PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 9, 1997)
2,000,000 SHARES
MID-AMERICA APARTMENT COMMUNITIES, INC.
9 3/8% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
------------------------
DIVIDENDS ON THE 9 3/8% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK, (THE
"SERIES C PREFERRED STOCK") OF MID-AMERICA APARTMENT COMMUNITIES, INC. (THE
"COMPANY") WILL BE CUMULATIVE FROM THE DATE OF ORIGINAL ISSUE AND WILL BE
PAYABLE QUARTERLY ON THE FIFTEENTH DAY OF JANUARY, APRIL, JULY AND OCTOBER
OF EACH YEAR, COMMENCING OCTOBER 15, 1998, AT THE RATE OF 9 3/8% OF THE
LIQUIDATION PREFERENCE PER ANNUM (EQUIVALENT TO $2.34375 PER
ANNUM PER SHARE). SEE "DESCRIPTION OF SERIES C PREFERRED
STOCK -- DIVIDENDS."
THE SERIES C PREFERRED STOCK IS NOT REDEEMABLE PRIOR TO JUNE 30, 2003. ON OR
AFTER JUNE 30, 2003, THE SERIES C PREFERRED STOCK MAY BE REDEEMED AT THE OPTION
OF THE COMPANY IN WHOLE OR IN PART, AT A REDEMPTION PRICE OF $25.00 PER
SHARE, PLUS ACCRUED AND UNPAID DIVIDENDS, IF ANY, TO THE REDEMPTION DATE.
THE REDEMPTION PRICE (OTHER THAN THE PORTION THEREOF CONSISTING OF
ACCRUED AND UNPAID DIVIDENDS) WILL BE PAYABLE SOLELY OUT OF THE SALE
PROCEEDS OF OTHER CAPITAL STOCK OF THE COMPANY, WHICH MAY INCLUDE
OTHER SERIES OF THE COMPANY'S PREFERRED STOCK, AND FROM NO OTHER
SOURCE. THE SERIES C PREFERRED STOCK HAS NO STATED MATURITY AND
WILL NOT BE SUBJECT TO ANY SINKING FUND OR MANDATORY REDEMPTION,
EXCEPT UNDER CIRCUMSTANCES DESCRIBED BELOW, AND WILL NOT BE
CONVERTIBLE INTO ANY OTHER SECURITIES OF THE COMPANY. SEE
"DESCRIPTION OF SERIES C PREFERRED STOCK -- REDEMPTION."
IN ORDER TO ENSURE THAT THE COMPANY CONTINUES TO MEET THE REQUIREMENTS FOR
QUALIFICATION AS A REIT FOR FEDERAL INCOME TAX PURPOSES, SHARES OF THE SERIES C
PREFERRED STOCK SHALL BE DEEMED "EXCESS SHARES" PURSUANT TO THE COMPANY'S
CHARTER IF A HOLDER OWNS MORE THAN 9.9% IN VALUE OF THE COMPANY'S
OUTSTANDING CAPITAL STOCK, AND THE COMPANY WILL HAVE THE RIGHT TO
PURCHASE EXCESS SHARES FROM THE HOLDER. SEE "DESCRIPTION OF SERIES
C PREFERRED STOCK -- RESTRICTIONS ON
OWNERSHIP."
------------------------
APPLICATION WILL BE MADE TO LIST THE SERIES C PREFERRED STOCK ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL "MAA PRC." TRADING OF SERIES C PREFERRED
STOCK ON THE NEW YORK STOCK EXCHANGE IS EXPECTED TO COMMENCE WITHIN THE
30-DAY PERIOD AFTER INITIAL DELIVERY OF THE SERIES C PREFERRED STOCK. SEE
"UNDERWRITERS."
SEE "RISK FACTORS" BEGINNING ON PAGE S-6 OF THIS PROSPECTUS SUPPLEMENT AND
PAGE 7 OF THE ACCOMPANYING PROSPECTUS FOR CERTAIN FACTORS RELEVANT
TO AN INVESTMENT IN THE SERIES C PREFERRED STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------
PRICE $25 A SHARE
------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
------------ --------------- ---------------
PER SHARE......... $25.00 $0.7875 $24.2125
TOTAL............. $50,000,000 $1,575,000 $48,425,000
- ------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING ESTIMATED AT $200,000.
------------------------
THE SHARES OF SERIES C PREFERRED STOCK ARE OFFERED BY THE UNDERWRITERS,
SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY THE UNDERWRITERS AND SUBJECT
TO APPROVAL OF CERTAIN LEGAL MATTERS BY HUNTON & WILLIAMS, COUNSEL TO THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES OF SERIES C PREFERRED
STOCK WILL BE MADE ON OR ABOUT JUNE 30, 1998 THROUGH THE FACILITIES OF DTC,
AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
------------------------
MORGAN STANLEY DEAN WITTER
MORGAN KEEGAN & COMPANY, INC.
RAYMOND JAMES & ASSOCIATES, INC.
THE ROBINSON-HUMPHREY COMPANY
JUNE 25, 1998
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY AND/OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF THE
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
This Prospectus Supplement and the Prospectus to which it relates,
including documents incorporated by reference herein and therein, contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934,
as amended. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the forward-
looking statements. Factors that might cause such a difference include, but are
not limited to, those discussed in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" incorporated by reference
herein.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
The Offering......................... S-3
The Company.......................... S-5
Recent Developments.................. S-5
Risk Factors......................... S-6
Use of Proceeds...................... S-7
Capitalization....................... S-8
Description of Series C Preferred
Stock.............................. S-9
Taxation............................. S-14
Underwriters......................... S-17
Experts.............................. S-18
Legal Opinions....................... S-18
Incorporation of Certain Documents by
Reference.......................... S-18
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
Prospectus Summary................... 4
Risk Factors......................... 7
Use of Proceeds...................... 12
Consolidated Ratio of Earnings to
Combined Fixed Charges and
Preferred Stock Distributions and
Consolidated Ratio of Earnings to
Fixed Charges...................... 13
Description of Capital Stock......... 14
Description of Debt Securities....... 18
Description of Securities Warrants... 28
Federal Income Tax Considerations.... 30
Plan of Distribution................. 43
Experts.............................. 44
Legal Matters........................ 44
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES C PREFERRED
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SERIES C PREFERRED STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
S-2
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
SECURITIES OFFERED.......................... 2,000,000 shares of 9 3/8% Series C
Cumulative Redeemable Preferred
Stock.
DIVIDENDS................................... Cumulative commencing June 30, 1998
at the rate of 9 3/8% of the
liquidation preference per annum
(equivalent to $2.34375 per annum per
share) payable quarterly in arrears
on the fifteenth day of January,
April, July and October of each year,
commencing October 15, 1998.
LIQUIDATION PREFERENCE...................... $25.00 per share, plus an amount
equal to accrued and unpaid
dividends.
REDEMPTION AT OPTION OF THE COMPANY......... Except in certain circumstances
related to the preservation of the
Company's status as a REIT, the
Series C Preferred Stock is not
redeemable prior to June 30, 2003. On
or after June 30, 2003, the Series C
Preferred Stock will be redeemable by
the Company, in whole or in part, at
the option of the Company, for a
redemption price equal to the
liquidation preference per share. The
redemption price (other than the
portion thereof consisting of accrued
and unpaid dividends) will be payable
solely out of proceeds of the sale of
other capital stock of the Company,
which may include other series of the
Company's Preferred Stock, and from
no other source.
VOTING RIGHTS............................... If dividends on the Series C
Preferred Stock or any Parity Stock
(as defined below) are in arrears for
six or more quarterly dividend
periods, whether or not consecutive,
holders of the Series C Preferred
Stock (voting together as a single
class with holders of shares of any
series of Preferred Stock ranking on
a parity with the Series C Preferred
Stock with respect, in each case, to
the payment of dividends and amounts
upon liquidation, dissolution and
winding up ("Parity Stock")) will
have the right to elect two
additional directors to serve on the
Company's Board of Directors until
such dividend arrearage is
eliminated. In addition, certain
changes that would be materially
adverse to the rights of holders of
the Series C Preferred Stock or
Parity Stock cannot be made without
the affirmative vote of two-thirds of
the shares of Series C Preferred
Stock and the shares of any Parity
Stock similarly affected, voting as a
single class, entitled to be cast
thereon.
RANKING..................................... The Series C Preferred Stock will be
equal in rank with the Company's 9.5%
Series A Cumulative Preferred Stock,
$25 liquidation preference per share
(the "Series A Preferred Stock")
and its 8 7/8% Series B Cumulative
Preferred Stock, $25 liquidation
preference per share (the "Series B
Preferred Stock") and senior to the
Company's common stock, par value
$.01 per share (the "Common Stock")
with respect to the payment of
dividends and amounts upon
liquidation, dissolution or winding
up.
CONVERSION RIGHTS........................... The Series C Preferred Stock is not
convertible into any other securities
of the Company.
S-3
<PAGE>
TRADING..................................... Application will be made to list the
Series C Preferred Stock on the New
York Stock Exchange under the symbol
"MAA PrC." Trading of the Series C
Preferred Stock on the New York Stock
Exchange is expected to commence
within the 30-day period after the
initial delivery of the Series C
Preferred Stock. The underwriters
have advised the Company that they
intend to make a market in the Series
C Preferred Stock prior to the
commencement of trading on the New
York Stock Exchange. The Underwriters
will have no obligation to make a
market in the Series C Preferred
Stock, however, and may cease market
making activities, if commenced, at
any time.
USE OF PROCEEDS............................. The net proceeds from the Offering
will be contributed to Mid-America
Apartments, L.P., a Tennessee limited
partnership (the "Operating
Partnership"), of which the Company
is the sole general partner. The
Operating Partnership will issue to
the Company 2,000,000 units of Class
C Preferred Units of limited
partnership interest ("Class C
Preferred Units") which will have
economic terms substantially similar
to the Series C Preferred Stock and
which will be equal in rank with the
Operating Partnership's Class A
Preferred Units and Class B Preferred
Units issued in conjunction with the
Company's issuance of the Series A
Preferred Stock, and Series B
Preferred Stock, respectively, and
senior to the Operating Partnership's
common units of partnership
interests. The Operating Partnership
intends to use the contributed net
proceeds to repay outstanding debt
under the Operating Partnership's
credit line.
RESTRICTIONS ON OWNERSHIP................... Subject to certain exceptions, no
person, directly or indirectly, may
own more than 9.9% in value of the
Company's outstanding capital stock.
See "Description of the Series C
Preferred Stock -- Restrictions on
Ownership." Under certain transfer
restrictions contained in the
Company's Charter, the shares of
Series C Preferred Stock may become
Excess Shares in order, among other
things, to ensure that the Company
continues to qualify as a REIT for
federal income tax purposes. See
"Description of Capital
Stock -- Ownership Limitations" in
the accompanying Prospectus.
</TABLE>
S-4
<PAGE>
THE COMPANY
The Company is a Memphis Tennessee-based self-administered and self-managed
real estate investment trust ("REIT") which, as of March 31, 1998, owned and
operated 118 apartment communities containing 31,307 apartment units in 13
states (the "Communities"). The Company manages 42 properties containing 5,227
apartment units in which it does not have an ownership interest.
Founded in 1977 by George E. Cates, the Company's Chairman of the Board of
Directors and Chief Executive Officer, the Company's predecessor grew from an
operator of a single 252-unit apartment community in Memphis, Tennessee into a
fully-integrated owner and operator of 5,580 apartment units in 22 apartment
communities in four southeastern states immediately prior to the Company's
initial public offering in February 1994 (the "Initial Offering"). From the
time of the Initial Offering through March 31, 1998, the Company's portfolio has
increased by a net 96 apartment communities containing 25,727 apartment units.
In November 1997, the Company acquired Flournoy Development Company
("FDC"), certain of its affiliated entities and FDC's apartment communities
(the "FDC Merger"). As a result of these transactions, the Company now owns,
manages, develops and builds apartment communities throughout the Southeast and
in Texas.
The Company seeks to acquire and develop apartment communities appealing to
middle and upper income residents primarily in mid-size cities in the
southeastern United States and Texas. Approximately 71% of the Company's
apartment units are located in the Tennessee, Georgia, Florida and Texas
markets. The Company's strategic focus is to provide its residents high quality
apartment units in attractive community settings, characterized by extensive
landscaping and attention to aesthetic detail. The Company utilizes its
experience and expertise in maintenance, landscaping, marketing and management
to effectively "reposition" many of the apartment communities it acquires to
raise occupancy levels and per unit average rentals. The following table sets
forth certain operating data regarding the Company for the periods indicated.
1997 1996 1995
--------- --------- ---------
Apartment units at year end.......... 30,579 19,280 18,220
Average monthly rental per apartment
unit at year end................... $568 $529 $508
Average occupancy for the year....... 94.7% 95.4% 95.2%
As of March 31, 1998, the executive officers and directors of the Company
beneficially owned approximately 17% of the combined outstanding Common Stock
and common units of limited partnership interest in the Operating Partnership.
Stock and other incentive compensation plans are used to motivate employees to
meet long-term management goals that are consistent with creating value for the
Company's shareholders.
The Company's principal executive offices are located at 6584 Poplar
Avenue, Suite 340, Memphis, Tennessee 38128 and its telephone number is (901)
682-6600.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
On May 29, 1998, the Company acquired the 220-unit Georgetown Grove
Apartment Community in Savannah, Georgia for approximately $12.8 million,
consisting of the assumption of approximately $10.5 million of existing
indebtedness and approximately $2.3 million in cash.
On May 6, 1998, the Company acquired the 200-unit Eagle Ridge Apartments in
Birmingham, Alabama for approximately $8.4 million, consisting of the assumption
of approximately $6.4 million of existing indebtedness and approximately $2
million in cash.
On February 26, 1998, the Company acquired the 152-unit Van Mark Apartments
in Huntsville, Alabama for approximately $5.1 million in cash.
On February 5, 1998, the Company acquired the 240-unit Walden Run
Apartments in McDonough, Georgia for approximately $13.4 million in cash.
S-5
<PAGE>
RECENT DISPOSITIONS
On June 9, 1998 the Company sold the 212-unit Redford Park Apartment
Community in Conroe, Texas for approximately $5.8 million. The Company used
approximately $3.5 million of the net proceeds to repay an outstanding mortgage
on the property.
RECENT FINANCING ACTIVITY
In March 1998, the Company increased the maximum credit under the Operating
Partnership's credit line from $110 million to $200 million. The other terms of
the credit line, including an interest rate of London Interbank Offering Rate
("LIBOR") plus 125 basis points, remain substantially unchanged as a result of
the increase in the credit limit.
On March 13, 1998, the Company issued a mortgage of $36.2 million,
refinancing $29.1 million of existing loans that bore interest at varying rates.
The new mortgage loan accrues interest at a fixed annual rate of 7%, is
amortized over 25 years, and matures in 2005.
On March 3, 1998, the Company, through a special-purpose limited
partnership subsidiary of the Company, issued $142 million of 6.376% First
Mortgage Bonds, due 2003, which are secured by first priority deeds of trust,
security agreements and assignments of rents on 26 Communities. The net proceeds
from the sale of the bonds were used to repay indebtedness incurred in
connection with the FDC Merger.
CHANGES IN MANAGEMENT
In April 1998, Ralph Horn, Chairman and Chief Executive Officer of First
Tennessee National Corporation and First Tennessee Bank National Association,
was appointed to the Company's Board of Directors to fill the vacancy created by
the resignation of Michael B. Yanney in February 1998. Mr. Yanney resigned due
to excessive time commitments.
On June 12, 1998, John J. Byrne III resigned as a director due to excessive
commitments to various business ventures. No replacement for Mr. Byrne has been
selected.
RISK FACTORS
RISKS RELATED TO PARITY PREFERRED STOCK AND THE ISSUANCE OF ADDITIONAL PREFERRED
STOCK
The Company's charter (the "Charter") does not limit the issuance of
additional shares of preferred stock ranking in parity with or superior to the
Series C Preferred Stock. As of the date of this Prospectus Supplement, there
are 2,000,000 shares of Series A Preferred Stock and 1,938,830 shares of Series
B Preferred Stock issued and outstanding which rank in parity with the Series C
Preferred Stock with respect to the payment of dividends and amounts on
liquidation, dissolution and winding up. Moreover, dividends in respect of the
Series A Preferred Stock and the Series B Preferred Stock are paid monthly, the
practical effect of which is that a portion of such dividends are paid prior to
dividends on the Series C Preferred Stock. The issuance of additional preferred
stock in parity with or superior to the Series C Preferred Stock could have the
effect of diluting the interests of holders of the Series C Preferred Stock.
None of the provisions relating to the Series C Preferred Stock contain any
provisions affording the holders of the Series C Preferred Stock protection in
the event of a highly leveraged or other transaction, including a merger, or the
sale, lease or conveyance of all or substantially all of the property or
business of the Company, that might adversely affect the holders of the Series C
Preferred Stock.
INCREASE IN DEVELOPMENT ACTIVITY
In connection with the FDC Merger, the Company acquired certain development
stage projects and has publicly announced its plans to increase its development
activities generally. Property development is subject to a number of risks,
including risks of construction delays or cost overruns that may increase
project costs and new project commencement risks such as competition for
suitable development sites, receipt of zoning, occupancy and other required
governmental permits and authorizations and the incurrence of substantial
development costs in connection with projects that are not pursued to
completion. In addition, funds used to pursue development activities do not
produce returns to the Company's shareholders prior to
S-6
<PAGE>
completion of the development. If development projects are not completed on time
or on budget or if projected occupancy levels and rental rates are not achieved,
the Company's returns from the development projects may not meet the Company's
expectations. There can be no assurance that the Company's increased development
activity will not have a material adverse effect on the Company's cash flow and
ability to pay dividends on the Series C Preferred Stock.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of the Series C
Preferred Stock are estimated at approximately $48.2 million after payment of
the underwriters discounts and commissions and estimated expenses of the
Offering. The Company intends to contribute the net proceeds to the Operating
Partnership, of which the Company is the sole general partner. The Operating
Partnership will issue to the Company 2,000,000 Class C Preferred Units having
distribution, liquidation, redemption and other features substantially identical
to the terms of the Series C Preferred Stock. The Class C Preferred Units will
be equal in rank with the Operating Partnership's Class A Preferred Units and
Class B Preferred Units issued in conjunction with the Company's issuance of the
Series A Preferred Stock and Series B Preferred Stock, respectively, and senior
to the Operating Partnership's common units of partnership interests, with
respect to regular distributions and distributions upon liquidation, dissolution
and winding up. The Operating Partnership intends to use the contributed net
proceeds to repay indebtedness under the Operating Partnership's credit line.
The credit line bears interest at an annual rate equal to LIBOR plus 125 basis
points and is secured by first mortgage deeds of trust on certain of the
Communities. The credit line matures in November 1999. Borrowings under the
credit line have been used for acquisitions and development of additional
apartment units. At May 31, 1998 the balance on the Operating Partnership's
credit line was $91.8 million.
S-7
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on March
31, 1998 and as adjusted to give effect to the issuance of the Series C
Preferred Stock offered by this Prospectus Supplement. This table should be read
in conjunction with the Company's historical financial statements and related
notes incorporated by reference herein.
MARCH 31, 1998
---------------------------
HISTORICAL AS ADJUSTED
------------ ------------
(IN THOUSANDS)
Debt:
Notes payable................... $ 666,132 $ 617,907
------------ ------------
Minority interest.................... 64,559 64,559
------------ ------------
Shareholders' Equity:
Preferred Stock, $.01 par value
per share, 20,000,000 shares
authorized --.................
No shares of 9 3/8% Series
C Cumulative Redeemable
Preferred Stock,
Liquidation Preference
$25 per share issued and
outstanding; 2,000,000
shares issued and
outstanding as
adjusted................ -- 20
1,938,830 shares of 8 7/8%
Series B Cumulative
Preferred Stock,
Liquidation Preference
$25 per share, issued
and outstanding......... 19 19
2,000,000 shares of 9.5%
Series A Cumulative
Preferred Stock,
Liquidation Preference
$25 per share, issued
and outstanding......... 20 20
Common Stock, $.01 par value per
share, 50,000,000 shares
authorized, 18,610,912 shares
issued and outstanding........ 186 186
Additional paid-in capital...... 501,907 550,112
Other........................... (1,935) (1,935)
Accumulated deficit............. (42,550) (42,550)
------------ ------------
Total shareholders'
equity.................. 457,647 505,872
------------ ------------
Total Capitalization................. $ 1,188,338 $ 1,188,338
============ ============
S-8
<PAGE>
DESCRIPTION OF SERIES C PREFERRED STOCK
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE SERIES C
PREFERRED STOCK CONTAINED IN THIS PROSPECTUS SUPPLEMENT DOES NOT PURPORT TO BE
COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE
TERMS AND PROVISIONS OF THE CHARTER AND BYLAWS, AS AMENDED, WHICH ARE
INCORPORATED BY REFERENCE IN THE ACCOMPANYING PROSPECTUS, AND THE AMENDMENT TO
THE CHARTER SETTING FORTH THE PARTICULAR TERMS OF THE SERIES C PREFERRED STOCK
(THE "SERIES C AMENDMENT"), COPIES OF WHICH ARE AVAILABLE FROM THE COMPANY.
GENERAL
The Charter authorizes the issuance of 20,000,000 shares of preferred
stock, $.01 par value (the "Preferred Stock"), of which 2,000,000 shares of
the Company's 9.5% Series A Cumulative Preferred Stock, liquidation preference
$25.00 per share, and 1,938,830 shares of the Company's 8 7/8% Series B
Cumulative Preferred Stock, liquidation preference $25.00 per share, were
outstanding on March 31, 1998. The Preferred Stock may be issued from time to
time in one or more series, without shareholder approval, with such voting
powers (full or limited), designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations, or
restrictions thereof as shall be established by the Board of Directors. Thus,
without shareholder approval, the Company could issue Preferred Stock with
voting, conversion and other rights that could dilute the voting power and other
rights of the holders of Series C Preferred Stock.
On June 24, 1998, the Board of Directors authorized the Company to classify
and issue the Series C Preferred Stock as part of the 20,000,000 shares of the
Company's authorized Preferred Stock and approved the form of the Series C
Amendment.
When issued, the Series C Preferred Stock will be validly issued, fully
paid and nonassessable. The holders of the Series C Preferred Stock will have no
preemptive rights with respect to any shares of capital stock of the Company or
any other securities of the Company convertible into or carrying rights or
options to purchase any such shares. The Series C Preferred Stock will not be
subject to any sinking fund or other obligation of the Company to redeem or
retire the Series C Preferred Stock. Unless redeemed by the Company on or after
June 30, 2003, the Series C Preferred Stock will have a perpetual term, with no
maturity. Application will be made to list the Series C Preferred Stock on the
New York Stock Exchange under the symbol "MAA PrC." Trading of Series C
Preferred Stock on the New York Stock Exchange is expected to commence within
the 30-day period after the initial delivery of the Series C Preferred Stock.
See "Underwriters."
RANKING
The Series C Preferred Stock will rank senior to the Common Stock with
respect to payment of dividends and amounts upon liquidation, dissolution or
winding up. The Series C Preferred Stock will rank on a parity with the Series A
Preferred Stock and the Series B Preferred Stock with respect to payment of
dividends and amounts upon liquidation, dissolution and winding up.
While any shares of Series C Preferred Stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks senior to the Series C Preferred Stock with respect
to the payment of dividends or amounts upon liquidation, dissolution or winding
up without the consent of the holders of two-thirds of the outstanding shares of
Series C Preferred Stock and all other Voting Preferred Shares (defined below),
voting as a single class. However, the Company may create additional classes of
stock or issue series of Preferred Stock ranking on a parity with the Series C
Preferred Stock with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding up (a "Parity Stock")
without the consent of any holder of Series C Preferred Stock. The Series A
Preferred Stock and the Series B Preferred Stock are each Parity Stock. See
" -- Voting Rights."
S-9
<PAGE>
DIVIDENDS
Holders of shares of Series C Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of funds
of the Company legally available for payment, cumulative cash dividends payable
at the rate of 9 3/8% of the liquidation preference per annum (equivalent to
$2.34375 per annum per share). Dividends on the Series C Preferred Stock will
accrue and be cumulative from the date of original issuance of the Series C
Preferred Stock and shall be payable quarterly in arrears on the fifteenth
calendar day of January, April, July and October of each year (and if such day
is not a business day, then no later than the next succeeding business day),
commencing October 15, 1998 (and, in the case of any accrued but unpaid
dividends, at such additional times and for such interim periods, if any, as
determined by the Board of Directors). Each such dividend will be payable to
holders of record as they appear on the stock records of the Company at the
close of business on such record dates, which shall be on or about the first day
of the calendar months in which the dividend payment dates fall or such other
dates not less than 10 days nor more than 60 days preceding the payment dates
thereof, as shall be fixed by the Board of Directors of the Company.
Accumulations of dividends on shares of Series C Preferred Stock will not bear
interest. Dividends payable on the Series C Preferred Stock for any period
greater or less than a full dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Stock unless full cumulative dividends have been declared and
paid or are contemporaneously declared and funds sufficient for payment set
aside on the Series C Preferred Stock for all prior dividend periods. If accrued
dividends on the Series C Preferred Stock for all prior dividend periods have
not been paid in full, then any dividend declared on the Series C Preferred
Stock for any dividend period and on any Parity Stock will be declared ratably
in proportion to accrued and unpaid dividends on the Series C Preferred Stock
and such Parity Stock.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock through a sinking fund or otherwise (other than a redemption or
purchase or other acquisition of shares of Common Stock made for purposes of an
employee incentive or benefit plan of the Company or any subsidiary), unless (A)
all cumulative dividends with respect to the Series C Preferred Stock and any
Parity Stock at the time such dividends are payable have been paid or funds have
been set apart for payment of such dividends and (B) sufficient funds have been
paid or set apart for the payment of the dividend for the current dividend
period with respect to the Series C Preferred Stock and any Parity Stock. The
foregoing limitations do not restrict the Company's ability to take the
foregoing actions with respect to any Parity Stock.
As used herein, (i) the term "dividend" does not include dividends
payable solely in shares of Junior Stock on Junior Stock, or in options,
warrants or rights to holders of Junior Stock to subscribe for or purchase any
Junior Stock, and (ii) the term "Junior Stock" means the Common Stock, and any
other class of capital stock of the Company now or hereafter issued and
outstanding that ranks junior as to the payment of dividends or amounts upon
liquidation, dissolution and winding up to the Series C Preferred Stock.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of shares of Series C Preferred
Stock will be entitled to receive $25.00 per share of Series C Preferred Stock
plus an amount per share of Series C Preferred Stock equal to all dividends
(whether or not declared) accrued and unpaid thereon to the date of final
distribution to such holders (the "Liquidation Preference"), and no more.
Until the holders of the Series C Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Junior
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
any liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Series C Preferred Stock are insufficient to pay in full the Liquidation
Preference and the liquidation preference with respect to any other
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shares of Parity Stock, then such assets, or the proceeds thereof, will be
distributed among the holders of shares of Series C Preferred Stock and any such
Parity Stock ratably in accordance with the respective amounts which would be
payable on such shares of Series C Preferred Stock and any such Parity Stock if
all amounts payable thereon were paid in full. Neither a consolidation or merger
of the Company with another corporation, a statutory share exchange by the
Company nor a sale or transfer of all or substantially all of the Company's
assets will be considered a liquidation, dissolution or winding up, voluntary or
involuntary, of the Company.
REDEMPTION
The Series C Preferred Stock is not redeemable prior to June 30, 2003.
However, in order to ensure that the Company will continue to meet the
requirement for qualification as a REIT, the Series C Preferred Stock will be
subject to provisions in the Charter pursuant to which shares of capital stock
of the Company owned by a shareholder in excess of 9.9% in value of the
outstanding shares of capital stock of the Company (the "Ownership Limit")
will be deemed "Excess Shares," and the Company will have the right to
purchase such Excess Shares from the holder. See " -- Restrictions on
Ownership."
On or after June 30, 2003, the shares of Series C Preferred Stock will be
redeemable at the option of the Company, in whole or in part, at a redemption
price equal to the Liquidation Preference of the Series C Preferred Stock to be
redeemed, including accrued and unpaid dividends. The redemption price (other
than the portion thereof consisting of accrued and unpaid dividends) is payable
solely out of the sale proceeds of other capital stock of the Company, and not
from any other source. For purposes of the preceding sentence, the term
"capital stock" means any equity securities (including Common Stock and
Preferred Stock), shares, interests, participation or other ownership interests
(however designated), depositary shares representing any of the foregoing, and
any rights (other than debt securities convertible into or exchangeable for
equity securities) or options to purchase any of the foregoing. In order to
exercise its redemption option, the Company must issue a press release
announcing the redemption.
Notice of redemption will be given by mail or by publication in a newspaper
of general circulation in the City of New York once per week for at least two
successive weeks to the holders of the Series C Preferred Stock not more than
four business days after the Company issues the press release announcing its
intention to redeem the Series C Preferred Stock. A similar notice furnished by
the Company will be mailed by the registrar, postage prepaid, not less than 30
nor more than 60 days prior to the redemption date, addressed to the respective
holders of record of the Series C Preferred Stock to be redeemed at their
respective addresses as they appear on the share transfer records of the
registrar. The redemption date will be a date selected by the Company not less
than 30 nor more than 60 days after the date on which the Company issues the
press release announcing its intention to redeem the Series C Preferred Stock.
If fewer than all of the shares of Series C Preferred Stock are to be redeemed,
the shares to be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Company.
On the redemption date, the Company must pay on each share of Series C
Preferred Stock to be redeemed any accrued and unpaid dividends, in arrears up
to the redemption date, except that in the case of a redemption date falling
after a dividend payment record date and prior to the related payment date, the
holders of the Series C Preferred Stock at the close of business on such record
date will be entitled to receive the dividend payable on such shares on the
corresponding dividend payment date, notwithstanding the redemption of such
shares following such dividend payment record date. Except as provided for in
the preceding sentence, no payment or allowance will be made for accrued
dividends on any shares of Series C Preferred Stock called for redemption after
the redemption date.
In the event that full cumulative dividends on the Series C Preferred Stock
and any Parity Stock have not been paid or declared and set apart for payment,
the Series C Preferred Stock may not be redeemed in whole or in part, and the
Company may not purchase or acquire shares of Series C Preferred Stock otherwise
than pursuant to a purchase or exchange offer made on the same terms to all
holders of shares of Series C Preferred Stock.
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On and after the date fixed for redemption, provided that the Company has
made available at the office of the Registrar and Transfer Agent sufficient net
proceeds from the sale of other capital stock of the Company to effect the
redemption, dividends will cease to accrue on the Series C Preferred Stock
called for redemption (except that, in the case of a redemption date after a
dividend payment record date and prior to the related dividend payment date,
holders of Series C Preferred Stock at the close of business on the dividend
payment record date will be entitled on such dividend payment date to receive
the dividend payable on such shares), such shares shall no longer be deemed to
be outstanding and all rights of the holders of such shares of Series C
Preferred Stock shall cease except the right to receive the cash payable upon
such redemption, without interest from the date of such redemption. At the close
of business on the redemption date, each holder of Series C Preferred Stock
(unless the Company defaults in the delivery of the shares of Common Stock
deliverable in exchange therefor) will without any further action, no longer be
deemed a holder of the number of shares of Series C Preferred Stock to be
redeemed.
VOTING RIGHTS
Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of shares of Series C Preferred Stock
will have no voting rights.
If six or more quarterly dividends payable on the Series C Preferred Stock
or any other Parity Stock are in arrears, whether or not declared and whether or
not consecutive, the number of directors then constituting the Board of
Directors of the Company will be increased by two and the holders of shares of
Series C Preferred Stock, voting together as a class with the holders of any
other series of Parity Stock (any such other series, the "Voting Preferred
Shares"), will have the right to elect two additional directors to serve on the
Company's Board of Directors at an annual meeting of shareholders or a properly
called special meeting of the holders of the Series C Preferred Stock and such
Voting Preferred Shares and at each subsequent annual meeting of shareholders
until all such dividends and dividends for the current quarterly period on the
Series C Preferred Stock and such other Voting Preferred Shares have been paid
or declared and set aside for payment.
The approval of two-thirds of the outstanding shares of Series C Preferred
Stock and all other series of Voting Preferred Shares similarly affected, voting
as a single class, will be required in order to amend the Charter or the Series
C Amendment to affect materially and adversely the rights, preferences or voting
power of the holders of the Series C Preferred Stock or the Voting Preferred
Shares or to authorize, create, or increase the authorized amount of, any class
of stock having rights senior to the Series C Preferred Stock with respect to
the payment of dividends or amounts upon liquidation, dissolution or winding up.
However, the Company may create additional classes of Parity and Junior Stock,
increase the authorized number of shares of Parity and Junior Stock and issue
additional series of Parity and Junior Stock without the consent of any holder
of Series C Preferred Stock.
When exercising the voting rights described above, each share of Series C
Preferred Stock shall have one vote per share, except that when voting as a
single class with the Voting Preferred Shares, each share of Series C Preferred
Stock and Voting Preferred Shares shall have one vote per $25.00 of stated
liquidation preference.
Except as required by law, the holders of Series C Preferred Stock will not
be entitled to vote on any merger or consolidation involving the Company or a
sale of all or substantially all of the assets of the Company.
In addition, under Tennessee law, the Series C Preferred Stock will be
entitled to vote as a separate voting group if the Series C Preferred Stock is
affected by certain amendments to the Charter, whether made by filing articles
of amendment or by a merger or share exchange. In particular, if a proposed
amendment to the Charter requires shareholder action, a separate class or series
of shares will be entitled to vote as a separate voting group on any amendment
that would: (i) increase or decrease the aggregate number of authorized shares
of that class; (ii) effect an exchange or reclassification of all or part of the
shares of the class into shares of another class; (iii) effect an exchange or
reclassification, or create a right of exchange, of all or part of the shares of
another class into shares of the class; (iv) change the designation, rights,
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preferences, or limitations of any shares of the class; (v) change the shares of
all or part of the class into a different number of shares of the same class;
(vi) create a new class or change a class with subordinate and inferior rights
into a class of shares, having rights or preferences with respect to
distributions or dissolution that are prior, superior, or substantially equal to
the shares of the class, or increase the rights, preferences or number of
authorized shares of any class having rights or preferences with respect to
distributions or to dissolution that are prior, superior, or substantially equal
to the shares of the class; (vii) limit or deny an existing preemptive right of
all or part of the shares of the class, if any; (viii) authorize the issuance as
a share dividend of shares of such class in respect of shares of another class;
(ix) cancel or otherwise affect rights to distributions or dividends that have
accumulated but not yet been declared on any shares of that class; or (x) change
the corporation into a non-profit corporation or a cooperative organization. If
a proposed amendment would affect a series or class of shares in one or more of
the ways described in this paragraph, the shares of that series or class are
entitled to vote as a separate voting group on the proposed amendment. The above
mandatory voting rights apply regardless of whether the change is favorable or
unfavorable to the affected series or class. A mandatory voting right also is
given to class or series of shares for approval of a share dividend payable in
the shares of that class or series on the shares of another class or series.
Unless the Charter, the Bylaws, or the Board of Directors requires a higher
vote, the vote required within each voting group will be a majority of shares
actually cast at a meeting at which a quorum is present, except that if the
proposed amendment creates dissenters' rights for any voting group, the vote
required within that voting group will be a majority of the total votes in that
voting group entitled to be cast on the amendment.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series C Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
Shares of Series C Preferred Stock will not be convertible into any other
securities of the Company.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), among other things, not more than 50% in value
of its outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (defined in the Code to include certain entities) during
the last half of a taxable year, 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
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 "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
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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 Limit 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 the 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 Charter) of the capital stock on the date the
Company gives 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 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 Limit may have the effect of precluding acquisition of
control of the Company.
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND REDEMPTION AGENT
The transfer agent, registrar, dividend disbursing agent and redemption
agent for the shares of Series C Preferred Stock will be AmSouth Bank,
Birmingham, Alabama.
TAXATION
This section is a general summary of the material federal income tax
considerations that may be relevant to prospective purchasers of shares of
Series C Preferred Stock under the Code and is based upon applicable Code
provisions, rules and regulations promulgated thereunder, and reported judicial
and administrative interpretations thereof, all of which are subject to change
(possibly on a retroactive basis).
The following discussion does not include all matters that may be relevant
to any particular holder of shares of Series C Preferred Stock in light of such
holder's particular facts and circumstances. Certain holders, such as foreign
persons, tax-exempt entities, insurance companies and financial institutions,
may be subject to special rules not discussed below. In particular, the
following discussion does not discuss issues under the Employee Retirement
Income Security Act of 1974, as amended, the Foreign Investment in Real Property
Tax Act of 1980, and foreign, state and local tax laws.
Each prospective purchaser should review the discussion under "Federal
Income Tax Considerations" in the accompanying Prospectus for a more complete
discussion of the tax considerations relative to an investment in the Company's
capital stock. In addition, each prospective purchaser should consult, and must
depend on, his own tax advisor regarding the specific tax consequences to him of
the purchase, ownership, and sale of the shares of Series C Preferred Stock 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 SHAREHOLDERS OF THE COMPANY
DISTRIBUTIONS TO HOLDERS. Distributions with respect to the Series C
Preferred Stock will be taxable as dividends to the extent of the Company's
current or accumulated earnings and profits as determined for
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federal income tax purposes. For purposes of determining whether a distribution
is made out of the Company's current or accumulated earnings and profits, the
Company's earnings and profits will be allocated first to the Preferred Stock
(pro rata among the series of Preferred Stock) and then to the Common Stock.
Distributions with respect to the Series C Preferred Stock in excess of earnings
and profits will be treated first as a tax-free return of capital to the holder,
to the extent of the holder's basis in such stock (and will correspondingly
reduce such basis) and then as a capital gain, to the extent of any excess over
such basis (assuming the holder holds the Series C Preferred Stock as a capital
asset).
Dividends will be taxed as ordinary income to the holder except to the
extent that the dividend is a distribution of the Company's net capital gain and
is properly designated by the Company as a capital gain dividend. The Company
presently intends to designate the respective dividends paid by the Company to
the holders of all classes of the Preferred Stock and Common Stock in such a
manner that the aggregate dividends paid to the holders of each such class of
stock annually will have the same relative proportions of capital gain dividends
(if any are so designated) and ordinary income dividends. The Company will
notify each holder of the Series C Preferred Stock as to the portions of each
distribution which, in its judgment and consistent with the intention stated in
the preceding sentence, constitute ordinary income and capital gain.
Capital gain distributions to corporate holders are generally taxed in the
same manner as ordinary income, except that capital losses of such holders are
deductible only to the extent of capital gains. Under Section 291 of the Code,
however, corporate holders may be required to treat up to 20% of any such
capital gain as ordinary income. For noncorporate shareholders, net capital
gains are taxed at a maximum rate of either 28% (for sales or exchanges of
assets held for more than one year, but not more than 18 months) or 20% (for
sales or exchanges of assets held for more than 18 months), while short-term
capital gains and ordinary income are taxed at a maximum rate of 39.6%. However,
because of certain limitations on itemized deductions and personal exemptions,
the effective rate may be higher in certain circumstances. Except to a very
limited extent, capital losses of noncorporate shareholders are deductible only
to the extent of capital gains.
Ordinary and capital gain dividends are not eligible for the
dividends-received deduction that is generally allowed to corporate
shareholders.
SALE OR EXCHANGE OF SERIES C PREFERRED STOCK. Upon the sale or exchange of
Series C Preferred Stock, the holder will recognize gain or loss equal to the
difference between the amount realized on such sale and the tax basis of such
Series C Preferred Stock. Assuming such stock is held as a capital asset, such
gain or loss will be a long-term capital gain or loss if the Series C Preferred
Stock has been held for more than one year. However, any loss recognized by a
holder on the sale of a share of Series C Preferred Stock held for not more than
six months and with respect to which a capital gain dividend was received will
be treated as a long-term capital loss to the extent of the amount of
distributions from the Company with respect to such share that was required to
be treated by such holder as long-term capital gain.
REDEMPTION OF SERIES C PREFERRED STOCK. The treatment to be accorded to
any redemption by the Company (as distinguished from a sale, exchange or other
disposition) of Series C Preferred Stock can only be determined on the basis of
particular facts as to each holder of Series C Preferred Stock at the time of
redemption. In general a holder of Series C Preferred Stock will recognize
capital gain or loss measured by the difference between the amount realized by
the holder upon the redemption and such holder's adjusted tax basis in the
Series C Preferred Stock redeemed (provided the Series C Preferred Stock is held
as a capital asset) if such redemption (i) results in a "complete termination"
of the holder's interest in all classes of stock of the Company under Section
302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect
to the holder's stock interest in the Company under Section 302(b)(2) of the
Code (which generally will not be the case if only Series C Preferred Stock is
redeemed, since such stock generally does not have voting rights) or (iii) is
"not essentially equivalent to a dividend" with respect to the holder of
Series C Preferred Stock under Section 302(b)(1) of the Code. In determining
whether any of these tests have been met, shares considered to be owned by the
holder by reason of certain constructive ownership rules set forth in the Code,
as well as shares actually owned, must generally be taken into account. Because
the determination as to whether any of the alternative tests of Section 302(b)
of the Code will be satisfied with
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respect to any particular holder of Series C Preferred Stock depends upon the
facts and circumstances at the time when the determination must be made,
prospective investors are advised to consult their own tax advisors to determine
such tax treatment.
If the redemption does not meet any of the tests under Section 302 of the
Code, then the redemption proceeds received from the Series C Preferred Stock
will be treated as a distribution on the Series C Preferred Stock as described
above (see Distributions to Holders). If the redemption is taxed as a dividend,
the holder's adjusted tax basis in the redeemed shares of Series C Preferred
Stock will be transferred to any other shares of stock of the Company held by
such holder. If, however, the holder of the Series C Preferred Stock holds no
other stock of the Company, such basis could be transferred to a related person
or it may be lost.
UNRELATED BUSINESS INCOME TAX OF PENSION TRUSTS. If any exempt pension
trust described in Section 401(a) becomes the owner of more than 10% (by value)
of the outstanding stock of the Company and certain other conditions (generally
related to the existence of a high concentration of ownership of Company stock
in the hands of such pension trusts) are satisfied, a portion of the dividends
received by the pension trust with respect to its Company stock may be subject
to the unrelated business income tax. Exempt pension trusts should consult their
tax advisors regarding the advisability of acquiring more than 10% (by value) of
the outstanding stock of the Company.
BACKUP WITHHOLDING. Under the backup withholding provisions of the Code
and applicable Treasury regulations thereunder a holder of Series C Preferred
Stock may be subject to backup withholding at the rate of 31% with respect to
dividends paid on, or the proceeds of a sale or redemption of, such stock unless
(i) such holder 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. The amount of any backup withholding from a payment to
a holder will be allowed as a credit against the holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
OTHER TAX MATTERS. Holders of Series C Preferred Stock will not be
permitted to deduct any losses of the Company (whether ordinary or capital) on
their own income tax returns. In addition, under regulations to be promulgated
by the Treasury Department, holders of Series C Preferred Stock may be required
to report as tax preference items or adjustments certain items and adjustments
of the Company for purposes of determining the holders' alternative minimum tax
liability, if any.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated June 25, 1998 (the "Underwriting Agreement"), the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, is acting as
representative (the "Representative"), have severally agreed to purchase, and
the Company has agreed to sell to them, severally, the respective numbers of
shares of Series C Preferred Stock set forth opposite the names of such
Underwriters below:
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------- ---------
Morgan Stanley & Co. Incorporated.... 409,375
Morgan Keegan & Company, Inc......... 409,375
Raymond James & Associates, Inc...... 409,375
The Robinson-Humphrey Company, LLC... 409,375
A. G. Edwards & Sons................. 25,000
J.C. Bradford & Co. ................. 25,000
BT Alex Brown Incorporated........... 25,000
CIBC Oppenheimer..................... 25,000
Equitable Securities Corporation..... 25,000
EVEREN Securities, Inc. ............. 25,000
Cowen & Company...................... 12,500
Crowell, Weedon & Co. ............... 12,500
Dain Rauscher Incorporated........... 12,500
Fahnestock & Co. Inc. ............... 12,500
First Albany Corporation............. 12,500
Gibraltar Securities Co. ............ 12,500
Interstate/Johnson Lane
Corporation........................ 12,500
Janney Montgomery Scott Inc. ........ 12,500
Legacy Securities Corp. ............. 12,500
Legg Mason Wood Walker,
Incorporated....................... 12,500
McDonald & Company Securities,
Inc. .............................. 12,500
McGinn, Smith & Co., Inc. ........... 12,500
Fifth Third/The Ohio Company......... 12,500
Piper Jaffray Inc. .................. 12,500
Roney & Co., L.L.C. ................. 12,500
Scott & Stringfellow, Inc. .......... 12,500
Tucker Anthony Incorporated.......... 12,500
---------
Total........................... 2,000,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Series C Preferred Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are committed to take
and pay for all of the Series C Preferred Stock offered hereby if any are taken.
The Underwriters initially propose to offer part of the Series C Preferred
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and part to certain dealers at a price that
represents a concession not in excess of $.50 per share of Series C Preferred
Stock below the public offering price. Any Underwriter may allow, and such
dealers may reallow, a concession not in excess of $.40 per share of Series C
Preferred Stock to other Underwriters or to certain other dealers. After the
initial offering of the Series C Preferred Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Company and the several Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act of 1933.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 30 days after the date of this Prospectus Supplement (a)
offer, issue, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of preferred stock, any shares of any other class or
series of capital stock of the Corporation which is substantially similar to the
Series C Preferred Stock or (b) enter
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into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of any shares of preferred
stock, any shares of any other class or series of capital stock of the
Corporation which is substantially similar to the Series C Preferred Stock,
whether any such transaction described in clause (a) or (b) of this sentence is
to be settled by delivery of preferred stock, other securities, in cash or
otherwise.
The Company will apply to list the Series C Preferred Stock on the New York
Stock Exchange. Trading of the Series C Preferred Stock on the New York Stock
Exchange is expected to commence within the 30-day period after initial delivery
of the Series C Preferred Stock. The Underwriters have advised the Company that
they intend to make a market in the Series C Preferred Stock prior to the
commencement of trading on the New York Stock Exchange. The Underwriters will
have no obligation to make a market in the Series C Preferred Stock, however,
and may cease market-making activities, if commenced, at any time.
In order to facilitate the offering of the Series C Preferred Stock, the
Underwriters may engage in transactions that stabilize, maintain, or otherwise
affect the price of the Series C Preferred Stock. Specifically, the Underwriters
may over-allot in connection with the offering, creating a short position in the
Series C Preferred Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Series C Preferred Stock, the
Underwriters may bid for, and purchase, shares of Series C Preferred Stock in
the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing shares of
Series C Preferred Stock in the Offering, if the syndicate repurchases
previously distributed Series C Preferred Stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Series C
Preferred Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
EXPERTS
The audited financial statements of the Company incorporated by reference
in this Prospectus Supplement and elsewhere in the registration statement of
which this Prospectus Supplement is a part, have been audited by KPMG Peat
Marwick LLP, independent public accountants, as indicated in the report with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in accounting and auditing.
LEGAL OPINIONS
Certain legal opinions relating to tax matters and the shares of the Series
C Preferred Stock offered hereby will be passed upon for the Company by Baker,
Donelson, Bearman & Caldwell, P.C., Memphis, Tennessee. Certain legal matters
relating to the validity of the Series C Preferred Stock offered hereby will be
passed upon for the Underwriters by Hunton & Williams, Richmond, Virginia.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents incorporated by reference in the accompanying
Prospectus, the following documents heretofore filed by the Company with the
Securities and Exchange Commission (the "Commission") (File No. 1-12762) are
incorporated herein by reference: (a) Annual Report on Form 10-K for the 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 Forms 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; and (g) 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. For
additional information with respect to documents incorporated by reference
herein, see "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus.
S-18
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PROSPECTUS
MID-AMERICA APARTMENT COMMUNITIES, INC.
$233,875,000
DEBT SECURITIES, PREFERRED STOCK, COMMON
STOCK AND SECURITIES WARRANTS
Mid-America Apartment Communities, Inc. (the "Company") may from time to
time offer and sell in one or more series (i) its unsecured debt securities the
"Debt Securities"); (ii) shares of its preferred stock, par value $.01 per
share (the "Preferred Stock"); (iii) shares of its common stock, par value
$.01 per share ("Common Stock"); or (iv) warrants to purchase Debt Securities
the "Debt Securities Warrants"), warrants to purchase Preferred Stock (the
"Preferred Stock Warrants") and warrants to purchase Common Stock (the
"Common Stock Warrants") (the Debt Securities Warrants, Preferred Stock
Warrants and Common Stock Warrants, collectively, the "Securities Warrants"),
with an aggregate public offering price of up to $233,875,000. The Debt
Securities, Preferred Stock, Common Stock and Securities Warrants offered
pursuant hereto (collectively, the "Offered Securities") may be offered
separately or together, in separate series, in amounts and at prices and terms
to be set forth in an accompanying supplement to this Prospectus (a "Prospectus
Supplement"). The aggregate public offering price and terms of the Offered
Securities will be determined by market conditions at the time such securities
are offered. Unless otherwise specified in a Prospectus Supplement, the proceeds
from the sale of the Offered Securities will be received by the Company and used
for general corporate purposes.
The applicable Prospectus Supplement shall set forth (i) with respect to
the Debt Securities, the specific title, aggregate principal amount, currency,
form (which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the Holder, any sinking fund provisions and any
conversion provisions, (ii) with respect to Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other right, and all other specific terms of the
Preferred Stock, (iii) with respect to the Common Stock, the specific number of
shares and issuance price per share, and (iv) with respect to the Securities
Warrants, the duration, offering price, exercise price and detachability. The
applicable Prospectus Supplement will also contain information, where
applicable, about all material United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be sold: (i) directly by the Company; (ii)
through underwriting syndicates represented by one or more managing
underwriters, or through one or more underwriters without a syndicate; and (iii)
through agents designated from time to time. Certain terms of any offering and
sale of Offered Securities, including, where applicable, the names of the
underwriters, dealers or agents, if any, the principal amount or number of
shares or Securities Warrants to be purchased, the purchase price of the Offered
Securities, any applicable commissions, discounts and other compensation to
underwriters, dealers and agents, and the proceeds to the Company from such
sale, will be set forth in, or calculable from information contained in, a
Prospectus Supplement. See "Plan of Distribution."
The Common Stock is listed on the New York Stock Exchange under the symbol
"MAA." To ensure that the Company maintains its qualification as a REIT,
ownership by any person is limited to 9.9% of the total value of outstanding
capital stock of the Company, with certain exceptions. See "Description of
Capital Stock -- Ownership Limitations."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF THE OFFERED
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 9, 1997.
<PAGE>
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 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 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 parts of which are omitted in accordance with
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 the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the periods ended March 31,
1997 and June 30, 1997, respectively;
(c) Current Reports on Form 8-K dated August 19, 1997, June 5, 1997,
April 25, 1997, April 11, 1997, March 19, 1997, and February 21, 1997 and
Current Reports of Form 8-K/A dated July 29, 1997, April 11, 1997, June 10,
1997, May 19, 1997, March 17, 1997 and February 21, 1997;
(d) pages 2 through 10 of the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders;
(e) 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; and
(f) 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.
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 Offered
Securities offered hereby have been sold or which deregisters all Offered
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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: Lynn A. Johnson, Secretary, telephone
(901) 682-6600.
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<PAGE>
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 June 30, 1997,
owned and operated 80 apartment communities containing 21,482 apartment units in
12 states (the "Communities"). At June 30, 1997, the Communities had an
average occupancy of 94.1% and an average rental rate per unit of $540.
Founded in 1977 by George E. Cates, the Company's Chairman of the Board of
Directors and Chief Executive Officer, the Company's predecessor grew from an
operator of a single 252-unit apartment community in Memphis, Tennessee into a
fully-integrated owner and operator of 5,580 apartment units in 22 apartment
communities in four southeastern states immediately prior to the Company's
initial public offering in February 1994 (the "Initial Offering"). Since the
Initial Offering, the Company has increased in size by 58 apartment communities
containing 15,902 apartment units, including 12 apartment communities containing
3,212 apartment units acquired in the Company's merger with America First REIT,
Inc. ("AFR") in June 1995 (the "AFR Merger") for an aggregate value of
approximately $111 million (as measured by Common Stock issued and AFR debt
assumed).
The Company's internal growth strategy is to increase operating cash flow
by (i) increasing rental rates through physical and marketing improvements, (ii)
controlling expenses through its system of detailed management reporting and
accountability, and (iii) maintaining high occupancy levels. The Company's
external growth strategy is to acquire and selectively develop additional
apartment units and, when apartment communities no longer meet the Company's
long-term strategic objectives or investment return goals, to dispose of those
communities. Through the UPREIT structure, the Company has the ability to
acquire apartment communities by issuing units of limited partnership interest
in the Operating Partnership ("Units") in tax-deferred exchanges with owners
of such communities.
The Company seeks to acquire apartment communities appealing to middle and
upper income residents in mid-size cities primarily in the southeastern United
States and Texas. Approximately 65% of the Company's apartment units are located
in Tennessee, Florida and Texas markets. The Company's strategic focus is to
provide its residents high quality apartment units in attractive community
settings, characterized by extensive landscaping and attention to aesthetic
detail. The Company's utilizes its experience and expertise in maintenance,
landscaping, marketing and management to effectively "reposition" many of the
apartment communities it acquires to raise occupancy levels and per unit average
rentals.
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As of July 31, 1997, the executive officers and directors of the Company
owned approximately 12% of the combined outstanding Common Stock and Class A
Common Units of Limited Partnership Interest in the Operating Partnership
("Class A Common Units"). Class A Common Units are redeemable by the holders
thereof for Common Stock on a one-for-one basis, or, at the Company's sole
election, for cash. Stock and other incentive compensation are used to motivate
employees to meet long-term management goals that are consistent with creating
value for the Company's shareholders.
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. In
addition, the Company owns four Communities directly and 9 Communities through
wholly owned qualified REIT subsidiaries (each, a "QRS" and, collectively,
"QRSs") as defined in Section 856(i) of the Code.
THE OPERATING PARTNERSHIP
The Operating Partnership is the principal operating unit of the Company
and currently owns and operates 48 Communities and an approximately 42,000
square foot office building in Memphis, Tennessee in which the Company's
principal offices are located (the "Office Building"). In addition, the
Operating Partnership has entered into definitive agreements to acquire 3
apartment communities and to acquire approximately 64 acres of land on which it
intends to develop an apartment community (the "Proposed Acquisitions"). The
Operating Partnership conducts the Company's multifamily property management,
marketing, landscaping and acquisition business. The Company currently owns
directly a 1% general partnership interest in the Operating Partnership, and,
through its QRS, MAC II of Delaware, Inc., owns a 80.4% limited partnership
interest in the Partnership. The remaining 18.6% limited partnership interest in
the Partnership is owned by the holders of Class A Common Units. The Amended and
Restated Agreement of Limited Partnership of the Operating Partnership, as
further amended (the "Partnership Agreement") provides for a special
allocation of net income or loss of the Operating Partnership to holders of the
Class A Common Units to provide such holders with the economic and tax
attributes that they would enjoy if the Operating Partnership owned all assets
currently owned outright by the Company or by the AFRI QRSs (hereinbelow
defined).
THE TEXAS OPERATING PARTNERSHIP
Nine Communities are owned and operated through Mid-America Apartments of
Texas, L.P. (the "Texas Operating Partnership") in which the Operating
Partnership is the sole 99% limited partner and MAC of Delaware, Inc., a QRS of
the Company is the sole 1% general partner. The Texas Operating Partnership is
the primary operating unit of the Company in the state of Texas.
SUBSIDIARY PARTNERSHIPS
Nine Communities are owned and operated through subsidiary limited
partnerships (the "Subsidiary Partnerships"). The Company is the sole general
partner of all Subsidiary Partnerships except one, owning between a 1% and 10%
general partnership interest therein, and the Operating Partnership is the sole
limited partner thereof, owning between a 90% and 99% limited partnership
interest therein. One Community is owned in a single purpose Subsidiary
Partnership of which a QRS is the sole general partner owning a 1% general
partnership interest therein, and the Operating Partnership is the sole limited
partner thereof, owning a 99% limited partnership interest therein.
PROPERTIES OWNED BY QRSS
Nine Communities are owned through five QRSs, namely America First Austin
REIT, Inc., America First Florida REIT, Inc., America First South Carolina REIT,
Inc., America First Tennessee REIT, Inc., and
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America First Texas REIT, Inc. (collectively, the "AFRI QRSs"). The AFRI QRSs
became wholly owned subsidiaries of the Company in connection with the AFR
Merger.
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 be
taxed as a REIT. 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."
6
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RISK FACTORS
AN INVESTMENT IN THE OFFERED SECURITIES INVOLVES VARIOUS RISKS, INCLUDING
THOSE DESCRIBED BELOW. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISK FACTORS
TOGETHER WITH ALL OF THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND IN ANY PROSPECTUS SUPPLEMENT IN DETERMINING WHETHER TO
PURCHASE THE OFFERED SECURITIES. 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.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS
The Company's ability to make distributions to its shareholders is
dependent on the ability of the Company to generate FFO in excess of scheduled
principal payments on indebtedness and capital expenditure requirements. FFO and
the value of the Communities may be adversely affected by events or conditions
which are beyond the Company's control, including an oversupply of apartments or
a reduction in demand for apartments in the Company's markets, the cost of
regulation, changes in tax laws, housing laws, increasing interest rate levels,
and the unavailability of financing. FFO would be adversely affected if a
significant number of residents were unable to pay rent or if apartments could
not be rented on favorable terms. Significant expenditures associated with each
equity investment in a Community (such as mortgage payments, if any, real estate
taxes and maintenance costs) generally are not reduced when circumstances cause
a reduction in a Community's rent revenue.
OPERATING RISKS
The Communities are subject to all operating risks common to apartment
communities in general. 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, (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; and (vi) disagreements with joint
venture partners or real estate co-investors, if any. The local rental market
may limit the extent to which rents may be increased in response to operating
expense increases without decreasing occupancy rates. Historically, the Company
has incurred increased operating expenses in the third calendar quarter due to
planned increases in apartment unit turnover during such quarter. The Company's
ability to make expected distributions to shareholders could be adversely
affected by any of the above-described events.
DEPENDENCE ON MEMPHIS, TENNESSEE MARKET
As of July 31, 1997, approximately 21% of the apartment units in the
Communities were located in the Memphis, Tennessee market. The Company's
performance, therefore, may be linked to economic conditions in that market.
Adverse developments in that market, including the risk factors described above,
could adversely affect the Company's operating results.
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ILLIQUIDITY OF REAL ESTATE COULD ADVERSELY AFFECT THE PRICE AND TIMING OF
SALES OF COMMUNITIES
Real estate investments are relatively illiquid and, therefore, the
Company's ability to vary its portfolio promptly in response to changes in
economic or other conditions may be limited. The Operating Partnership has
agreed that it will not sell or refinance Greenbrook Apartments, a 1,031-unit
apartment community transferred to the Company by Robert F. Fogelman, a member
of the Company's Board of Directors, in connection with the Company's formation,
without the advance written consent of Mr. Fogelman, so long as he continues to
own at least 217,500 Common Units. The Company also has agreed not to sell or
refinance four other Communities without the advance written consent of certain
limited partners of the Operating Partnership (including, with respect to one
Community in addition to Greenbrook, Mr. Fogelman; all such limited partners
being collectively referred to hereinafter as the "Taxable Partners") who
continue to own in the aggregate at least 50% of the Common Units received on
account of the transfer of the applicable Community in connection with the
Company's formation. The Taxable Partners may withhold such consent in their
sole discretion, precluding the sale or refinancing of such Communities, which
could adversely affect the Company's liquidity or ability to take advantage of
particular opportunities.
BOND COMPLIANCE REQUIREMENTS MAY LIMIT INCOME FROM CERTAIN COMMUNITIES
Nineteen of the Company's Communities have been financed with the proceeds
of the issuance of tax-exempt bonds or HUD guaranteed loans and are subject to
restrictive covenants or deed restrictions. The aggregate outstanding principal
amount of such financing as of July 31, 1997 was approximately $97.1 million.
Communities financed with the proceeds of tax-exempt bonds are subject to
various restrictions and requirements, including a requirement that not less
than 20% of the apartment units in each such Community be occupied by residents
whose income does not exceed 80% of the median income for the area at all times
during the period specified in the bond documents. The bond compliance
requirements may have the effect of limiting the Company's income from affected
Communities in the event the Company is required to lower its rental rates to
attract residents meeting the qualification requirements. In the event that tax
law requirements are not met, interest on the bonds could become subject to
federal and state income tax, which would result in either an increase in the
interest rate on such bonds or an early redemption of the bonds (which
redemption could be at a premium).
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 Properties
affected and the owner'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 its Communities or developments, nor is the Company aware of any other
material environmental condition with respect to any of the Communities.
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.
Phase II testing (which involves invasive procedures) has been performed on two
of the Company's Communities. These ESAs have not revealed any significant
environmental liability that would have a material adverse effect on the
Company's business. However, in connection with the ownership and operation of
the Communities, the Company, the Operating Partnership, the Texas Operating
Partnership or the Operating Subsidiaries, as the case may be, potentially may
be liable for damages or cleanup, investigation or remediation costs.
With the exception of two Communities, the ESAs completed prior to 1994
have been updated in connection with additional financings. Several of the ESAs
indicated the presence of radon levels exceeding
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Environmental Protection Agency ("EPA") approved levels. In each instance
where sampling disclosed elevated radon levels, the owners of the affected
Communities have taken the recommended remedial actions, and subsequent testing
was done to confirm that the levels were brought to acceptable EPA levels.
Unknown and unremediated radon levels at any Community could give rise to
personal injury claims by residents and others. No assurances can be given that
existing ESAs with respect to any of the Communities have revealed all
environmental liabilities, that any prior owner of a Community did not create
any material environmental condition not known to the Company, or that a
material environmental condition does not otherwise exist as to any one or more
of the Communities.
Twenty of the Communities have asbestos-containing materials ("ACM") on
or in insulation, floor and ceiling coverings. While the precise amounts of ACM
contained in the Communities cannot be determined without incurring substantial
expense, the Company believes, based on its review of the Phase I and Phase II
environmental reports, that overall levels are low and that ACM at 12 of the
Communities are non-friable. Friable ACM are contained in eight Communities and
the Company believes that such ACM are subject to adequate maintenance programs.
The ESAs do not recommend any remediation of ACM at any Community. 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 affect
on the Company's ability to make distributions to shareholders.
COMPLIANCE WITH OTHER LAWS.
The Communities and any apartment community acquired or developed by the
Company in the future must comply with Title III of the Americans with
Disabilities Act (the "ADA") to the extent that such 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 ASSOCIATED WITH DEBT FINANCING
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 Series A 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 46% at July 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.
As of July 31, 1997, approximately $131.7 million of long-term fixed rate
debt was recourse to the Operating Partnership. The Company has agreed to
maintain $8.9 million of recourse debt in order to
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preserve the tax bases of the Taxable Partners (except Mr. Fogelman) in their
Common Units. Upon the liquidation and dissolution of the Operating Partnership,
the Taxable Partners (except Mr. Fogelman) have agreed to indemnify the Company
for any deficiency in the repayment of such debt and contribute the amount of
any such deficiency to the Operating Partnership as additional capital. Mr.
Fogelman has personally guaranteed $12.6 million of long-term fixed rate
non-recourse indebtedness in order to preserve his tax basis in his Common
Units. The Company has agreed to maintain at least $12.6 million of such
guaranteed non-recourse indebtedness for so long as Mr. Fogelman owns at least
285,250 Common Units. The Company has agreed to indemnify Mr. Fogelman and the
other Taxable Partners for taxes, penalties and interest that may be incurred
due to inadvertent prepayment of debt by the Company. The foregoing agreements
require that the Company to maintain at least $21.5 million of indebtedness
unless the appropriate Taxable Partners consent to the prepayment of such
indebtedness or dispose of their Common Units, which could limit the Company's
ability to control the terms of its mortgage financing or the Credit Line. The
Company could be forced to dispose of certain Communities upon disadvantageous
terms, which could result in losses to the Company and could adversely affect
cash flow available for distribution to shareholders. Moreover, if a Community
is mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the Community could be foreclosed upon by or otherwise
transferred to the mortgagee with a consequent loss of income and asset value to
the Company.
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
Company's 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
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<PAGE>
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.
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 OPERATING PARTNERSHIP, THE TEXAS OPERATING PARTNERSHIP
AND THE SUBSIDIARY 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 ruling
from the Service that the Operating Partnership, the Texas Operating Partnership
or any Subsidiary Partnership (collectively, 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.
POTENTIAL CONFLICTS OF INTEREST
Holders of Class A Common Units may suffer different and more adverse tax
consequences than the Company upon the sale of any of the Communities acquired
upon formation of the Company or refinancing or prepayment of indebtedness
associated with or secured by any of such Communities. Therefore, such holders,
including Mr. Cates, Mr. Fogelman, and O. Mason Hawkins, who is also a member of
the Board of Directors, may have different objectives from the Company regarding
the appropriate pricing and timing of any refinancing or prepayment of
indebtedness associated with such Communities or any sale of such Communities.
The Company has exclusive authority as to whether and on what terms to sell or
refinance or repay indebtedness related to an individual Community (except
certain Communities described below), and the Company's bylaws provide that a
majority of the Board of Directors, including a majority of the independent
directors, may approve the sale or other disposition of a Community. However,
Messrs. Cates, Fogelman and Hawkins may influence the remaining directors not to
approve the sale of or refinancing of the indebtedness associated with a
particular Community, even though such sale or refinancing might otherwise be
financially advantageous to the Company, or may influence the Company to
refinance the indebtedness associated with a particular Community and increase
the level of debt. Moreover, as to five of the Communities acquired upon
formation of the Company, the Operating Partnership has agreed that it will not
sell such Communities or refinance the indebtedness associated with such
Communities without the advance written consent of certain former owners
thereof. Mr. Fogelman is one of those former owners. Such owners are likely to
be motivated by tax reasons to withhold such consent, which would adversely
affect the Operating Partnership's ability to take advantage of particular
opportunities. Further, the Company is obligated to (i) maintain at least $12.6
million of non-recourse debt guaranteed by Mr. Fogelman so long as he continues
to own 285,250 Common Units and (ii) maintain approximately $8.9 million of
recourse debt in order to preserve the Taxable Partners' tax bases in their
Common Units.
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<PAGE>
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 1998, 1999, and 2000,
respectively. Directors in each class are elected for a three-year term. 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
5,000,000 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
Company's 9.5% Series A Cumulative Preferred Stock (the "Series A Preferred
Stock") are issued and outstanding. See "Description of Capital Stock of the
Company -- Preferred Stock" and "-- Series A 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."
USE OF PROCEEDS
The Company will contribute the net proceeds of any sale of the Offered
Securities by the Company to the Operating Partnership in exchange for units of
limited partnership interests having characteristics similar to those of the
Offered Securities. Unless otherwise set forth in the applicable Prospectus
Supplement, the net proceeds from the sale of any Offered Securities will be
used by the Company for general corporate purposes, which may include the
acquisition and development of multifamily properties as suitable opportunities
arise, the improvement of certain properties in the Company's portfolio and the
repayment of certain then-outstanding secured or unsecured indebtedness.
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CONSOLIDATED RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratio of earnings to
combined fixed charges and preferred stock distributions of the Company and for
the predecessor to the Company prior to February 4, 1994:
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ------------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions......................... 1.07x 1.32x 1.82x 1.50x 1.52x 1.48x
Ratio of Earnings to Fixed Charges...... 1.07x 1.32x 1.82x 1.50x 1.57x 1.73x
</TABLE>
For the purpose of calculating the consolidated ratio of earnings to
combined fixed charges and preferred stock distributions and the consolidated
ratio of earnings to fixed charges, earnings consist of net income (loss) before
gain on disposition of properties, extraordinary items and allocation to
minority interests, plus fixed charges less capitalized interest. Fixed charges
consist of interest expense, capitalized interest and amortization of deferred
financing costs. Prior to 1996, the Company had not issued any Preferred Stock;
therefore, for the years prior to 1996 the ratios of earnings to combined fixed
charges and preferred stock distributions and the ratios of earnings to fixed
charges are the same.
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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 20,000,000 shares
of Common Stock and 5,000,000 shares of Preferred Stock. Each outstanding share
of Common Stock entitles the holder to one vote on all matters presented to
shareholders for a vote.
COMMON STOCK
Subject to such preferential rights granted by the Board of Directors in
connection with the issuance of the Series A 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 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
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock in one or more series, with such designations, powers, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, in each case, if any, as are permitted by Tennessee law and as the
Board of Directors may determine by adoption of an amendment to the Company's
Charter without any further vote or action by the Company's shareholders. As of
the date of this Prospectus, 2,000,000 shares of the Series A Preferred Stock
were issued and outstanding, having the following rights, restrictions,
limitations, preferences, and other attributes:
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. The term "equity securities" does not include convertible debt
securities, which will rank senior to the Series A Preferred Stock.
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).
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<PAGE>
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.
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 Charter and 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 Company's 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 Company's
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.
SPECIAL MEETINGS. Under the Company's 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 Company's Charter, including the use of a staggered board, may
render more difficult a change in control of the Company or removal of incumbent
management.
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<PAGE>
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS. The Bylaws of the
Company provide that with respect to an annual meeting of shareholders, the
proposal of business to be considered by shareholders may be made only (i) by or
at the direction of the Board of 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 Company's 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 of the Company 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.
TENNESSEE ANTI-TAKEOVER STATUTES
In addition to certain of the Company's 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
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.
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<PAGE>
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.
"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.
"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.
OWNERSHIP LIMITATIONS
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 "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
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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.
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 the
assets of or dissolution of the Operating Partners
