 401(a), however, generally is not considered
an individual and the beneficiaries of such trust are treated as
holding shares of a REIT in proportion to their actuarial
interests in such trust for purposes of the 5/50 Rule.
The Company currently has 13 corporate subsidiaries and may
have additional corporate subsidiaries in the future. Code
Section 856(i) provides that a corporation that is a "qualified
REIT subsidiary" shall not be treated as a separate corporation,
and all assets, liabilities and items of income, deduction and
credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities and items of income, deduction and credit of
the REIT. A "qualified REIT subsidiary" is a corporation, all of
the capital stock of which has been owned by the REIT from the
commencement of such corporation's existence. Thus, in applying
the requirements described herein, the Company's "qualified REIT
subsidiaries" are ignored, and all assets, liabilities and items
of income, deduction and credit of such subsidiaries will be
treated as assets, liabilities and items of income, deduction and
credit of the Company. The Company's corporate subsidiaries are
"qualified REIT subsidiaries" and, consequently, not subject to
federal corporate income taxation, although they may be subject
to state and local taxation.
In the case of a REIT which is a partner in a partnership,
Treasury Regulations provide that the REIT will be deemed to own
its proportionate share (based on the REIT's interest in
partnership capital) of the assets of the partnership and will be
deemed to be entitled to the gross income of the partnership
attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of
the Code, including satisfying the gross income and asset tests
(as discussed below). Thus, the Company's proportionate share of
the assets, liabilities and items of income of the Property
Partnerships shall be treated as assets, liabilities and items of
the Company for purposes of applying the requirements described
herein.
Income Tests. In order for the Company to maintain its
qualification as a REIT, there are two requirements relating to
the Company's gross income that must be satisfied annually.
First, at least 75% of the Company's gross income (excluding
gross income from prohibited transactions) for each taxable year
must consist of defined types of income derived directly or
indirectly from investments relating to real property or
mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property or temporary
investments, and from dividends, interest and gain from the sale
or disposition of stock or securities, or from any combination of
the foregoing. The specific application of these tests to the
Company is discussed below.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT
described above only if several conditions are met. First, the
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<PAGE>
amount of rent must not be based in whole or in part on the
income or profits of any person; provided, however, that an
amount received or accrued generally will not be excluded from
the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales.
Second, the Code provides that rents received from a resident
will not qualify as "rents from real property" if the Company, or
an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such resident (a "Related
Party Tenant"). Third, if rent attributable to personal
property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will
not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the Company
generally must not operate or manage the property or furnish or
render services to the tenants of such property, other than
through an "independent contractor" who is adequately compensated
and from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent
that the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the
occupant." The Company does not charge, and does not anticipate
charging, rent for any portion of any Property that is based in
whole or in part on the income or profits of any person, and the
Company does not receive, and does not anticipate receiving, any
rents from Related Party Tenants. The Company does not anticipate
that rent attributable to personal property leased in connection
with any lease of real property will exceed 15% of total rent
received under such lease. The Operating Partnership provides
certain services with respect to the Communities and with respect
to the Communities of the Subsidiary Partnerships.
The Operating Partnership receives fees in consideration of
the performance of management, landscaping and administrative
services with respect to properties that are not wholly owned,
directly or indirectly, by the Operating Partnership. A portion
of such fees generally will not qualify under the 75% or 95%
gross income tests. The Company will also receive certain other
types of non-qualifying income, such as income from coin-operated
laundry machines and income from corporate and guests apartments.
The Company believes, however, that the aggregate amount of such
fees and other non-qualifying income in any taxable year will not
cause the Company to exceed the limits on non-qualifying income
under the 75% and 95% gross income tests.
It is possible that, from time to time, the Company or a
Property Partnership will enter into hedging transaction with
respect to one or more of its assets or liabilities. Any such
hedging transactions could take a variety of forms, including
interest rate swap contracts, interest rate cap or floor
contracts, futures or forward contracts, and options. To the
extent that the Company or a Property Partnership enters into an
interest rate swap or cap contract to hedge any variable rate
indebtedness incurred to acquire or carry real estate assets, any
periodic income or gain from the disposition of such contract
should be qualifying income for purposes of the 95% gross income
test. Furthermore, any such contract would be considered a
"security" for purposes of applying the 30% gross income test.
To the extent that the Company or a Property Partnership hedges
with other types of financial instruments or in other situations,
it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income
tests that apply to REITs under the Code. The Company intends to
structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless
qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions
generally will be available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect,
the Company attaches a schedule of the sources of its income to
its return and any income information on the schedules was not
due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances the Company would
be entitled to the benefit of these relief provisions. As
discussed above in "General," even if these relief provisions
were to apply, a tax would be imposed with respect to the excess
net income.
Asset Tests. At the close of each quarter of its taxable year,
the Company also must satisfy two tests relating to the nature of
its assets. First, at least 75% of the value of the Company's
total assets must be represented by cash or cash items (including
certain receivables), government securities, "real estate assets"
or, in cases where the Company raises new capital through shares
or long-term (at least five years) debt offerings, temporary
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<PAGE>
investments in shares or debt instruments during the one-year
period following the Company's receipt of such capital. The term
"real estate asset" includes interests in real property,
interests in mortgages on real property to the extent the
mortgage balance does not exceed the value of the associated real
property and shares of other REITS. For purposes of the 75%
asset test, the term "interest in real property" includes an
interest in land and improvements thereon, such as buildings or
other inherently permanent structures (including items that are
structural components of such buildings or structures), a
leasehold in real property and an option to acquire real property
(or a leasehold in real property). Second, of the investments
not included in the 75% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities
(except for its ownership interest in the Property Partnerships
or the stock of a qualified REIT subsidiary as defined by Section
856(i) of the Code). See "Proposed Tax Legislation."
For purposes of the asset tests, the Company is deemed to own
its proportionate share of the assets of the Property
Partnerships, and the qualified REITS subsidiaries, rather that
its partnership or shareholder interests therein. The Company
believes that, at all relevant times (i) at least 75% of the
value of its total assets has been and will continue to be
represented by real estate assets, cash and cash items (including
receivables) and government securities and (ii) it has not owned
and will not own any securities that do not satisfy the 75% asset
test. In addition, the Company does not intend to acquire or to
dispose of, or cause any of the Property Partnerships or the
qualified REIT subsidiaries to acquire or to dispose of, assets
in the future in a way that would cause it to violate either
asset test.
If the Company should fail to satisfy the asset tests at the
end of a calendar quarter, such a failure would not cause it to
lose its REIT status if (i) it satisfied all of the asset tests
at the close of the preceding calendar quarter and (ii) the
discrepancy between the value of the Company's assets and the
asset test requirements arose from changes in the market values
of its assets and was not wholly or partly caused by an
acquisition of nonqualifying assets. If the condition described
in clause (ii) of the preceding sentence were not satisfied, the
Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar
quarter in which it arose.
Annual Distribution Requirements. The Company, in order to
qualify as a REIT and avoid corporate income taxation of the
earnings that it distributes, is required to distribute
distributions (other than capital gain distributions or retained
capital gains) to its shareholders in an amount at least equal to
(i) the sum of (A) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and its
net capital gain) and (B) 95% of the net income (after tax), if
any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable
year if declared before the Company timely files its tax return
for such year and if paid on or before the first regular
distribution payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains and ordinary
corporate tax rates. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company will be subject to
a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed. The Company
may elect to retain and pay income tax on the net long-term
capital gain it receives in a taxable year. Any such retained
amounts would be treated as having been distributed by the
Company for purposes of the 4% excise tax.
The Company has made and intends to continue to make timely
distributions sufficient to satisfy the annual distribution
requirements. In this regard, the Partnership Agreement
authorizes the Company, as general partner, to take such steps as
may be necessary to cause the Operating Partnership to distribute
to its partners an amount sufficient to permit the Company to
meet these distribution requirements. It is possible, however,
that the Company, from time to time, may not have sufficient cash
or other liquid assets to meet the distribution requirements due
to timing differences between the actual receipt of income and
actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at taxable
income of the Company, or if the amount of nondeductible expenses
such as principal amortization or capital expenditures exceed the
amount of noncash deductions. In the event that such timing
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differences occur, in order to meet the distribution
requirements, the Company may cause the Operating Partnership to
arrange for short-term, or possibly long-term, borrowing to
permit the payment of required dividends. If the amount of
nondeductible expenses exceeds noncash deductions, the Operating
Partnership may refinance its indebtedness to reduce principal
payments and borrow funds for capital expenditures.
Under certain circumstances, the Company may be able to
rectify a failure to meet the distribution requirement for a year
by paying "deficiency dividends" to shareholders in a later year,
which may be included in the Company's deduction for dividends
paid for the earlier year. Although the Company may be able to
avoid being taxed on amounts distributed as deficiency dividends,
it will be required to pay interest to the Service based upon the
amount of any deduction taken for deficiency dividends.
Special Distribution Requirement. Applicable Treasury
Regulations generally provide that, in the case of a corporation,
such as the Company, that succeeds to earnings and profits
accumulated during a non-REIT taxable year, such a corporation is
eligible to elect to be taxed as a REIT for a taxable year only
if, as of the close of that taxable year, it has distributed such
non-REIT earnings and profits. Accordingly, to elect to be taxed
as a REIT it was necessary for the Company to distribute, on or
before December 31, 1994, the full amount of its current and
accumulated earnings and profits attributable to the operations
of The Cates Company prior to its merger with and into the
Company. The Cates Company satisfied this requirement by
distributing all current and accumulated earnings and profits up
to and including the date of its merger with and into the Company
to its shareholders immediately prior to the consummation of such
merger.
Annual Record Keeping Requirement. Pursuant to applicable
Treasury Regulations, in order to be able to elect to be taxed as
a REIT, the Company must maintain certain records and request on
an annual basis certain information from its shareholders
designed to disclose the actual ownership of its outstanding
shares. The Company has complied and will continue to comply with
such requirements.
Partnership Anti-Abuse Rule. The U.S. Department of the
Treasury has issued a final regulation (the "Anti-Abuse Rule")
under the partnership provisions of the Code (the "Partnership
Provisions") that authorizes the Service, in certain abusive
transactions involving partnerships, to disregard the form of the
transaction and recast it for federal tax purposes as the Service
deems appropriate. The Anti-Abuse Rule applies where a
partnership is formed or utilized in connection with a
transaction (or series of related transactions) with a principal
purpose of substantially reducing the present value of the
partners' aggregate federal tax liability in a manner
inconsistent with the intent of the Operating Partnership
Provisions. The Anti-Abuse Rule states that the Operating
Partnership Provisions are intended to permit taxpayers to
conduct joint business (including investment) activities through
a flexible arrangement that accurately reflects the partners'
economic agreement and clearly reflects the partners' income
without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined
based on all of the facts and circumstances, including a
comparison of the purported business purpose for a transaction
and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal
tax liability through the use of a partnership does not, by
itself, establish inconsistency with the intent of the Operating
Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation
that elects to be treated as a REIT contributes substantially all
of the proceeds from a public offering to a partnership in
exchange for a general partnership interest. The Limited
Partners of the partnership contribute real property assets to
the partnership, subject to liabilities that exceed their
respective aggregate bases in such property. In addition, some
of the Limited Partners have the right, beginning two years after
the formation of the partnership, to require the redemption of
their Limited Partnership interests in exchange for cash or REIT
stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the
redemption. The example concludes that the use of the
partnership is not inconsistent with the intent of the Operating
Partnership Provisions and, thus, cannot be recast by the
Service. However, the Redemption Rights do not conform in all
respects to the redemption rights contained in the foregoing
example. In addition, because the Anti-Abuse Rule is
extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances, there can be no
assurance that the Service will not attempt to apply the
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Anti-Abuse Rule to the Company. If the conditions of the
Anti-Abuse Rule are met, the Service is authorized to take
appropriate enforcement action, including disregarding the
Property Partnerships for federal tax purposes or treating one or
more of its partners as nonpartners. Any such action potentially
could jeopardize the Company's status as a REIT.
Failure to Qualify. If the Company fails to qualify for
taxation as a REIT in any taxable year and the relief provisions
do not apply, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any
year in which the Company fails to qualify will not be deductible
by the Company, nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as
ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the distributions
received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year
during which the Company ceased to qualify as a REIT. It is not
possible to state whether in all circumstances the Company would
be entitled to such statutory relief.
Taxation of Shareholders
Taxation of Taxable U.S. Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable
U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained
capital gains) will be taken into account by such U.S.
shareholders as ordinary income and will not be eligible for the
dividends received deduction generally available to corporations.
As used herein, the term "U.S. shareholder" means a holder of
Common Stock or Preferred Stock that for U.S. federal income tax
purposes is (i) a citizen or resident of the United States; (ii)
a corporation, partnership or other entity created or organized
in or under the laws of the United States or of any political
subdivision thereof; (iii) an estate whose income from sources
without the United States is includible in gross income for U.S.
federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States; or (iv)
any trust with respect to which (A) a U.S. court is able to
exercise primary supervision over the administration of such
trust and (B) one or more U.S. fiduciaries have the authority to
control all substantial decisions of the trust.
Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do
not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has
held his stock. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary
income. The Company may elect to retain and pay income tax on
the net long-term capital gain it receives in a taxable year. In
that case, the Company's shareholders would include in income
their proportionate share of the Company's undistributed long-
term capital gain. In addition, the shareholders would be deemed
to have paid their proportionate share of the tax paid by the
Company, which would be credited or refunded to the shareholders.
Each shareholder's basis in his stock would be increased by the
amount of the undistributed long-term capital gain, included in
the shareholder's income, less the shareholder's share of the tax
paid by the Company.
Distributions in excess of current and accumulated earnings
and profits will not be taxable to a shareholder to the extent
that they do not exceed the adjusted basis of the shareholder's
stock, but rather will reduce the adjusted basis of such stock.
To the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a
shareholder's stock, such distributions will be included in
income as long-term capital gain (or short-term capital gain if
the shares of stock have been held for one year or less) assuming
the shares of stock are capital assets in the hands of the
shareholder. In addition, any distribution declared by the
Company in October, November or December of any year and payable
to a shareholder of record on a specified date in any such month
shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of
the following calendar year.
Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the
Company. Instead, such losses would be carried over by the
Company for potential offset against its future income
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(subject to certain limitations). Taxable distributions from the
Company and gain from the disposition of the stock will not be
treated as passive activity income and, therefore, shareholders
generally will not be able to apply any "passive activity losses"
(such as losses from certain types of Limited Partnerships in
which the shareholder is a limited partner) against such income.
In addition, taxable distributions from the Company generally
will be treated as investment income for purposes of the
investment interest limitations. Capital gains from the
disposition of stock (or distributions treated as such) will be
treated as investment income only if the shareholder so elects,
in which case such capital gains will be taxed at ordinary income
rates. The Company will notify shareholders after the close of
the Company's taxable year as to the portions of the
distributions attributable to that year that constitute ordinary
income, return of capital and capital gain.
Taxation of Shareholders on the Disposition of the Common or
Preferred Stock. In general, any gain or loss realized upon a
taxable disposition of the stock by a shareholder who is not a
dealer in securities will be treated as long-term capital gain or
loss if the shares of stock have been held for more than one year
and otherwise as short-term capital gain or loss. However, any
loss upon a sale or exchange of shares of stock by a shareholder
who has held such shares for six months or less (after applying
certain holding period rules), will be treated as a long-term
capital loss to the extent of distributions from the Company
required to be treated by such shareholder as long-term capital
gain. All or a portion of any loss realized upon a taxable
disposition of shares of stock may be disallowed if other shares
of stock are purchased within 30 days before or after the
disposition.
Capital Gains and Losses. A capital asset generally must be
held for more than one year in order for gain or loss derived
from its sale or exchange to be treated as long-term capital gain
or loss. The highest marginal individual income tax rate is
39.6%. The maximum tax rate on net capital gains applicable to
noncorporate taxpayers is 28% for sales and exchange of assets
held for more than one year but not more than 18 months, and 20%
for sales and exchanges of assets held for more than 18 months.
The maximum tax rate on long-term capital gain from the sale or
exchange of "section 1250 property" (i.e., depreciable real
property) held for more than 18 months is 25% to the extent that
such gain would have been treated as ordinary income if the
property were "section 1245 property." With respect to
distribution designated by the Company as capital gain dividends
and any retained capital gains that the Company is deemed to
distribute, the Company may designate (subject to certain limits)
whether such a distribution is taxable to its shareholders at a
20%, 25%, or 28% rate. Thus, the tax rate differential between
capital gain and ordinary income for individuals may be
significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital
losses. Capital losses not offset by capital gains may be
deducted against an individual's ordinary income only up to a
maximum annual amount of $3,000. Unused capital losses may be
carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer
can deduct capital losses only to the extent of capital gains,
with unused losses being carried back three years and forward
five years.
Information Reporting Requirements and Backup Withholding.
The Company will report to its U.S. shareholders and to the
Service the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any. Under the backup
withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid
unless such holder (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this
fact or (ii) provides a taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise
complies with the applicable requirements of the backup
withholding rules. A shareholder who does not provide the
Company with his correct taxpayer identification number also may
be subject to penalties imposed by the Service. Any amount paid
as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions
to any shareholders who fail to certify their non-foreign status
to the Company. The Service has issued final regulations
regarding the backup withholding rules as applied to Non-U.S.
Shareholders. These regulations alter the current system of
backup withholding compliance and are effective for distributions
made after December 31, 1998. See "Federal Income Tax
Considerations -- Taxation of Non-U.S. Shareholders."
Taxation of Tax-exempt Shareholders. Tax-exempt entities,
including qualified employee pension and profit sharing trusts
and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they
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are subject to taxation on their unrelated business taxable
income ("UBTI"). While many investments in real estate generate
UBTI, the Service has issued a published ruling that dividend
distributions by a REIT to an exempt employee pension trust do
not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt
employee pension trust. Based on that ruling, amounts
distributed by the Company to Exempt Organizations generally
should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of stock with debt, a portion of its
income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9),
(17) and (20), respectively, of Code Section 501(c) are subject
to different UBTI rules, which generally will require them to
characterize distributions from the Company as UBTI. In
addition, in certain circumstances, a pension trust that owns
more than 10% of the Company's stock is required to treat a
percentage of the dividends from the Company as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by
the Company from an unrelated trade or business (determined as if
the Company were a pension trust) divided by the gross income of
the Company for the year in which the dividends are paid. The
UBTI rule applies to a pension trust holding more than 10% of the
Company's stock only if (i) the UBTI Percentage is at least 5%;
(ii) the Company qualifies as a REIT by reason of the
modification of the 5/50 Rule that allows the beneficiaries of
the pension trust to be treated as holding shares of the Company
in proportion to their actuarial interests in the pension trust;
and (iii) either (A) one pension trust owns more than 25% of the
value of the Company's shares or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's
shares collectively own more than 50% of the value of the
Company's shares.
Taxation of Non-U.S. Shareholders. The rules governing U.S.
federal income taxation of nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders
(collectively, "Non-U.S. Shareholders") are complex and no
attempt will be made herein to provide more than a summary of
such rules. PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE
AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT IN THE
COMMON OR PREFERRED STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not
attributable to gain from sales or exchanges by the Company of
U.S. real property interests and are not designated by the
Company as capital gains dividends will be treated as dividends
of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However,
if income from the investment in the stock is treated as
effectively connected with the Non-U.S. Shareholder's conduct of
a U.S. trade or business, the Non-U.S. Shareholder generally will
be subject to federal income tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits
tax in the case of a Non-U.S. Shareholder that is a non-U.S.
corporation). The Company expects to withhold U.S. income tax at
the rate of 30% on the gross amount of any such distributions
made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that
reduced rate is filed with the Company or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company claiming that
the distribution is effectively connected income. The Service
has issued final regulations that modify the manner in which the
Company complies with the withholding requirements.
Distributions in excess of current and accumulated earnings
and profits of the Company will not be taxable to a shareholder
to the extent that such distributions do not exceed the adjusted
basis of the shareholder's shares of stock, but rather will
reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's
stock, such distributions will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares of stock, as
described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and
profits, the entire amount of any distribution normally will be
subject to withholding at the same rate as a dividend. However,
a Non-U.S. Shareholder can file a claim for refund with the
Service for the overwithheld amount to the extent it is
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determined subsequently that such distribution was, in fact, in
excess of the current and accumulated earnings and profits of the
Company.
The Company is required to withhold 10% of any distribution in
excess of its current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate
of 30% on the entire amount of any distribution, to the extent
that the Company does not do so, any portion of a distribution
not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT,
distributions that are attributable to gain from sales or
exchanges by the Company of U.S. real property interests will be
taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA").
Under FIRPTA, distributions attributable to gain from sales of
U.S. real property interests are taxed to a Non-U.S. Shareholder
as if such gain were effectively connected with a U.S. business.
Non-U.S. Shareholders thus would be taxed at the normal capital
gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions
subject to FIRPTA also may be subject to a 30% branch profits tax
in the hands of a foreign corporate shareholder not entitled to
treaty relief or exemption. The Company is required to withhold
35% of any distribution that is designated by the Company as a
capital gains dividend. The amount withheld is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his
shares of stock generally will not be taxed under FIRPTA if the
Company is a "domestically controlled REIT," defined generally as
a REIT in which at all times during a specified testing period
less than 50% in value of the stock was held directly or
indirectly by non-U.S., persons. However, because the shares of
stock are publicly traded, no assurance can be given that the
Company is or will be a "domestically controlled REIT." In
addition, a Non-U.S. Shareholder that owns, actually and
constructively, 5% or less of the Company's shares throughout a
specified "look-back" period will not recognize gain on the sale
of his shares taxable under FIRPTA if the shares are "regularly
traded" on an established securities market. Finally, gain not
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if
(i) investment in the stock is effectively connected with the
Non-U.S. Shareholder's U.S. trade or business, in which case the
Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain; or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who was present in
the United States for 183 days or more during the taxable year
and certain other conditions apply, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of the stock were to be
subject to taxation under FIRPTA, the Non-U.S. Shareholder will
be subject to the same treatment as U.S. shareholders with
respect to such gain (subject to applicable alternative minimum
tax, a special alternative minimum tax in the case of nonresident
alien individuals, and the possible application of the 30% branch
profits tax in the case of non-U.S. corporations).
Proposed Tax Legislation
On February 2, 1998, President Clinton released his budget
proposal for fiscal year 1999 (the "Proposal"). Two provisions
contained in the Proposal potentially could affect the Company if
enacted in final form. First, the Proposal would prohibit a REIT
from owning, directly or indirectly, more than 10% of the voting
power or value of all classes of a C corporation's stock (other
than the stock of a qualified REIT subsidiary). Currently, a
REIT may own no more than 10% of the voting stock of a C
corporation, but its ownership of the nonvoting stock of a C
corporation is not limited (other than by the rule that the value
of a REIT's combined equity and debt interests in a C corporation
may not exceed 5% of the value of a REIT's total assets). That
provision is proposed to be effective with respect to stock in a
C corporation acquired by a REIT on or after the date of "first
committee action" with respect to the provision. If enacted as
presently proposed, that provision would severely limit the use
by the Company of taxable subsidiaries to conduct businesses the
income from which would be nonqualifying income if received
directly by the Company.
Second, the Proposal would require recognition of any built-in
gain associated with the assets of a "large" C corporation (i.e.,
a C corporation whose stock has a fair market value of more than
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$5 million) upon its conversion to REIT status or merger into a
REIT. That provision is proposed to be effective for conversions
to REIT status effective for taxable years beginning after
January 1, 1999 and mergers of C corporations into REITs that
occur after December 31, 1998. This provision would require
immediate recognition of the "built-in gain" of an acquired C
corporation that is determined to be "large" if, at any time
after December 31, 1998, the C corporation merges into the
Company.
Other Tax Considerations
The Company, the Property Partnerships and the QRSs, and the
Company's shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which
it or they own property, transact business or reside. The state
and local tax treatment of the Company and its shareholders may
not conform to the federal income tax consequences discussed
above. Consequently, prospective investors should consult their
own tax advisors regarding the effect of state and local tax laws
on an investment in the Common Stock of the Company.
Tax Aspects of the Property Partnerships
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect
investment in the Property Partnerships. The discussion does not
cover state or local tax laws or any Federal tax laws other than
income tax laws.
Classification as a Partnership. The Company is entitled to
include in its income its distributive share of the Property
Partnerships' income and to deduct its distributive share of the
Property Partnerships' losses only if the Property Partnerships
are classified for Federal income tax purposes as partnerships
rather than as associations taxable as corporations. An entity
will be classified as a partnership, rather than as a corporation
or an association taxable as a corporation for federal income tax
purposes if the entity (i) is treated as a partnership under
Treasury Regulations, effective January 1, 1997, relating to
entity classification (the "Check-the-Box Regulations") and (ii)
is not a "publicly traded" partnership.
In general, under the Check-the-Box Regulations, an
unincorporated entity with at least two members may elect to be
classified either as an association taxable as a corporation or
as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income
tax purposes. The federal income tax classification of an entity
that was in existence prior to January 1, 1997, such as the
Operating Partnership, the Texas Operating Partnership and most
of the Subsidiary Partnerships, will be respected for all periods
prior to January 1, 1997 if (i) the entity had a reasonable basis
for its claimed classification; (ii) the entity and all members
of the entity recognized the federal tax consequences of any
changes in the entity's classification within the 60 months prior
to January 1, 1997; and (iii) neither the entity nor any member
of the entity was notified in writing by a taxing authority on or
before May 8, 1996 that the classification of the entity was
under examination. The Property Partnerships in existence prior
to January 1, 1997 reasonably claimed partnership classification
under the Treasury regulations relating to entity classification
in effect prior to January 1, 1997 and such classification should
be respected for federal income tax purposes. The Property
Partnerships intend to continue to be classified as partnerships
for federal income tax purposes and no Property Partnership will
elect to be treated as an association taxable as a corporation
under the Check-the-Box Regulations.
A publicly traded partnership is a partnership whose
interests are traded on an established securities market or are
readily tradable on a secondary market (or the substantial
equivalent thereof). A publicly traded partnership will not be
taxed as a corporation, however, if 90% or more of its gross
income consists of "qualifying income" under section 7704(d) of
the Code, which generally includes any income that is qualifying
income for purposes of the 95% gross income test (the "90%
Passive-Type Income Exception"). The U.S. Treasury Department
has issued regulations effective for taxable years beginning
after December 31, 1995 (the "PTP Regulations") that provide
limited safe harbors from the definition of a publicly traded
partnership. Pursuant to one of those safe harbors (the "Private
Placement Exclusion"), interests in a partnership will not be
treated as readily tradable on a secondary market or the
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substantial equivalent thereof if (i) all interests in the
partnership were issued in a transaction (or transactions) that
was not required to be registered under the Securities Act of
1933, as amended, and (ii) the partnership does not have more
than 100 partners at any time during the partnership's taxable
year. In determining the number of partners in a partnership, a
person owning an interest in a flow-through entity (i.e., a
partnership, grantor trust, or S corporation) that owns an
interest in the partnership is treated as a partner in such
partnership only if (a) substantially all of the value of the
person's interest in the flow-through entity is attributable to
the flow-through entity's interest (direct or indirect) in the
partnership and (b) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the
100-partner limitation. Each Property Partnership qualifies for
the Private Placement Exclusion. If any of the Property
Partnerships is considered a publicly traded partnership under
the PTP Regulations because it is deemed to have more than 100
partners, such Property Partnership should not be treated as a
corporation because it should be eligible for the 90%
Passive-Type Income Exception.
The Company has not requested, and does not intend to request,
a ruling from the Service that the Property Partnerships will be
classified as partnerships for federal income tax purposes.
Instead, at the closing of the Offering, Baker, Donelson, Bearman
& Caldwell will deliver its opinion that, based on the provisions
of the partnership agreements of the Property Partnerships,
certain factual assumptions, and certain representations
described in the opinion, each Property Partnership will be
treated for federal income tax purposes as a partnership and not
as a corporation or an association taxable as a corporation or as
a publicly traded partnership. Unlike a tax ruling, an opinion
of counsel is not binding upon the Service, and no assurance can
be given that the Service will not challenge the status of the
Operating Partnerships as partnerships for federal income tax
purposes. If such challenge were sustained by a court, the
Property Partnerships would be treated as corporations for
federal income tax purposes, as described below. The opinion of
Baker, Donelson, Bearman & Caldwell is based on existing law,
which to a great extent consists of administrative and judicial
interpretation. No assurance can be given that administrative or
judicial changes would not modify the conclusions expressed in
the opinion.
If for any reason one of the Property Partnerships were
taxable as a corporation, rather than as a partnership, for
federal income tax purposes, the Company would not be able to
qualify as a REIT. See "Federal Income Tax
Considerations-Requirements for Qualification-Income Tests" and
"-- Requirements for Qualification-Asset Tests." In addition,
any change in a Property Partnership's status for tax purposes
might be treated as a taxable event, in which case the Company
might incur a tax liability without any related cash
distribution. See "Federal Income Tax Considerations --
Requirements for Qualification -- Annual Distribution
Requirements." Further, items of income and deduction of such
Property Partnership would not pass through to its partners, and
its partners would be treated as stockholders for tax purposes.
Consequently, such Property Partnership would be required to pay
income tax at corporate tax rates on its net income and
distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable
income.
Income Taxation of the Property Partnerships and their Partners
Partners, Not the Operating Partnership, Subject to Tax. A
partnership is not a taxable entity for federal income tax
purposes. Rather, the Company will be required to take into
account its allocable share of a Property Partnership's income,
gains, losses, deductions, and credits for any taxable year of
the Property Partnership ending within or with the taxable year
of the Company, without regard to whether the Company has
received or will receive any distribution from the Property
Partnership.
Partnership Allocations. Although a partnership agreement
generally will determine the allocation of income and losses
among partners, such allocations will be disregarded for tax
purposes under Section 704(b) of the Code if they do not comply
with the provisions of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder. If an allocation is
not recognized for federal income tax purposes, the item subject
to the allocation will be reallocated in accordance with the
partners' interest in the partnership, which will be determined
by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect
to such item.
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Tax Allocations With Respect to Contributed Properties.
Pursuant to Section 704(c) of the Code, income, gain loss, and
deduction attributable to appreciated or depreciated property
that is contributed to a partnership in exchange for an interest
in the partnership must be allocated for federal income tax
purposes in a manner such that the contributor is charged with,
or benefits from, the unrealized gain or unrealized loss
associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value
of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution.
The Treasury Department has issued regulations requiring
partnerships to use a "reasonable method" for allocating items
affected by Section 704(c) of the Code and outlining several
reasonable allocation methods.
Under the partnership agreements of the Property Partnerships,
depreciation or amortization deductions of the Property
Partnerships generally are allocated among partners in accordance
with their respective interests in the Property Partnership,
except to the extend that Code section 704(c) requires otherwise
with respect to properties contributed to the Operating
Partnership in exchange for Units (the "Contributed Properties").
In addition, gain on the sale of a Contributed Property will be
specially allocated to the Limited Partners who contributed such
property to the extent of any "built-in" gain with respect to
such Contributed Property for federal income tax purposes. The
application of Section 704(c) the to Property Partnerships,
however, is not entirely clear and may be affected by Treasury
Regulations promulgated in the future.
Basis in Partnership Interest. The Company's adjusted tax
basis in its partnership interest in a Property Partnership
generally is equal to (i) the amount of cash and the basis of any
other property contributed to the partnership by the Company;
(ii) increased by (A) its allocable share of the partnership's
income and (B) its allocable share of indebtedness of the
partnership; and (iii) reduced, but not below zero, by (I) the
Company's allocable share of the Property Partnership's loss and
(II) the amount of cash distributed to the Company and by
constructive distributions resulting from a reduction in the
Company's share of indebtedness of the Property Partnership.
If the allocation of the Company's distributive share of a
Property Partnership's loss would reduce the adjusted tax basis
of the Company's partnership interest in the Property
Partnership below zero, the recognition of such loss will be
deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis before zero. To the
extent that a Property Partnership's distributions, or any
decrease in the Company's share of the indebtedness of the
Property Partnership (such decrease being considered a
constructive cash distribution to the partners), would reduce the
Company's adjusted tax basis below zero, such distributions
(including such construction distributions) constitute taxable
income to the Company. Such distributions and constructive
distributions normally will be characterized as capital gain,
and, if the Company's partnership interest in a Property
Partnership has been held for longer than the long-term capital
gain holding period (currently one year), the distributions and
constructive distribution will constitute long-term capital gain.
Depreciation Deductions. To the extent that Communities have
been or will be acquired in exchange for cash, the initial basis
in the Communities for federal income tax purposes generally was
or will be equal to the price paid to acquire the Communities.
The Property Partnerships depreciate such depreciable property
for federal income tax purposes under either the modified
accelerated cost recovery system of depreciation ("MACRS") or the
alternative depreciation system of depreciation ("ADS"). The
Property Partnerships use MACRS for the furnishings and equipment
in the Communities. Under MACRS, the Property Partnerships
generally depreciate furnishings and equipment in service during
the last three months of a taxable year. A mid-quarter
depreciation convention must be used for the furnishings and
equipment placed in service during that year. The Property
Partnerships use ADS for the buildings and improvements
comprising the Communities. Under ADS, the Property Partnerships
generally depreciate such buildings and improvements over a 40-
year recovery period using a straight line method and a mid-month
convention. However, to the extent that the Operating
Partnership acquired the Initial Properties in exchange for units
of Limited Partnership interest, the Operating Partnership's
initial basis in the Initial Properties for federal income tax
purposes is the same as the selling partnership's basis in the
Initial Properties on the date of acquisition. The Operating
Partnership depreciates such depreciable property for federal
income tax purposes under the same methods previously used by the
selling partnerships.
32
<PAGE>
Sale of the Company's or a Partnership's Property
Generally, any gain realized by the Company or a Property
Partnership on the sale of property held by it for more than one
year will be long-term capital gain, except for any portion of
such gain that is treated as depreciation or cost recovery
recapture. Any gain recognized by the Operating Partnership on
the disposition of the Communities contributed by the Limited
Partners of the Operating Partnership will be allocated first to
the partners who contributed those Communities under section
704(c) of the Code to the extent of such partners' "built-in
gain" on those Communities at the time of the disposition for
federal income tax purposes. The contributing partners'
"built-in gain" on such Communities sold will equal the excess of
the contributing partners' proportionate share of the book value
of those Communities as reflected in the Operating Partnership's
capital accounts over the contributing partners' adjusted tax
basis allocable to those Communities at the time of the sale.
Any remaining gain recognized by the Operating Partnership on the
disposition of such Communities will be allocated among the
partners in accordance with their respective percentage interests
in the Operating Partnership.
The Company's share of any gain realized by a Property
Partnership on the sale of any property held by a Partnership as
inventory or other property held primarily for sale to customers
in the ordinary course of the Property Partnership's trade or
business will be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. See "Federal Income Tax
Considerations -- Requirements for Qualification -- Income
Tests." Such prohibited transaction income also may have an
adverse effect upon the Company's ability to satisfy the income
tests for REIT status. The Company, however, does not presently
intend to acquire or hold or allow the Property Partnerships to
acquire or hold any property that constitutes inventory or other
property held primarily for sale to customers in the ordinary
course of the Company's or a Property Partnership's trade or
business.
PLAN OF DISTRIBUTION
The Company is registering the Secondary Shares for sale to
provide the holders thereof with freely tradeable securities.
The registration of the Secondary Shares does not necessarily
mean that any of the Secondary Shares will be issued by the
Company.
The Company will not receive any proceeds from the issuance of
the Secondary Shares, although the Company will acquire Class A
Common Units from the Holders in exchange for Secondary Shares.
The Secondary Shares may be sold from time to time to purchasers
directly by any of the Selling Shareholders. Alternatively, the
Selling Shareholders may from time to time offer the Secondary
Shares to or through broker-dealers or agents. In connection
with any such sale, any such broker or agent may act as agent for
the Selling Shareholders or may purchase from the Selling
Shareholders all or a portion of the Secondary Shares as
principal and may be made pursuant to one or more of the methods
described below. Such sales may be made on the New York Stock
Exchange ("NYSE") or other exchanges on which the Common Stock is
then traded, in the over-the-counter market, in negotiated
transactions or otherwise at prices related to the then-current
market prices or at prices otherwise negotiated. Broker-dealers
or agents may receive compensation in the form of commissions
from the Selling Shareholders and/or the purchasers of Secondary
Shares for whom they may act as agent. The Selling Shareholders
and any dealers or agents that participate in the distribution of
Secondary Shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of
Secondary Shares by them and any commissions received by any such
dealers or agents may be deemed to be underwriting commissions
under the Securities Act.
The Secondary Shares may also be sold in one or more of the
following transactions: (a) block transactions in which a
broker-dealer may sell all or a portion of such shares as agent
but may position and resell all or a portion of the block as
principal to facilitate the transaction; (b) purchases by any
such broker-dealer as principal and resale by such broker-dealer
for its own account pursuant to a Prospectus Supplement; (c) a
special offering, an exchange distribution or a secondary
distribution in accordance with applicable NYSE or other stock
exchange rules; (d) ordinary brokerage transactions and
transactions in which any such broker-dealer solicits purchasers;
33
<PAGE>
(e) sales "at the market" to or through a market maker or into
an existing trading market, on an exchange or otherwise, for such
shares; and (f) sales in other ways not involving market makers
or established trading markets, including direct sales to
purchasers. In effecting sales, broker-dealers engaged by the
Selling Shareholders may arrange for other broker-dealers to
participate. Broker-dealers will receive commissions or other
compensation from the Selling Shareholders in amounts to be
negotiated immediately prior to the sale that will not exceed
those customary in the types of transactions involved.
Broker-dealers may also receive compensation from purchasers of
the Secondary Shares which is not expected to exceed that
customary in the types of transactions involved.
At a time a particular offer of Secondary Shares is made, a
Prospectus Supplement, if required, will be distributed which
will set forth the names of any broker-dealers or agents and any
commissions and other terms constituting compensation from the
Selling Shareholders and any other required information. The
Secondary Shares may be sold from time to time at varying prices
determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states,
if applicable, the Secondary Shares may be sold only through
registered or licensed brokers or dealers. In addition, in
certain states, the Secondary Shares may not be sold unless they
have been registered or qualified for sale in such state or an
exemption from such registration or qualification requirement is
available and is complied with.
All expenses incident to the offering and sale of the
Secondary Shares, if any, other than commissions, discounts and
fees of underwriters, broker-dealers or agents, shall be paid by
the Company.
EXPERTS
The Consolidated Financial Statements incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the
year ended December 31, 1997, have been so incorporated in
reliance on the report of KPMG Peat Marwick LLP, independent
accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the issuance of the Offered Securities offered
pursuant to this Prospectus or any Prospectus Supplement will be
passed upon for the Company by Baker, Donelson, Bearman &
Caldwell, Memphis, Tennessee. In addition, the description of
federal income tax consequences contained in the section of the
Prospectus entitled "Federal Income Tax Considerations" is based
on the opinion of Baker, Donelson, Bearman & Caldwell.
34
[LEFT SIDE OF BACK COVER]
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained
or incorporated by reference in this Prospectus or any Prospectus
Supplement in connection with the offering covered by this Prospectus
and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to
buy, any Offered Securities in any jurisdiction where, or to any person to
whom, it is unlawful to make any such offer or solicitation. Neither
the delivery of this Prospectus nor any offer or sale made hereunder shall,
under any circumstances, create an implication that there has not been any
change in the facts set forth in this Prospectus or in the affairs of the
Company since the date hereof.
SUMMARY TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain Documents
by Reference 2
Prospectus Summary 3
Risk Factors 5
Description of Capital Stock 10
Selling Shareholders 16
Federal Income Tax Considerations 20
Plan of Distribution 33
Experts 34
Legal Matters 34
[RIGHT SIDE OF BACK COVER]
412,991 Shares
MID-AMERICA
APARTMENT
COMMUNITIES, INC.
Common Stock
PROSPECTUS
June , 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the fees and expenses to
be incurred in connection with the issuance and distribution of
the Offered Securities registered hereby.
Registration fee to the SEC $ 3,168
Printing expense 5,000*
Accounting fees and expenses 10,000*
Legal fees and expenses 10,000*
Miscellaneous expenses 5,000*
-------
Total $ 23,168
_______________
*Estimated
Item 15. Indemnification of Directors and Officers.
The Charter of the Company, generally, limits the liability
of the Company's directors and officers to the Company and
the shareholders for money damages to the fullest extent permitted
from time to time by the laws of Tennessee. The Charter also
provides, generally, for the indemnification of directors and
officers, among others, against judgments, settlements, penalties,
fines, and reasonable expenses actually incurred by them in
connection with any proceeding to which the except in connection
with a proceeding by or in the right of the Company in which the
director was adjudged liable to the Company or in connection with
any other proceeding charging a personal benefit was improperly
receivedby him. Insofaras indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act") may be
permitted to directors and officers of the Company pursuant to the
foregoing provisions or otherwise, the Company has been advised that,
in the opionn of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
The Company intends to purchase director and officer liability
insurance for the purpose of providing a source of funds to pay
any indemnification described above.
Item 16. Exhibits.
Exhibits
Number Description
2.1* Agreement and Plan of Reorganization made as of
September 15, 1997 by and among Mid-America Apartments, L.P.,
Mid-America Apartment Communities, Inc. and Flournoy
Development Company
3.1** Amended and Restated Charter of Mid-America Apartment
Communities, Inc. dated as of January 10,1994, as filed
with the Tennessee Secretary of State on January 25, 1994
3.2** Articles of Amendment to the Charter of Mid-America Apartment
Communities, Inc. dated as of January 28, 1994, as filed
with the Tennessee Secretary of State on January 28, 1994
3.3** Articles of Merger of The Cates Company with and into
Mid-America Apartment Communities, Inc. dated
February 2, 1994, as filed with the Tennessee Secretary of
State on February 3, 1994
<PAGE>
3.4** Articles of Merger of America First REIT Advisory
Company, a Nebraska corporation, with and into Mid-America
Apartment Communities, Inc., a Tennessee corporation, dated
June 29, 1995, as filed with the Tennessee Secretary of State
on June 29, 1995
3.5** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter Designating
and Fixing the Rights and Preferences of A Series of Preferred
Stock dated as of October 9, 1996, as filed with the Tennessee
Secretary of State on October 10, 1996
3.6** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter dated November 17, 1997,
as filed with the Tennessee Secretary of State on
November 18, 1997
3.7** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter Designating and
Fixing the Rights and Preferences of A Series of Preferred
Stock dated as of November 17, 1997, as filed with the
Tennessee Secretary of State on November 18, 1997
3.8** Articles of Merger of Flournoy Development Company (a Georgia
corporation) with and into Mid-America Apartment Communities,
Inc. (a Tennessee corporation) dated November 21, 1997, as
filed with the Tennessee Secretary of State on November 25, 1997
3.9** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter dated December 15, 1997,
as filed with the Tennessee Secretary of State on
December 31, 1997
3.10** Bylaws of Mid-America Apartment Communities, Inc.
4.1** Form of Common Share Certificate
4.2** Form of 9.5% Series A Cumulative Preferred Stock Certificate
4.3** Form of 8 7/8% Series B Cumulative Preferred Stock Certificate
4.4** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter Designating and Fixing
the Rights and Preferences of A Series of Preferred Stock
dated as of October 9, 1996, as filed with the Tennessee
Secretary of State on October 10, 1996
4.5** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter Designating and Fixing
the Rights and Preferences of A Series of Preferred Stock
dated as of November 17, 1997, as filed with the Tennessee
Secretary of State on November 18, 1997
5.1 Opinion of Baker, Donelson, Bearman & Caldwell Regarding Legality
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Baker, Donelson, Bearman & Caldwell
(Included in Exhibits 5.1)
_________________
* Filed as Exhibit 10.20 to the Registrant's CurrentT Report on
Form 8-K, filed with the Commission on September 19, 1997
(Commission File No. 1-12762)
** Previously filed as exhibits to the Company's Annual Report
on Form 10-K for the Year Ended December 31, 1997. Each Exhibit
listed herein is similarly numbered to the Exhibits filed with the
Form 10-K.
<PAGE>
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or
most recent post-effective amendment thereof) which, individually,
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) (230.424(b) of that chapter) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the
Trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act of 1939, as amended.
The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement ralating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant for expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State
of Tennessee, on June 16, 1998.
MID-AMERICA APARTMENT COMMUNITIES, INC.
a Tennessee corporation(Registrant)
By: /s/ H. Eric Bolton, Jr.
-------------------------------
H. Eric Bolton, Jr., President and
Chief Operating Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints George E. Cates and Simon R.C. Wadsworth, and each or either
of them, his true and lawful attorney-in-fact with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement and to cause the same to be filed, with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said
attorneys-in-fact and agents, and each of them, full powr and
authority to do and perform each and every act and thing
whatsoever requisite or desirable to be done in and about the premises,
as fully to all intents and purposes asthe undersigned might
or could do in person, hereby ratifying and confirming all acts
and things that said attorneys-in-fact and agents, or either of
them, or their substitutes or substitute, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
_________ _____ ____
Chairman of the Board of Directors,
- ---------------- and Chief Executive Officer
George E. Cates
Vice Chairman of the Board
/s/ John F. Flournoy of Directors
John F. Flournoy June 16, 1998
Director, President and
/s/ H. Eric Bolton Chief Operating Officer
H. Eric Bolton June 16, 1998
Director and Chief Financial
Officer (principal accounting and
/s/ Simon R.C. Wadsworth financial officer)
Simon R. C. Wadsworth June 16, 1998
/s/ Robert F. Fogelman Director June 16, 1998
Robert F. Fogelman
/s/ O. Mason Hawkins Director June 16, 1998
O. Mason Hawkins
/s/ John S. Grinalds Director June 16, 1998
John S. Grinalds
/s/ Ralph Horn Director June 16, 1998
Ralph Horn
INDEX TO EXHIBITS
Exhibits
Number Description
2.1* Agreement and Plan of Reorganization made as of
September 15, 1997 by and among Mid-America Apartments, L.P.,
Mid-America Apartment Communities, Inc. and Flournoy
Development Company
3.1** Amended and Restated Charter of Mid-America Apartment
Communities, Inc. dated as of January 10, 1994, as filed
with the Tennessee Secretary of State on January 25, 1994
3.2** Articles of Amendment to the Charter of Mid-America
Apartment Communities, Inc. dated as of January 28, 1994, as
filed with the Tennessee Secretary of State on January 28, 1994
3.3** Articles of Merger of The Cates Company with and into Mid-America
Apartment Communities, Inc. dated February 2, 1994, as
filed with the Tennessee Secretary of State on February 3, 1994
3.4** Articles of Merger of America First REIT Advisory Company,
a Nebraska corporation, with and into Mid-America Apartment
Communities, Inc., a Tennessee corporation, dated June 29, 1995,
as filed with the Tennessee Secretary of State on June 29, 1995
3.5** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter Designating and Fixing
the Rights and Preferences of A Series of Preferred Stock dated
as of October 9, 1996, as filed with the Tennessee Secretary
of State on October 10, 1996
3.6** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter dated November 17, 1997,
as filed with the Tennessee Secretary of State on November 18, 1997
3.7** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter Designating and Fixing
the Rights and Preferences of A Series of Preferred Stock
dated as of November 17, 1997, as filed with the Tennessee
Secretary of State on November 18, 1997
3.8** Articles of Merger of Flournoy Development Company (a Georgia
corporation) with and into Mid-America Apartment Communities,
Inc. (a Tennessee corporation) dated November 21, 1997,
as filed with the Tennessee Secretary of State on November 25, 1997
3.9** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter dated December 15, 1997,
as filed with the Tennessee Secretary of State on
December 31, 1997
3.10** Bylaws of Mid-America Apartment Communities, Inc.
4.1** Form of Common Share Certificate
4.2** Form of 9.5% Series A Cumulative Preferred Stock Certificate
4.3** Form of 8 7/8% Series B Cumulative Preferred Stock Certificate
4.4** Mid-America Apartment Communities, Inc. Articles of
Amendment to the Amended and Restated Charter Designating
and Fixing the Rights and Preferences of A Series of
Preferred Stock dated as of October 9, 1996, as filed
with the Tennessee Secretary of State on October 10, 1996
4.5** Mid-America Apartment Communities, Inc. Articles of Amendment
to the Amended and Restated Charter Designating and Fixing
the Rights and Preferences of A Series of Preferred Stock dated
as of November 17, 1997, as filed with the Tennessee Secretary
of State on November 18, 1997
5.1 Opinion of Baker, Donelson, Bearman & Caldwell Regarding Legality
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Baker, Donelson, Bearman & Caldwell
(Included in Exhibits 5.1)
____________
* Filed as Exhibit 10.20 to the Registrant's Current
Report on Form 8-K, filed with the Commission on September 19, 1997
(Commission File No. 1-12762)
** Previously filed as exhibits to the Company's Annual Report on
Form 10-K for the Year Ended December 31, 1997. Each Exhibit listed
herein is similarly numbered to the Exhibits filed with the Form 10-K.
</TABLE>
Exhibit 5.1
[Baker, Donelson, Bearman & Caldwell Letterhead]
June 17, 1998
Mid-America Apartment Communities, Inc.
6584 Poplar Avenue, Suite 340
Memphis, Tennessee 38138
Gentlemen:
We have acted as counsel for Mid-America Apartment Communities, Inc.,
a Tennessee corporation (the "Company"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement"),
filed under the Securities Act of 1933, as amended, with respect to
the registration of 412,991 shares of common stock, $.01 par value
(the "Shares"), being offered by the Selling Shareholders as
described in the Registration Statement.
In connection therewith, we have relied upon, among other things, our
examination of such documents, records of the Company, certificates of its
officers and public officials, as we have deemed necessary for purposes
of the opinion expressed below.
Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, we are of the opinion that the issuance
of the Shares as described in the Registration Statement has been
validly authorized and, upon issuance of the Shares as described
in the Registration Statement, the Shares will be legally issued,
fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the
heading "Legal Matters" therein.
Very truly yours,
/s/ Baker, Donelson, Bearman & Caldwell
Baker, Donelson, Bearman & Caldwell
Exhibit 23.1
Accountants' Consent
The Board of Directors
Mid-America Apartment Communities, Inc.
We consent to the incorporation by reference in the Registration Statement
on Form S-3 of Mid-America Apartment Communities, Inc. of our report dated
March 27, 1998, relating to the consolidated balance sheets of Mid-America
Apartment Communities, Inc. (the "Company) as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997, which report is included in the 1997 annual report on
Form 10-K of Mid-America Apartment Communities, Inc. and to the reference
to our firm under the heading "Experts" in the Prospectus. Our report refers
to the Company's change in its accounting method to capitalize replacement
purchases for major appliances and carpet in 1996.
/s/ KMPG Peat Marwick LLP
Memphis, Tennessee
June 15, 1998
