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Filed Pursuant to Rule 424(b)(5)
Registration No. 33-93672
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 17, 1995)
GABLES RESIDENTIAL TRUST
1,435,000 COMMON SHARES
This Prospectus Supplement and the attached Prospectus relate to the
offering and sale of 1,435,000 Common Shares of Beneficial Interest, par value
$.01 per share (the "Common Shares"), of Gables Residential Trust to an
institutional investor at a purchase price of $24.375 per share, or an aggregate
purchase price of $34,978,125. In connection with such sale, the Company has
agreed to pay a fee equal to 2% of the purchase price of the Common Shares to
Lehman Brothers Inc. for its services as a finder in connection with the shares
to be sold in this offering.
The Common Shares are listed on the New York Stock Exchange (the "NYSE")
under the symbol "GBP." On September 25, 1996, the reported last sale price of
the Common Shares on the NYSE was $24.625 per share. The Board of Trustees of
Gables Residential Trust declared a dividend with respect to the quarterly
period ended September 30, 1996 in the amount of $0.49 per share to shareholders
of record on September 30, 1996.
SEE "RISK FACTORS" ON PAGE S-3 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN COMMON SHARES
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 26, 1996
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement or the accompanying
Prospectus or incorporated herein or therein by reference. Unless the context
otherwise requires, all references in this Prospectus Supplement to the
"Company" shall mean Gables Residential Trust and its subsidiaries on a
consolidated basis (including Gables Realty Limited Partnership and its
subsidiaries) or, where the context so requires, Gables Residential Trust only,
and, as the context may require, their predecessors.
THE COMPANY
Gables Residential Trust is one of the largest owners, operators and
developers of multifamily communities in the Southeastern and Southwestern
United States. The Company owns 47 multifamily communities including an indirect
25% interest in two multifamily communities (collectively, the "Current
Communities") located in the following major cities in Georgia, Texas and
Tennessee: Atlanta, Austin, Dallas, Houston, San Antonio, Memphis and Nashville.
The Current Communities total 14,944 apartment homes and had a physical
occupancy rate of approximately 96% as of June 30, 1996, excluding one community
in the final stages of lease-up and two communities with a total of 650
apartment homes acquired subsequent to June 30, 1996. The Company also owns six
multifamily communities that are under construction (collectively, the
"Development Communities" and, with the Current Communities, the "Communities").
The 1,662 apartment homes in the Development Communities are expected to be
completed by the third quarter of 1997 and will increase the Company's portfolio
to a total of 16,606 apartment homes, an increase of 11.1% over today's
portfolio size. The Company has received an offer for the acquisition of one of
its Current Communities comprising 486 apartment homes. The offer is contingent
upon, among various items, acceptance of the results of due diligence and
satisfactory defeasance of the tax-exempt indebtedness currently encumbering the
community. No assurance can be made that this transaction will be consummated.
The Company also owns three sites (the "Undeveloped Sites") on which it
intends to develop multifamily communities and has rights (the "Development
Rights") to acquire four additional sites. Although there is no assurance that
the Company will develop multifamily communities at any of the Undeveloped Sites
or pursuant to any of the Development Rights, approximately 2,345 apartment
homes would be added to the Company's portfolio from the successful development
of all such locations. The Company is also under contract to acquire an
apartment community in Dallas, Texas, comprising 232 apartment homes (the
"Dallas Community"). The acquisition of the Dallas Community is subject to the
completion of due diligence as well as ongoing business review by the Company.
No assurance can be made that the acquisition will close.
Since the Company's initial offering of common shares in January 1994 (the
"Initial Offering"), the Company has completed the construction of 17
Communities with 4,081 apartment homes at a total cost of approximately $250
million. Additionally, since its Initial Offering the Company has acquired six
communities with 2,137 apartment homes at a total cost exceeding $125 million.
During the same period the Company has substantially reduced its use of floating
rate debt, lengthened maturities and expanded its credit facility.
The Company operates as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended. Substantially all of the Company's
business is conducted through, and all of the Company's interests in property
are held by or through, Gables Realty Limited Partnership (the "Operating
Partnership"), of which the Company is currently an 83.5% economic owner and
which the Company controls through a wholly-owned subsidiary that is the sole
general partner of the Operating Partnership.
The Company's executive offices are located at 2859 Paces Ferry Road, in
Atlanta, Georgia 30339 and its telephone number is (770) 436-4600. The Company's
common shares of beneficial interest, par value $.01 per share ("Common
Shares"), are listed on the New York Stock Exchange under the symbol "GBP."
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RISK FACTORS
An investment in Common Shares involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to any investment in the Company.
THE OFFERING
Common Shares Offered by
the Company................ 1,435,000 Common Shares.
Common Shares Outstanding
After the Offering....... 19,286,429(A).
Offering Price............. $24.375 per Common Share.
Use of Proceeds............ Repayment of floating rate debt incurred in
connection with the development of certain
Communities and general working capital, including
the possible funding of future development and
acquisitions.
NYSE Symbol................ GBP.
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(A) Does not include Common Shares reserved for issuance upon (i) possible
acquisition of 3,528,232 outstanding limited partnership units of the
Operating Partnership, representing the aggregate minority interest in the
Operating Partnership, and (ii) exercise of approximately 950,000
outstanding options granted pursuant to the Company's option plan. The
number of Common Shares which are reserved for issuance under the option
plan is equal to 8% of the total number of Common Shares and Operating
Partnership units (other than units held by the Company or its subsidiaries)
outstanding at any time.
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RISK FACTORS
An investment in Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained or incorporated by reference in this
Prospectus Supplement and the attached Prospectus before making a decision to
purchase Common Shares.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
The Company intends to actively continue development and construction of
multifamily communities. There can be no assurance that the Company will
undertake to develop any particular site or that it will be able to complete
such development if it is undertaken. Risks associated with the Company's
development and construction activities include: development opportunities may
be abandoned; construction costs of a community may exceed original estimates,
possibly making the community uneconomical; occupancy rates and rents at a newly
completed community may not be sufficient to make the community profitable;
financing may not be available on favorable terms for development of a
community; and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy, and
other required governmental permits and authorizations.
The Company intends to continue to acquire multifamily apartment
communities on a select basis. Acquisitions of multifamily communities entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate.
The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under existing credit facilities or loan
commitments or other lines of credit or other forms of secured or unsecured
financing or through the issuance of additional equity by the Company. The use
of equity financing, rather than debt, for future developments or acquisitions
could have a dilutive effect on the interest of existing shareholders of the
Company. If new developments are financed through construction loans, there is a
risk that, upon completion of construction, permanent financing for newly
developed communities may not be available or may be available only on
disadvantageous terms.
REAL ESTATE FINANCING RISKS
No Limitation on Debt. The Company currently has a policy of incurring
debt only if upon such incurrence the ratio of debt to total market
capitalization (i.e., the total consolidated debt of the Company as a percentage
of the market value of issued and outstanding equity securities plus total
consolidated debt) would be 60% or less, but the organizational documents of the
Company do not contain any limitation on the amount of indebtedness the Company
may incur. Accordingly, the Company's Board of Trustees could alter or eliminate
this policy.
Existing Debt Maturities, Balloon Payments and Refinancing Risks. The
Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. Because the Company anticipates
that only a small portion of the principal of the Company's mortgage
indebtedness will be repaid prior to maturity, it will be necessary for the
Company to refinance debt. Accordingly, there is a risk that existing
indebtedness on the Communities will not be able to be refinanced or that the
terms of such refinancing will not be as favorable as the terms of the existing
indebtedness.
Risk of Rising Interest Rates. The Company incurred and expects in the
future to incur floating rate indebtedness in connection with the construction
of multifamily apartment communities, as well as for other purposes. In
addition, additional indebtedness that the Company incurs under the Company's
existing secured revolving credit facility also bears interest at a floating
rate. Accordingly, increases in interest rates would increase the Company's
interest costs (to the extent that the related indebtedness was not protected by
the Company's interest rate protection arrangements).
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Bond Compliance Requirements. Ten of the Current Communities (including
Arbors of Harbortown, in which the Company has an indirect 25% general partner
interest) are financed with obligations issued by various local government
agencies or instrumentalities, the interest on which is exempt from Federal
income taxation. These obligations are commonly referred to as "tax-exempt
bonds." Under the terms of the bonds, the Company must comply with various
restrictions on the use of the Communities including that a percentage of
apartments be made available to low and middle income households. The bond
compliance requirements in effect, and the requirements of any future tax-exempt
bond financing utilized by the Company, may have the effect of limiting the
Company's income from the Communities subject to the financing.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. If the Company's communities do not generate revenues sufficient to meet
operating expenses, including debt service and capital expenditures, the
Company's cash flow and ability to make distributions to its shareholders will
be adversely affected. A multifamily community's revenues and value may be
adversely affected by the general economic climate; the local economic climate
(including the fiscal condition of the relevant governmental bodies); local real
estate conditions (such as oversupply of or reduced demand for apartment homes);
the perceptions by prospective residents of the safety, convenience and
attractiveness of the communities or neighborhoods in which they are located and
the quality of local schools and other amenities; the ability of the owner to
provide adequate management, maintenance and insurance; and increased operating
cost (including real estate taxes and utilities). Certain significant
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment.
Dependence on Primary Markets. The Communities are located in various
metropolitan areas in the Southeastern and Southwestern United States,
particularly Atlanta, Houston and Dallas, and the Company's performance and its
ability to make distributions to shareholders could be adversely affected by
economic and social conditions in these geographic areas.
Market Illiquidity. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Internal Revenue Code (the "Code") limits the Company's ability
to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.
Competition. There are numerous housing alternatives that compete with the
Communities in attracting residents. The Communities compete directly with other
multifamily rental apartments and single family homes that are available for
rent or purchase in the markets in which the Communities are located. In
addition, other competitors for development and acquisitions of properties,
including other REITs, may have greater resources than the Company. Increased
supply of apartment homes in the Company's principal markets over the past few
years and the next few years may adversely affect the current favorable demand
environment for apartment homes, including occupancy and rental rates.
RISK OF FEE MANAGEMENT BUSINESS
The Company manages for a fee properties owned by third parties. Risks
associated with the management of properties owned by third parties include the
risk that the management contracts will be terminated and that the rental
revenues upon which management fees are based will decline, resulting in
decreased management fee income to the Company.
LIMITS ON CHANGES IN CONTROL
Certain provisions contained in the Company's Amended and Restated
Declaration of Trust (the "Declaration of Trust") and Amended and Restated
Bylaws and under Maryland law may have the effect of discouraging a third party
from making an acquisition proposal for the Company and may thereby inhibit a
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change in control of the Company. For example, such provisions may (i) deter
tender offers for Common Shares, which offers may be attractive to the
shareholders, or (ii) deter purchases of large blocks of Common Shares, thereby
limiting the opportunity for shareholders to receive a premium for their Common
Shares over then-prevailing market prices.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF COMMON SHARES
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding shares of the Company may be owned, directly or
indirectly, by five or fewer persons. In order to protect the Company against
the risk of losing its status as a REIT due to a concentration of ownership
among its shareholders, the Company has limited ownership of the issued and
outstanding Common Shares by any single shareholder to 9.8% of the outstanding
shares of beneficial interest. Although the Board of Trustees presently has no
intention of doing so, the Board of Trustees could waive this restriction if it
were satisfied, based upon the advice of tax counsel, that ownership in excess
of this limit would not jeopardize the Company's status as a REIT and the Board
of Trustees otherwise decided such action would be in the best interests of the
Company. This restriction also does not apply with respect to an offeror in the
event of an all-cash tender offer by it which has been accepted by at least
two-thirds of the Company's outstanding shares. Shares acquired or transferred
in breach of the limitation will be automatically exchanged for shares not
entitled to vote or to participate in dividends or other distributions. In
addition, shares acquired or transferred in breach of the limitation may be
purchased by the Company for the lesser of the price paid and the market price
(as determined in the manner set forth in the Declaration of Trust).
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
The Company intends at all times to operate so as to qualify as a REIT
under the Code. Although management of the Company believes that the Company is
organized and operates in such a manner, no assurance can be given that the
Company qualifies or will remain qualified as a REIT. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect the Company's ability to qualify as a REIT. If
the Company fails to qualify as a REIT, it will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. In addition, unless entitled to relief under certain
statutory provisions, the Company will be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax would significantly reduce the cash flow available for
distribution to shareholders.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Common Shares could be substantially affected by
general market conditions, including changes in interest rates, government
regulatory action and changes in tax laws. An increase in market interest rates
may lead purchasers of the Common Shares to demand a higher annual yield on the
price paid for shares from distributions by the Company, which could adversely
affect the market price of the Common Shares.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local environmental laws, a current or
previous owner or operator of real estate may be required (typically regardless
of knowledge or responsibility) to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property and may be held liable
to a governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with the
contamination, which may be substantial. The presence of such substances (or the
failure to properly remediate the contamination) may adversely affect the
owner's ability to borrow against, sell or rent such property.
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USE OF PROCEEDS
The net proceeds to the Company from the offering of 1,435,000 Common
Shares at a price of $24.375 per Common Share are estimated to be approximately
$34.3 million after deducting fees and expenses of the offering payable by the
Company estimated at approximately $0.7 million. The Company intends to use such
net proceeds to (i) repay outstanding floating rate indebtedness incurred under
the Company's existing credit facility to fund the Company's development
activities (such indebtedness currently bears interest at a weighted average
annual interest rate of approximately 7.1%) and (ii) to fund working capital,
including the possible funding of future developments and acquisitions,
including the possible acquisition of the Dallas Community.
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THE COMPANY
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995: This prospectus, including the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth under "Risk
Factors," and prospective purchasers of the Common Shares offered hereby should
carefully review such risk factors.
GENERAL
Gables Residential Trust is one of the largest owners, operators and
developers of multifamily communities in the Southeastern and Southwestern
United States. The Company owns 47 multifamily communities including an indirect
25% interest in two multifamily communities (collectively, the "Current
Communities") located in the following major cities in Georgia, Texas and
Tennessee: Atlanta, Austin, Dallas, Houston, San Antonio, Memphis and Nashville.
The Current Communities total 14,944 apartment homes and had a physical
occupancy rate of approximately 96% as of June 30, 1996, excluding one community
in the final stages of lease-up and two communities with a total of 650
apartment homes acquired subsequent to June 30, 1996. The Company also owns six
multifamily communities that are under construction (collectively, the
"Development Communities" and, with the Current Communities, the "Communities").
The 1,662 apartment homes in the Development Communities are expected to be
completed by the third quarter of 1997 and will increase the Company's portfolio
to a total of 16,606 apartment homes, an increase of 11.1% over today's
portfolio size. The Company has received an offer for the acquisition of one of
its Current Communities comprising 486 apartment homes. The offer is contingent
upon, among various items, acceptance of the results of due diligence and
satisfactory defeasance of the tax-exempt indebtedness currently encumbering the
community. No assurance can be given that this transaction will be consummated.
The Company also owns three sites (the "Undeveloped Sites") on which it
intends to develop multifamily communities and has rights (the "Development
Rights") to acquire four additional sites. Although there is no assurance that
the Company will develop multifamily communities at any of the Undeveloped Sites
or pursuant to any of the Development Rights, approximately 2,345 apartment
homes would be added to the Company's portfolio from the successful development
of all such locations. Development of the Development Rights and the Undeveloped
Sites are subject to permits and other governmental approvals, as well as
ongoing business review by the Company. There can be no assurance that the
Company will decide or be able to complete development of all or any of the
communities subject to the Development Rights, to develop the Undeveloped Sites,
or to complete the number of apartment homes cited above.
The Company is also under contract to acquire the Dallas Community,
comprising 232 apartment homes. The acquisition of this community is subject to
the completion of due diligence as well as ongoing business review by the
Company. Subject to these contingencies, the Company expects to close the
acquisition of the Dallas Community in the fourth quarter of 1996, although no
assurance can be given that this acquisition will close.
The Company's senior management team consists of individuals who have been
responsible for the development or acquisition of approximately 40,000 apartment
homes since 1982 and who have, on average, in excess of thirteen years
experience in the multifamily industry. The Company provides a full range of
integrated real estate management, construction and acquisition services through
a staff of approximately 850 employees who have experience in property
operations, development, acquisition and construction. The Company maintains
offices in Atlanta, Houston and Dallas, each with its own fully integrated real
estate staff. The finance, accounting and administrative functions for the
Company are controlled by a central staff located in Atlanta.
The Company operates as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended. Substantially all of the Company's
business is conducted through, and all of the Company's interests in property
are held by or through, Gables Realty Limited Partnership (the "Operating
Partner-
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ship"), of which the Company is currently an 83.5% economic owner and which the
Company controls through a wholly-owned subsidiary that is the sole general
partner of the Operating Partnership.
THE COMMUNITIES
The Current Communities typically are two and three story garden
apartments, townhomes and higher-density apartments. Thirty-three of the Current
Communities have more than 250 apartment homes, with the largest having 776
apartment homes. As of June 30, 1996, the Current Communities had an average
monthly rental rate per apartment home of approximately $733 and had a physical
occupancy rate of approximately 96%, excluding one Community in the final stages
of lease-up and two Communities with a total of 650 apartment homes acquired
subsequent to June 30, 1996. Most of the Company's Communities offer many
attractive features designed to enhance their market appeal, such as vaulted
ceilings, fireplaces, dishwashers, disposals, washer/dryer connections,
ice-makers, patios and decks. Recreational facilities include swimming pools,
fitness facilities, playgrounds, picnic areas and tennis and racquetball courts.
In many Communities, the Company makes amenities and services available to
residents, such as aerobic classes, resident social events, dry cleaning pick-up
and delivery, and the use of fax, computer and copy equipment. In-depth market
research, including periodic focus groups with residents, is used to refine and
enhance management services and community design. The Development Communities
and the recently completed Current Communities reflect the Company's continuing
research of consumer preferences for upscale multifamily rental housing and
incorporate and emphasize garage parking, high levels of privacy, higher quality
interiors and private telephone and television systems. The average age of the
Current Communities is seven years.
GROWTH STRATEGY
The Company has grown its funds from operations since its Initial Offering
and expects to continue to grow its funds from operations by maximizing the
performance of its Current Communities and pursuing the development or
acquisition of additional communities. At the time of its Initial Offering, the
Company had four development communities under construction. Since its Initial
Offering the Company has completed the development of 17 Communities with 4,081
apartment homes at a total cost of approximately $250 million. Additionally,
since its Initial Offering the Company has acquired six Communities with 2,137
apartment homes at a total cost exceeding $125 million. The following chart
illustrates the Company's net operating income, total revenues and number of
apartment homes in stabilized Communities from the second quarter of 1994
through the second quarter of 1996:
[BAR GRAPH]
<TABLE>
<CAPTION>
Number of Apartment
Homes in
Net Operating Total Stabilized
Income* Revenues Communities
------------- -------- --------------
($ in millions) ($ in millions)
<S> <C> <C> <C>
2nd Quarter 1994 $ 9.420 $16.276 8,858
3rd Quarter 1994 9.801 17.205 8,858
4th Quarter 1994 10.440 17.834 9,466
1st Quarter 1995 10.821 18.445 9,785
2nd Quarter 1995 11.281 19.031 9,785
3rd Quarter 1995 12.322 21.133 9,997
4th Quarter 1995 13.762 23.151 10,375
1st Quarter 1996 14.946 24.442 11,070
2nd Quarter 1996 17.496 28.143 14,031
</TABLE>
* Net operating income is calculated by subtracting from total revenues
property operating and maintenance expense (exclusive of depreciation and
amortization) and property management expense related to both owned and
third party properties.
Completed Communities Since Initial Offering. The Company has completed
the development of 17 Communities since its Initial Offering. With the exception
of the Buckhead Gables and the Gables over Peachtree Communities, which the
Company purchased and on which the Company completed significant redevelopments,
all of the Communities represent new development. All of the completed
Communities have
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reached stabilized occupancy, except for the Gables over Peachtree Community
which is currently in lease-up. The Gables over Peachtree Community is expected
to reach stabilized occupancy in the first quarter of 1997. The table below sets
forth certain information on these 17 Communities:
<TABLE>
<CAPTION>
TOTAL ACTUAL COST NUMBER OF
COMMUNITY LOCATION ($ IN MILLIONS) APARTMENT HOMES
- ---------------------------------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
1. Briarcliff Gables.................. Atlanta, GA $ 7.7 104
2. Buckhead Gables.................... Atlanta, GA 7.5 162
3. Dunwoody Gables.................... Atlanta, GA 17.8 311
4. Gables over Peachtree.............. Atlanta, GA 20.4 263
5. Roswell Gables I................... Atlanta, GA 21.3 384
6. Spalding Gables.................... Atlanta, GA 16.0 252
7. Brentwood Gables................... Nashville, TN 16.5 254
8. Gables Town Lake................... Austin, TX 16.0 256
9. Gables at Pearl Street............. Dallas, TX 9.0 108
10. Gables Spring Park................. Dallas, TX 12.2 188
11. Gables Valley Ranch................ Dallas, TX 15.8 319
12. Gables Preston..................... Dallas, TX 8.9 126
13. Gables CityPlaza................... Houston, TX 13.4 246
14. Gables Piney Point................. Houston, TX 12.8 246
15. Metropolitan Uptown(1)............. Houston, TX 26.5 318
16. Gables Colonnade I................. San Antonio, TX 15.3 312
17. Gables Wall Street................. San Antonio, TX 12.6 232
------ -----
$ 249.7 4,081
</TABLE>
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(1) The Company owns an indirect 25% interest in this Community.
Acquisitions Since Initial Offering. The Company has acquired six
Communities since its Initial Offering at a total cost exceeding $125 million.
The table below sets forth certain information on the six acquired Communities:
<TABLE>
<CAPTION>
NUMBER OF ACQUISITION
COMMUNITY LOCATION APARTMENT HOMES DATE
- ---------------------------------------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
1. Gables Cinnamon Ridge.................... Atlanta, GA 200 10/94
2. Gables Pin Oak Green..................... Houston, TX 582 4/96
3. Gables Pin Oak Park...................... Houston, TX 477 4/96
4. Gables River Oaks........................ Houston, TX 228 5/96
5. Gables Stonebridge....................... Memphis, TN 500 7/96
6. Gables Turtle Creek...................... Dallas, TX 150 8/96
-----
2,137
</TABLE>
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Development Communities. The table below sets forth certain information on
the six Development Communities under construction:
<TABLE>
<CAPTION>
ESTIMATED
QUARTER
NUMBER OF TOTAL PERCENT OF
APARTMENT BUDGETED COST CONSTRUCTION STABILIZED
COMMUNITY LOCATION HOMES ($ IN MILLIONS)(1)(2) COMPLETE(2) OCCUPANCY(3)
- --------------------------- ----------- --------- --------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1. Gables at Vinings..... Atlanta, GA 315 $ 24.6 6% 4 Q 1997
2. Roswell Gables II..... Atlanta, GA 284 21.7 3% 4 Q 1997
3. Gables Central Park... Austin, TX 273 20.6 6% 4 Q 1997
4. Gables Green Oaks I... Dallas, TX 300 16.5 96% 4 Q 1996
5. Gables Quail Ridge.... Memphis, TN 238 15.6 76% 1 Q 1997
6. Gables Germantown..... Memphis, TN 252 17.9 72% 1 Q 1997
----- ------
1,662 $ 116.9
</TABLE>
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(1) Total Budgeted Cost includes all capitalized costs incurred and projected to
be incurred to develop the respective Community presented in accordance
with generally accepted accounting principles, including land acquisition
costs, construction costs, real estate taxes, interest and loan fees,
permits, professional fees, allocated development overhead, and other
regulatory fees.
(2) As of June 30, 1996.
(3) Stabilized occupancy is defined as the earlier to occur of (i) 93% physical
occupancy or (ii) one year after completion of construction of the
Community.
Successful development has been instrumental to the growth of the Company.
The Company's development team has extensive experience in the identification of
sites, land planning, product development and construction in the Southeastern
and Southwestern United States. In evaluating whether to develop an apartment
community, the development team analyzes current demographics and economic data
such as household formation rates, income levels, rental rates and occupancies.
The Company seeks to develop properties in markets where it discerns a strong
demand, which the Company anticipates will enable it to achieve its targeted
initial yields. The Company expects to continue to focus its development
activities in the Southeastern and Southwestern United States which, as a result
of job growth and household formation, have generally experienced high occupancy
levels and rising rents in recent years. The typical submarket where the Company
develops its communities is one where resident profiles, including relatively
high income, justify the development of Class A multifamily communities offering
extensive resident amenities and services. Fundamental to the Company's
development is its in-house construction group, which allows the Company to act
as its own general contractor, which helps control quality, scheduling and cost.
In addition, the Company's development and construction expertise has enabled it
to develop a variety of multifamily communities, including Class A garden
apartment, townhomes and higher density apartments in a variety of geographic
areas.
DEMOGRAPHICS AND TRENDS IN THE COMPANY'S CORE MARKETS
The Company believes that demographic and economic trends in the Company's
core markets, Atlanta, Austin, Dallas, Houston, San Antonio, Memphis and
Nashville (the "Core Markets"), indicate a potential for continued growth in
funds from operations. The Company's belief in the potential of its Core Markets
is based on a multifamily housing investment environment characterized by
favorable demand dynamics and steady job and population growth. The Company
believes that demand for multifamily housing in the Core Markets will increase
during the next decade due to anticipated job growth, population growth and
growth in household formation. The Company believes that demand for multifamily
housing in the Core Markets also will be positively affected by the following
trends: (i) a growing percentage of renters in the upper income brackets whose
decision to rent is a lifestyle choice rather than a financial choice and (ii)
greater uncertainty regarding the financial benefits of home ownership than in
prior periods. The Company believes that these trends will offset to some extent
the general trend of a decline in the growth rate of the prime rental population
of 20-35 year olds and the effect of current low interest rates for home
mortgages.
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New construction of multifamily units has increased substantially in the
Core Markets from early 1990 levels in response to increased demand for
multifamily properties. The Company believes that the increased supply over the
past several years is justified by demand resulting from continued job creation
in the Core Markets. However, there can be no assurances that increases in the
supply of apartment homes in the Core Markets, particularly in Atlanta and
Dallas, over the next few years will not exceed demand in those markets and
result in increased competition for tenants and pressure on rental rates.
The following chart illustrates the geographic distribution of the
Company's Communities (based on the number of apartment homes after giving
effect to the completion of the Development Communities):
[PIE CHART]
[Atlanta (31.3%), Austin (4.9%), Dallas (10.4%),
Houston (32.3%), San Antonio (3.3%),
Memphis (10.8%) and Nashville (7.0%)]
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in Common Shares. The following
discussion is not exhaustive of all possible tax considerations and is not tax
advice. Moreover, this summary does not address all tax aspects that might be
relevant to a particular prospective shareholder in light of his or her personal
circumstances; nor does it address particular types of shareholders that are
subject to special treatment under the Code, such as insurance companies,
financial institutions and broker-dealers. The Code provisions governing the
Federal income tax treatment of REITs are highly technical and complex, and this
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof. The following discussion is based on current law and on
certain representations from the Company concerning its compliance with the
requirements for qualification as a REIT.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR,
WITH RESPECT TO SUCH INVESTOR'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON SHARES IN THE
COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
In the opinion of Goodwin, Procter & Hoar LLP, tax counsel to the Company,
commencing with the Company's first taxable year ended December 31, 1994, the
Company has been organized in conformity with the requirements for qualification
as a REIT under the Code, and its method of operation will enable it to continue
to meet the requirements for qualification and taxation as a REIT under the
Code, provided that the Company operated and continues to operate in accordance
with various assumptions and factual representations made by the Company
concerning its business, properties and operations. No assurance can be given,
however, that such requirements have been or will continue to be met. Such
qualification depends upon the
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Company's having met and continuing to meet the various requirements imposed
under the Code through actual operating results, as discussed below. Goodwin,
Procter & Hoar LLP has relied on the Company's representations regarding its
operations and has not and will not review these operating results. Accordingly,
no assurance can be given that actual operating results will meet these
requirements.
If the Company has qualified and continues to qualify for taxation as a
REIT, it generally will not be subject to Federal corporate income taxes on that
portion of its ordinary income or capital gain that is currently distributed to
shareholders. The REIT provisions of the Code generally allow a REIT to deduct
dividends paid to its shareholders. This deduction for dividends paid to
shareholders substantially eliminates the federal "double taxation" on earnings
(once at the corporate level when earned and once again at the shareholder level
when distributed) that usually results from investments in a corporation.
Even if the Company qualifies for taxation as a REIT, however, the Company
will be subject to Federal income tax, as follows: First, the Company will be
taxed at regular corporate rates on its undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain circumstances,
the Company may be subject to the "alternative minimum tax." Third, if the
Company has net income from the sale or other disposition of "foreclosure
property" that is held primarily for sale to customers in the ordinary course of
business or other non-qualifying income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property other than foreclosure property
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy either the 75% or 95% gross income test (discussed below) but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by a fraction intended to reflect the Company's
profitability. Sixth, if the Company fails to distribute during each year at
least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its
capital gain net income for such year and (iii) any undistributed taxable income
from prior periods, the Company will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. Seventh, if
the Company should acquire any asset from a C corporation (i.e., a corporation
generally subject to full corporate-level tax) in a carryover-basis transaction
and the Company subsequently recognizes gain on the disposition of such asset
during the ten-year period (the "Recognition Period") beginning on the date on
which the asset was acquired by the Company, then, to the extent of the excess
of (a) the fair market value of the asset as of the beginning of the applicable
Recognition Period over (b) the Company's adjusted basis in such asset as of the
beginning of such Recognition Period (the "Built-In Gain"), such gain will be
subject to tax at the highest regular corporate rate, pursuant to guidelines
issued by the IRS (the "Built-in Gain Rules").
REQUIREMENTS FOR QUALIFICATION
The Company elected to be taxable as a REIT for its taxable year ended
December 31, 1994, and in order to have so qualified, it must have met and
continued to meet the requirements discussed below, relating to the Company's
organization, sources of income, nature of assets and distributions of income to
shareholders.
Organizational Requirements. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest, (iii) that would be taxable as
a domestic corporation but for the REIT requirements, (iv) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code, (v) the beneficial ownership of which is held by 100 or more persons,
and (vi) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly through the
application of certain attribution rules, by five or fewer individuals (as
defined in the Code to include certain entities). In addition, certain other
tests, described below, regarding the nature of its income and assets also must
be satisfied. The Code provides that conditions (i) through (iv), inclusive,
must be met during the entire taxable year and that condition (v) must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (v) and
(vi) (the "100 shareholder" and "five or fewer" requirements) will
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not apply until after the first taxable year for which an election is made to be
taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
The Company's Declaration of Trust currently includes certain restrictions
regarding transfers of Common Shares, which restrictions are intended (among
other things) to assist the Company in continuing to satisfy conditions (v) and
(vi) above. In rendering its opinion that the Company is organized and operated
in a manner that has allowed the Company to qualify as a REIT, Goodwin, Procter
& Hoar LLP is relying on representations of the Company that the ownership of
its Common Shares will satisfy the "five or fewer" requirement. There can be no
assurance, however, that the restrictions in the Declaration of Trust will, as a
matter of law, preclude the Company from failing to satisfy these conditions or
that a transfer in violation of these restrictions would not cause the Company
to fail these conditions.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.
If a REIT owns a "qualified REIT subsidiary," the Code provides that the
qualified REIT subsidiary is disregarded for Federal income tax purposes, and
all assets, liabilities, and items of income, deduction and credit of the
qualified REIT subsidiary are treated as assets, liabilities and such items of
the REIT itself. A "qualified REIT subsidiary" is a corporation all of the
shares of beneficial interest of which have been owned by the REIT from the
commencement of such corporation's existence. Gables GP, Inc., the general
partner of the Operating Partnership and the general partnership which holds
certain Communities located in Tennessee, and Candle Creek, Inc., which serves
as the general partner of a special purpose limited partnership that was
organized to hold two Communities that were financed by tax-exempt bonds in
January of 1995, are qualified REIT subsidiaries. Thus, all of the assets,
liabilities, and items of income, deduction and credit of GGPI and Candle Creek,
Inc. will be treated as assets and liabilities and items of income, deduction
and credit of the Company. Unless the context requires otherwise, all references
to the "Company" in this "Federal Income Tax Considerations" section refer to
Gables Residential Trust and its qualified REIT subsidiaries, GGPI and Candle
Creek, Inc.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership (as determined based on the REIT's capital
interest in the partnership) and will be deemed to be entitled to the income of
the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership (including the Operating Partnership's share of the assets
and liabilities and items of income with respect to any partnership in which it
holds an interest, such as the general partnership which holds certain
Communities located in Tennessee and the special purpose limited partnership
that holds the two Communities that were financed with tax-exempt bonds in
January 1995) will be treated as assets, liabilities and items of income of the
Company for purposes of applying the requirements described herein.
Income Tests. To maintain qualification as a REIT, three gross income
requirements must be satisfied annually.
- First, at least 75% of the Company's gross income, excluding gross income
from certain dispositions of property held primarily for sale to customers
in the ordinary course of a trade or business ("prohibited transactions"),
for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments.
- Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from such real property investments and from dividends, interest and gain
from the sale or disposition of stock or securities or from any
combination of the foregoing.
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- Third, short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain from the sale or
other disposition of real property held for less than four years (apart
from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income (including gross
income from prohibited transactions) for each taxable year.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met.
- First, the amount of rent generally must not be based in whole or in part
on the income or profits of any person.
- Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests
if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
- Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the
personal property will not qualify as "rents from real property."
- Finally, for rents to qualify as "rents from real property" the REIT must
not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor who is adequately
compensated and from whom the REIT does not derive any income; provided,
however, that a REIT may provide services with respect to its properties
and the income will qualify as "rents from real property" if the services
are "usually or customarily rendered" in connection with the rental of
room or other space for occupancy only and are not otherwise considered
"rendered to the occupant."
The Company has not charged, and does not anticipate charging rent that is
based in whole or in part on the income or profits of any person. The Company
has not derived, and does not anticipate deriving, rent attributable to personal
property leased in connection with real property that exceeds 15% of the total
rents.
The Company has provided and will provide certain services with respect to
the Communities. The Company believes that the services with respect to the
Communities that have been and will be provided by it are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and therefore that the provision of
such services has not and will not cause rents received with respect to the
Communities to fail to qualify as rents from real property. The Company believes
that services with respect to the Communities that the Company believes may not
be provided by the Company directly without jeopardizing the qualification of
rent as "rents from real property" have been and will be performed by
independent contractors (which do not include the Management Companies, as
defined below).
The Operating Partnership may have received and may continue to receive
fees in consideration of the performance of property management services with
respect to properties not owned entirely by the Operating Partnership. A portion
of such fees (corresponding to that portion of a property owned by a
third-party) will not qualify under the 75% or 95% gross income test. The
Operating Partnership also has received and may continue to receive certain
other types of income with respect to the properties it owns that will not
qualify for the 30%, 75% or 95% gross income tests, including rent with respect
to certain apartment units leased to certain of the Management Companies (as
defined below), which constitutes non-qualifying rent from Related Party Tenants
and which does not qualify for the 75% and 95% gross income tests. In addition,
interest payments on the certain notes of the Management Companies held by the
Operating Partnership and dividends on the Operating Partnership's stock in the
Management Companies will not qualify under the 75% gross income test. The
Company believes, however, that the aggregate amount of such fees and other non-
qualifying income in any taxable year will not cause the Company to exceed the
limits on non-qualifying income under the REIT gross income tests.
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If the Company fails to satisfy one or both of the 75% or 95% gross income
test for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its Federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in
"Federal Income Tax Considerations -- Federal Income Taxation of the Company,"
even if these relief provisions apply, a tax would be imposed with respect to
the excess net income. No similar mitigation provision provides relief if the
Company fails the 30% income test, and in such case, the Company will cease to
qualify as a REIT.
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy three tests relating to the nature and diversification of its
assets.
- First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government
securities.
- Second, no more than 25% of the Company's total assets may be represented
by securities other than those in the 75% asset class.
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets (the "5% test"), and the Company may
not own more than 10% of any one issuer's outstanding voting securities.
The Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of certain corporations (the "Management Companies") which do not
qualify as "qualified REIT subsidiaries." By virtue of its ownership of limited
partnership units of the Operating Partnership ("Units"), the Company will be
considered to own its pro rata share of such stock. Neither the Company nor the
Operating Partnership, however, owns more than 1% of the voting securities of
any Management Company. In addition, the Company and its senior management do
not believe that the Company's pro rata share of the value of the securities of
any of the Management Companies exceeds 5% of the total value of the Company's
assets. The Company's belief is based in part upon its analysis of the estimated
value of the securities of the Management Companies owned by the Operating
Partnership relative to the estimated value of the other assets owned by the
Operating Partnership. No independent appraisals have been obtained to support
this conclusion. There can be no assurance that the IRS might not contend that
the value of such securities of a Management Company held by the Company
(through the Operating Partnership) exceeds the 5% value limitation.
The 5% test referred to above generally must be met for any quarter in
which the Company acquires securities of an issuer. Thus, the 5% value
requirement must be satisfied not only on the date the Company acquires equity
and debt securities of the Management Companies, but also each time the Company
increases its ownership of such securities of the Management Companies
(including as a result of increasing its interest in the Operating Partnership
as limited partners exercise their redemption rights). Although the Company
plans to take steps to ensure that it satisfies the 5% value test for any
quarter with respect to which retesting is to occur, there can be no assurance
that such steps will always be successful or will not require a reduction in the
Company's overall interest in a Management Company.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain and believes that it has
maintained adequate records of the value of its assets to ensure compliance with
the asset tests and to take such other actions within 30 days after the close of
any quarter as may be required to cure any noncompliance.
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Annual Distribution Requirements. In order to be taxed as a REIT, the
Company is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (a) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends-paid
deduction and the Company's capital gain) and (ii) 95% of the net income, if
any, from foreclosure property in excess of the special tax on income from
foreclosure property, minus (b) the sum of certain items of non-cash income.
Such distribution must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its
Federal income tax return for such year and if paid on or before the first
regular dividend payment after such declaration. Even if the Company satisfies
the foregoing distribution requirements, to the extent that the Company does not
distribute all of its net capital gain or "REIT taxable income" as adjusted, it
will be subject to tax thereon at regular capital gains or ordinary corporate
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (a) 85% of its ordinary income for that year,
(b) 95% of its capital gain net income for that year and (c) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. In addition, during its Recognition Period, if the Company disposes
of any asset subject to the Built-In Gain Rules, the Company will be required,
pursuant to guidance issued by the IRS, to distribute at least 95% of the
Built-In Gain (after tax), if any, recognized on the disposition of the asset.
The Company believes it has made and intends to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, the Operating Partnership's partnership agreement authorizes GGPI,
as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income has been and will be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to distribute such greater amount as
may be necessary to avoid income and excise taxation, due to timing differences
between (i) the actual receipt of income and the actual payment of deductible
expenses and (ii) the inclusion of such income and the deduction of such
expenses in arriving at taxable income of the Company, or as a result of
nondeductible expenses such as principal amortization or capital expenditures in
excess of noncash deductions. In the event that such timing differences occur,
the Company may find it necessary to arrange for borrowings or, if possible, pay
taxable stock dividends in order to meet the dividend requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Earnings and Profits. Under recent final Treasury Regulations, the
existence of undistributed earnings and profits of a non-REIT predecessor
corporation at the close of the taxable year generally will preclude a successor
corporation from qualifying to be taxed as a REIT. In connection with the
Initial Offering, the Company acquired the assets of Wood Properties, Inc.
("Wood Properties"). Wood Properties was formed in 1981, and made an election to
be taxed as an S corporation for federal income tax purposes effective January
1, 1987. Because Wood Properties was at one time a regular taxable corporation,
it is possible that Wood Properties had earnings and profits for that period,
which would have carried over to the Company as a result of the Company's
acquisition of the assets of Wood Properties and which would preclude the
Company from qualifying to be taxed as a REIT if such earnings and profits were
not distributed by the close of the Company's 1994 taxable year. The Company
believes that (i) Wood Properties was an S corporation for Federal income tax
purposes at all times from January 1, 1987 until such election was terminated in
connection with the various transactions related to the Company's formation and
the Initial Offering (the "S Period") and (ii) as of the time of the acquisition
of the assets of Wood Properties by the Company, Wood
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Properties had no earnings and profits for Federal income tax purposes. The
Company's belief is based upon a review of Wood Properties' tax returns for the
taxable years ended December 31, 1982 through 1986, the period during which Wood
Properties was a C corporation, as well as a review of the minute books of Wood
Properties for such periods. Nothing came to the Company's attention during the
course of such reviews that would cause the Company to believe that Wood
Properties had undistributed C corporation earnings and profits. Any adjustments
to Wood Properties' taxable income for taxable years ending on or before the
acquisition of its assets by the Company, as a result of an examination of Wood
Properties' returns by the IRS, could affect Wood Properties' earnings and
profits. In this regard, the Company believes that even if there were a
subsequent determination that Wood Properties has earnings and profits,
distributions to shareholders in 1994 in excess of current earnings and profits
likely would have been sufficient to distribute any such accumulated earnings
and profits that carried over from Wood Properties. Moreover, although not free
from doubt, pursuant to Treasury Regulations, the Company may be able to use
certain "deficiency dividend" procedures to distribute any Wood Properties'
earnings and profits determined to exist that were not distributed by the close
of the 1994 taxable year. There can be no assurance, however, that 1994
distributions were sufficient to distribute any Wood Properties' earnings and
profits determined to exist or that such deficiency dividend procedures would be
available. In the event that 1994 distributions were insufficient to distribute
any such earnings and profits, and the Company were unable to utilize the
deficiency dividend procedures in the Treasury Regulations, the Company would
fail to qualify as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to shareholders will be dividends,
taxable as ordinary income, and subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless the Company is entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause.
TAXATION OF U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
that (for United States Federal income tax purposes) (a) is a citizen or
resident of the United States, (b) is a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof or (c) is an estate or trust, the income of which
is subject to United States Federal income taxation regardless of its source.
For any taxable year for which the Company qualifies for taxation as a REIT,
amounts distributed to taxable U.S. Shareholders will be taxed as follows.
Distributions Generally. Distributions to U.S. Shareholders (other than
capital gain dividends) will be taxable as dividends to the extent of the
Company's current or accumulated earnings and profits as determined for federal
income tax purposes. Such dividends will be taxable to the holders as ordinary
income and will not be eligible for the dividends-received deduction for
corporations. To the extent that the Company makes a distribution to a U.S.
Shareholder in excess of current or accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital with respect
to the shares, reducing the U.S. Shareholder's tax basis in the shares, and the
distribution in excess of a U.S. Shareholder's tax basis in the shares will be
taxable as gain realized from the sale of the shares. Dividends declared by the
Company in October, November or December of any year payable to a shareholder of
record on a specified date in any such month shall be treated as both paid by
the Company and received by the shareholder on December 31 of the year,
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provided that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include on their own Federal
income tax returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"Federal Income Tax Considerations -- Federal Income Taxation of the Company"
above. Moreover, any "deficiency dividend" will be treated as an ordinary or
capital gain dividend, as the case may be, regardless of the Company's earnings
and profits. As a result, shareholders may be required to treat certain
distributions that would otherwise result in a tax-free return of capital as
taxable dividends.
Capital Gain Dividends. Dividends to U.S. Shareholders that are properly
designated by the Company as capital gain dividends will be treated as long-term
capital gains (to the extent they do not exceed the Company's actual net capital
gain) for the taxable year without regard to the period for which the
shareholder has held his stock. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income. Capital
gain dividends are not eligible for the dividends-received deduction for
corporations.
Passive Activity Loss and Investment Interest Limitations. Distributions
from the Company and gain from the disposition of Common Shares will not be
treated as passive activity income, and therefore shareholders may not be able
to apply any "passive losses" against such income. Dividends from the Company
(to the extent they do not constitute a return of capital) will generally be
treated as investment income for purposes of the investment income limitation on
the deductibility of investment interest; provided, however, that net capital
gain from the disposition of Common Shares or capital gain dividends generally
will be excluded from investment income.
Sale of the Common Shares. Upon the sale or exchange of the Common Shares,
the holder will recognize gain or loss equal to the difference between the
amount realized on such sale and the tax basis of such Common Shares. Assuming
such stock is held as a capital asset, such gain or loss will be a long-term
capital gain or loss if the Common Shares have been held for more than one year.
However, any loss recognized by a holder on the sale of Common Shares 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 required to be treated by such holder as
long-term capital gain.
Treatment of Tax-Exempt Shareholders. Distributions from the Company to a
tax-exempt employee pension trust or other domestic tax-exempt shareholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the shareholder has borrowed to acquire or carry its Common Shares.
However, qualified trusts that hold more than 10% (by value) of the shares of
certain REITs may be required to treat a certain percentage of such a REIT's
distributions as UBTI. This requirement will apply only if (i) the REIT would
not qualify as such for Federal income tax purposes but for the application of a
"look-through" exception to the "five or fewer" requirement applicable to shares
held by qualified trusts and (ii) the REIT is "predominantly held" by qualified
trusts. A REIT is predominantly held by qualified trusts if either (i) a single
qualified trust holds more than 25% by value of the REIT interests or (ii) one
or more qualified trusts, each owning more than 10% by value of the REIT
interests, hold in the aggregate more than 50% of the REIT interests. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (a) the
UBTI earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (b) the total gross income (less certain
associated expenses) of the REIT. A de minimis exception applies where the ratio
set forth in the preceding sentence is less than 5% for any year. For these
purposes, a qualified trust is any trust described in section 401(a) of the Code
and exempt from tax under section 501(a) of the Code. The provisions requiring
qualified trusts to treat a portion of REIT distributions as UBTI will not apply
if the REIT is able to satisfy the "five or fewer" requirement without relying
upon the "look-through" exception.
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Operating Partnership on REIT
Qualification. Substantially all of the Company's investments are through the
Operating Partnership. The Operating Partnership may involve
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<PAGE> 20
special tax considerations. Such considerations include (i) the allocations of
income and expense items of the Operating Partnership, which could affect the
computation of taxable income of the Company, (ii) the status of the Operating
Partnership as a partnership (as opposed to an association taxable as a
corporation) for income tax purposes, and (iii) the taking of actions by the
Operating Partnership that could adversely affect the Company's qualifications
as a REIT. In addition, the Operating Partnership owns certain Communities
located in Tennessee through a subsidiary general partnership, 99% of which is
owned by the Operating Partnership and 1% of which is owned by GGPI, and, in
order to facilitate the January 1995 tax-exempt bond financing of Club
Candlewood and Lakes at Indian Creek, these two Communities were transferred to
a new special purpose limited partnership, 99% of which is owned by the
Operating Partnership and 1% of which is owned by Candle Creek, Inc. These
partnerships have been structured in a manner that is intended to qualify them
for taxation as "partnerships" for Federal income tax purposes. If the Operating
Partnership, the general partnership which holds the Communities located in
Tennessee, or the limited partnership that holds Club Candlewood and Lakes at
Indian Creek (or, more generally, any other partnership in which the Operating
Partnership has an interest) were treated as an association taxable as a
corporation, the Company would fail to qualify as a REIT for a number of
reasons.
Tax Allocations with Respect to the Properties. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution. Pursuant to section 704(c) of the Code, income, gain, loss and
deduction attributable to such contributed property must be allocated in a
manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed by way of contributions
of appreciated property (including certain of the Communities or interests
therein). Consequently, the Operating Partnership's partnership agreement
requires tax allocations to be made in a manner consistent with section 704(c)
of the Code. The Regulations under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences for property contributed on or after December 21, 1993, including
the retention of the "traditional method" that was available under prior law or
the election of certain alternative methods. The Operating Partnership has
elected the "traditional method" of Section 704(c) allocations. Under the
traditional method, which is the least favorable method from the Company's
perspective, the carryover basis of contributed interests in the Communities in
the hands of the Operating Partnership could cause the Company (i) to be
allocated lower amounts of depreciation deductions for tax purposes than would
be allocated to the Company if all Communities were to have a tax basis equal to
their fair market value at the time of the contribution and (ii) to be allocated
taxable gain in the event of a sale of such contributed interests in the
Communities in excess of the economic or book income allocated to the Company as
a result of such sale, with a corresponding benefit to the other partners in the
Operating Partnership. These allocations possibly could cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with REIT distribution requirements,
although the Company does not anticipate that this will occur.
Interests in the Communities purchased by the Operating Partnership (other
than in exchange for interests in the Operating Partnership) simultaneously with
or subsequent to the admission of the Company to the Operating Partnership
acquired an initial tax basis equal to their fair market value. Thus, Section
704(c) of the Code will not apply to such interests.
Management Companies. A portion of the amounts to be used to fund
distributions to shareholders is expected to come from the Management Companies,
through dividends on stock of the Management Companies held by the Operating
Partnership and interest on the Contribution Notes held by the Operating
Partnership. In general, the Management Companies conduct activities, such as
property management for
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<PAGE> 21
third parties, that generate nonqualifying income for purposes of the REIT
income tests described above. The Management Companies will not qualify as REITs
and will pay Federal, state and local income taxes on their taxable incomes at
normal corporate rates. The Company anticipates that, initially, deductions for
interest and amortization will largely offset the otherwise taxable income of
the Management Companies, but there can be no assurance that this will be the
case or that the IRS will not challenge such deductions. Moreover, such
deductions may not be available for any additional Management Companies, if any,
established by the Company. Any federal, state or local income taxes that the
Management Companies are required to pay will reduce the cash available for
distribution by the Company to its shareholders.
As described above, the value of the equity and debt securities of a
Management Company held by the Company (or to be held by the Company in the case
of any additional Management Companies) cannot exceed 5% of the value of the
Company's assets at a time when a holder of Units in the Operating Partnership
exercises his redemption right (or the Company otherwise is considered to
acquire additional securities of a Management Company). See "Federal Income Tax
Considerations--Requirements for Qualification." This limitation may restrict
the ability of a Management Company to increase the size of its respective
business unless the value of the assets of the Company is increasing at a
commensurate rate.
SPECIAL TAX CONSIDERATIONS OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Common Shares is treated as
effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade or
business, the Non-U.S. Shareholder generally will be subject to federal income
tax at graduated rates, in the same manner as U.S. shareholders are taxed with
respect to such distributions (and also may be subject to the 30% branch profits
tax in the case of a Non-U.S. Shareholder that is a non-U.S. corporation). The
Company expects to withhold U.S. income tax at the rate of 30% on the gross
amount of any such distributions made to a Non-U.S. Shareholder unless (i) a
lower treaty rate applies and any required form evidencing eligibility for that
reduced rate is filed with the Company or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is effectively
connected income. Distributions in excess of current and accumulated earnings
and profits of the Company will not be taxable to a shareholder to the extent
that such distributions do not exceed the adjusted basis of the shareholder's
Common Shares, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's shares of Common
Shares, such distributions will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of his Common Shares, as described below. Because it generally
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of any distribution normally will be subject to withholding at
the same rate as a dividend. However, a Non-U.S. Shareholder can file a claim
for refund with the U.S. Internal Revenue Service for the overwithheld amount to
the extent it is determined subsequently that a distribution was, in fact, in
excess of current and accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder
S-20
<PAGE> 22
under the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of U.S.
real property interests are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with U.S. business. Non-U.S. Shareholders thus would be
taxed at the normal capital gain rates applicable to U.S. shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to a 30% branch profits tax in the hands of a non-U.S. corporate
shareholder not entitled to treaty relief or exemption. The Company is required
to withhold 35% of any distribution that is designated by the Company as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. It is currently anticipated that the Company
will be a "domestically controlled REIT," and, therefore, sales of Common Shares
will not be subject to taxation under FIRPTA. However, because the Common Shares
will be traded publicly, no assurance can be given that the Company will
continue to be a "domestically controlled REIT." Furthermore, gain not subject
to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in the
Common Shares is effectively connected with the Non-U.S. Shareholder's U.S.
trade or business, in which case the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain, or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and certain other
conditions apply, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. If the gain on the sale of
Common Shares were to be subject to taxation under FIRPTA, the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain (subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals, and the
possible application of the 30% branch profits tax in the case of non-U.S.
corporations). IN ADDITION, NON-U.S. SHAREHOLDERS SHOULD BE AWARE THAT, IN THE
PAST, LEGISLATIVE PROPOSALS HAVE BEEN MADE THAT WOULD HAVE SUBJECTED NON-U.S.
PERSONS TO U.S. TAX IN CERTAIN CIRCUMSTANCES ON THEIR GAINS FROM THE SALE OF
STOCK IN U.S. CORPORATIONS. THERE CAN BE NO ASSURANCE THAT A SIMILAR PROPOSAL
WILL NOT BE ENACTED INTO LAW IN A FORM DETRIMENTAL TO FOREIGN HOLDERS OF THE
COMMON SHARES.
STATE AND LOCAL TAX
The Company and its shareholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
shareholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective shareholders should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Common Shares of the Company.
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<PAGE> 23
PLAN OF DISTRIBUTION
The Company will sell the Common Shares offered hereby directly to an
institutional investor. In connection with the sale of the Common Shares offered
hereby, Lehman Brothers Inc. will be paid a fee of 2% of the purchase price of
the Common Shares for its services as a finder in connection with the sale. The
Company may from time to time sell Common Shares directly to other persons and
may engage in other financing transactions, including public offerings and
private placements of equity securities.
S-22
<PAGE> 24
PROSPECTUS
$200,000,000
GABLES RESIDENTIAL TRUST
DEBT SECURITIES
PREFERRED SHARES
COMMON SHARES
WARRANTS
---------------------
Gables Residential Trust ("Gables" or the "Company") may offer from time to
time in one or more series (i) its unsecured debt securities ("Debt
Securities"), (ii) preferred shares of beneficial interest, $.01 par value per
share ("Preferred Shares"), (iii) common shares of beneficial interest, $.01 par
value per share ("Common Shares"), and (iv) warrants or other rights to purchase
Preferred Shares or Common Shares ("Warrants"), with an aggregate public
offering price of up to $200,000,000 (or its equivalent based on the exchange
rate at the time of sale) in amounts, at prices and on terms to be determined at
the time of offering. The Debt Securities, Preferred Shares, Common Shares and
Warrants (collectively, the "Securities") may be offered separately or together,
in separate series, in amounts, at prices and on terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, 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, terms for sinking fund payments, terms for conversion into
Common Shares or Preferred Shares, covenants and any initial public offering
price; (ii) in the case of Preferred Shares, the specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of Common
Shares, any initial public offering price; and (iv) in the case of Warrants, the
duration, offering price, exercise price and detachability. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be consistent
with the Company's Declaration of Trust as then in effect, or otherwise
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes. See "Restrictions on Transfers
of Shares of Beneficial Interest."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered by the Company directly to one or more
purchasers, through agents designated from time to time by the Company or to or
through underwriters or dealers. If any agents or underwriters are involved in
the sale of any of the Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in an
accompanying Prospectus Supplement. See "Plan of Distribution." No Securities
may be sold without delivery of a Prospectus Supplement describing the method
and terms of the offering of such Securities.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
---------------------
The date of this Prospectus is August 17, 1995.
<PAGE> 25
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies may be obtained at the prescribed
rates from the Public Reference Section of the Commission at its principal
office in Washington, D.C. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
In addition, the Common Shares are listed on the New York Stock Exchange (the
"NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31,1994 and the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995 and June 30, 1995, filed with the Commission
pursuant to the Exchange Act.
2. The description of the Company's Common Shares contained in its
Registration Statement on Form 8-A filed with the Commission pursuant to
the Exchange Act, including all amendments and reports updating such
description.
3. The Proxy Statement prepared by the Company in connection with its
1995 Annual Meeting of Shareholders.
All other documents filed with the Commission by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Securities
are to be incorporated herein by reference and such documents shall be deemed to
be a part hereof from the date of filing of such documents. Any statement
contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS. WRITTEN REQUESTS
SHOULD BE MAILED TO GABLES RESIDENTIAL TRUST, 2859 PACES FERRY ROAD, OVERLOOK
III, SUITE 1450, ATLANTA, GEORGIA, ATTENTION: DIRECTOR OF INVESTOR RELATIONS.
TELEPHONE REQUESTS MAY BE DIRECTED TO (404) 436-4600.
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<PAGE> 26
THE COMPANY
GENERAL
Gables is one of the largest managers, developers and owners of multifamily
apartment communities in the Southeastern and Southwestern United States. The
Company is a self-administered and self-managed real estate investment trust (a
"REIT") and will elect to be treated as a REIT under the Internal Revenue Code
of 1986, as amended, beginning with its taxable year ending December 31, 1994.
The Company's Common Shares are listed on the New York Stock Exchange under the
symbol "GBP".
The Company currently engages in the multifamily apartment community
management, development, construction and acquisition businesses, including the
provision of related brokerage and corporate rental housing services.
Substantially all of the Company's business is conducted through, and all of the
Company's interests in its properties are held by or through, Gables Realty
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"). Through its ownership of Gables GP, Inc. ("GGPI"), a Texas
corporation and wholly-owned subsidiary of the Company that is the sole general
partner of the Operating Partnership, and its ownership of a direct limited
partnership interest in the Operating Partnership, the Company is a 76.77%
economic owner of the Operating Partnership (this structure is commonly referred
to as an umbrella partnership REIT or "UPREIT").
As of July 21, 1995, the Company owned 28 stabilized multifamily apartment
communities comprising 9,440 apartment homes, of which 18 were developed and ten
were acquired by the Company, and an indirect 25.0% general partner interest in
one stabilized apartment community developed by the Company, comprising 345
apartment homes. Additionally, as of such date, the Company owned 16 multifamily
apartment communities under development or in the lease-up phase expected to
comprise 3,826 apartment homes, and an indirect 25.0% general partner interest
in one apartment community in the lease-up phase comprising 318 apartment homes.
The Company also owned as of such date parcels of land for the future
development of two apartment communities expected to comprise 564 apartment
homes.
The Company was organized as a real estate investment trust under the laws
of the State of Maryland in 1993 to continue and expand the operations of its
privately owned predecessor organization. On January 26, 1994, the Company
completed its initial public offering of 9,430,000 Common Shares (including
1,230,000 shares as a result of the exercise of the underwriters' overallotment
option) at a price of $22.50 per share (the "Initial Offering") and concurrently
therewith the Company also issued an additional 700,555 Common Shares in
connection with the formation of the Company. On October 7, 1994, the Company
consummated a direct placement of 444,500 Common Shares at a price of $22.50 per
share. The Company's executive offices are located at 2859 Paces Ferry Road,
Atlanta, Georgia 30339 and its telephone number is (404) 436-4600.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities for general
corporate purposes, including repayment of indebtedness, acquisition of or
investment in new properties and new developments and maintenance of currently
owned properties.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Debt Securities will be issued under
one or more indentures, each dated as of a date prior to the issuance of the
Debt Securities to which it relates. Senior Securities and Subordinated
Securities may be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case
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<PAGE> 27
between the Company and a trustee (a "Trustee"), which may be the same Trustee,
and in the form that has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part, subject to such amendments or supplements as
may be adopted from time to time. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
hereinafter referred to collectively as the "Indentures." The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "-- Subordination." The particular terms of the Debt
Securities offered by a Prospectus Supplement will be described in the
applicable Prospectus Supplement, along with any applicable modifications of or
additions to the general terms of the Debt Securities as described herein and in
the applicable Indenture and any applicable federal income tax considerations.
Accordingly, for a description of the terms of any series of Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and
the description of the Debt Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company or as set forth in
the applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuance of additional
Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of such Debt Securities
that is convertible into Common Shares or Preferred Shares, or the method
by which any such portion shall be determined;
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(4) If convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares receivable on
conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices
at which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Whether such Debt Securities will be issued in certificated or
book-entry form and, if in book entry form, the identity of the depository
for such Debt Securities;
(14) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events
of default or covenants of the Company, to the extent different from those
described herein or set forth in the applicable Indenture with respect to
such Debt Securities, and any change in the right of any Trustee or any of
the holders to declare the principal amount of any of such Debt Securities
due and payable; and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
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If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt
Securities will not contain any provisions that would limit the ability of the
Company to incur indebtedness or that would afford holders of Debt Securities
protection in the event of a highly leveraged or similar transaction involving
the Company or in the event of a change of control. Restrictions on ownership
and transfers of the Common Shares and Preferred Shares are designed to preserve
its status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Restrictions on Transfers of Shares of Beneficial Interest."
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of, or additions to, the events of
default or covenants of the Company that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for conversion or
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent designated by the
Company for such purpose. Every Debt Security surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of Debt Securities.
Neither the Company nor any Trustee shall be required (i) to issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before the day of mailing of
a notice of redemption of any Debt Securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of
the holders of any outstanding Debt Securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (i) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which
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shall have received the transfer of such assets, and which is organized under
the laws of any domestic jurisdiction and assumes (A) the Company's obligations
to pay principal of (and premium, if any) and interest on all of the Debt
Securities and (B) the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (ii) immediately after
giving effect to such transaction and treating any indebtedness that becomes an
obligation of the Company or any subsidiary as a result thereof as having been
incurred by the Company or such subsidiary at the time of such transaction, no
event of default under the Indentures, and no event which, after notice or the
lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and (iii) an officers' certificate and legal opinion
covering such conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by declaration of trust, bylaws and statute) and franchises;
provided, however, that the Company shall not be required to preserve any right
or franchise if its Board of Trustees determines that the preservation thereof
is no longer desirable in the conduct of its business.
Maintenance of Properties. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
Insurance. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
at least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement, having
a specified rating from a recognized insurance rating service.
Payment of Taxes and Other Claims. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
Additional Covenants. Any additional covenants of the Company with respect
to any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (ii) default in the payment of principal of (or premium, if any, on) any
Debt Security of such series at its maturity; (iii) default in making any
sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the Indenture (other than a covenant added to the Indenture
solely for the benefit of a series of Debt Securities issued thereunder other
than such series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of its
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
but not including
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any indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $10,000,000 or under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed by
the Company or any of its subsidiaries (including such leases, but not including
such indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $10,000,000, whether
such indebtedness exists on the date of such Indenture or shall thereafter be
created, which default shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary of the
Company; and (vii) any other event of default provided with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" has the
meaning ascribed to such term in Regulation S-X promulgated under the Securities
Act.
If an event of default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the holders of not less than a majority in principal amount of outstanding Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (i) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee; and (ii)
all events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture. The
Indentures will also provide that the holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (i) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series; or (ii) in respect of a covenant
or provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the holder of each outstanding Debt Security
affected thereby.
The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt Securities
of any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such holders.
The Indentures will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the case of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of Debt
Securities from instituting suit for the enforcement of
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payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of any outstanding Debt Securities necessary to modify
or amend the applicable Indenture with respect to such Debt Securities, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
applicable Indenture; or (vi) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in such Indenture; (iii) to add events of default for
the benefit of the holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or
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elimination shall become effective only when there are no Debt Securities
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Shares or Preferred Shares; (viii) to provide for the
acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under an Indenture by more than one Trustee; (ix)
to cure any ambiguity, defect or inconsistency in an Indenture, provided that
such action shall not adversely affect the interests of holders of Debt
Securities of any series issued under such Indenture; or (x) to supplement any
of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided that such action shall not adversely affect the interests of the
holders of the outstanding Debt Securities of any series.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above); (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture; and (iv) Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of Debt Securities of a series. A meeting will be permitted to be called
at any time by the applicable Trustee, and also, upon request, by the Company or
the holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as provided in
such Indenture. Except for any consent that must be given by the holder of each
Debt Security affected by certain modifications and amendments of an Indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the holders
of a majority in principal amount of the outstanding Debt Securities of that
series; provided, however, that, except as referred to above, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with an Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (i) there shall be no
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minimum quorum requirement for such meeting; and (ii) the principal amount of
the outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior Debt. The
Subordinated Indenture will not restrict the amount of Senior Debt or other
indebtedness of the Company and its subsidiaries. As a result of these
subordination provisions, in the event of a distribution of assets upon
insolvency, holders of Subordinated Securities may recover less, ratably, than
general creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations; (ii) indebtedness of the Company evidenced by notes, debentures,
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement; (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise; (iv) indebtedness,
obligations and liabilities of others in respect of which the Company is liable
contingently or otherwise to pay or advance money or property or as guarantor,
endorser or otherwise or which the Company has agreed to purchase or otherwise
acquire; and (v) any binding commitment of the Company to fund any real estate
investment or to fund any investment in any entity making such real estate
investment, in each case other than (A) any such indebtedness, obligation or
liability referred to in clauses (i) through (iv) above as to which, in the
instrument creating or evidencing the same pursuant to which the same is
outstanding, it is provided that such indebtedness, obligation or liability is
not superior in right of payment to the Subordinated Securities or ranks pari
passu with the Subordinated Securities; (B) any such indebtedness, obligation or
liability which is subordinated to indebtedness of the Company to substantially
the same extent as or to a greater extent than the Subordinated Securities are
subordinated; and (C) the Subordinated Securities. There will not be any
restrictions in any Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within
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one year) by irrevocably depositing with the applicable Trustee, in trust, funds
in such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities, to hold moneys for payment in trust and, with
respect to Debt Securities which are convertible or exchangeable, the right to
convert or exchange) ("defeasance"); or (ii) to be released from its obligations
with respect to such Debt Securities under the applicable Indenture (being the
restrictions described under "-- Certain Covenants") or, if provided in the
applicable Prospectus Supplement, its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities, which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service (the "IRS") or
a change in applicable United States federal income tax law occurring after the
date of the Indenture. In the event of such defeasance, the holders of such Debt
Securities would thereafter be able to look only to such trust fund for payment
of principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged; or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit
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or composite currency other than that in which such deposit has been made in
respect of such Debt Security; or (ii) a Conversion Event (as defined below)
occurs in respect of the currency, currency unit or composite currency in which
such deposit has been made, the indebtedness represented by such Debt Security
will be deemed to have been, and will be, fully discharged and satisfied through
the payment of the principal of (and premium, if any) and interest on such Debt
Security as they become due out of the proceeds yielded by converting the amount
so deposited in respect of such Debt Security into the currency, currency unit
or composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community; (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities; or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any event of default other than the event of default described
in clause (iv) under "-- Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such Debt Securities) or described in clause (vii) under "-- Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such event of default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price or rate (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of two years after such
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principal, premium or interest has become due and payable will be repaid to the
Company, and the holder of such Debt Security thereafter may look only to the
Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED SHARES
The description of the Company's Preferred Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Amended and Restated Declaration of Trust (the "Declaration of Trust")
and Bylaws (the "Bylaws"), as in effect.
GENERAL
Under the Declaration of Trust, the Company has authority to issue up to
161,000,000 shares of beneficial interest, consisting of 100,000,000 Common
Shares, par value $.01 per share, 51,000,000 excess shares of beneficial
interest, par value $.01 per share ("Excess Shares"), and 10,000,000 Preferred
Shares, par value $.01 per share. No Preferred Shares were outstanding as of the
date of this Prospectus. Preferred Shares may be issued from time to time, in
one or more series, as authorized by the Board of Trustees of the Company. Prior
to issuance of shares of each series, the Board of Trustees is required by the
Maryland General Corporation Law ("MGCL") and the Company's Declaration of Trust
to fix for each series, subject to the provisions of the Company's Declaration
of Trust regarding Excess Shares, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. The Preferred Shares will, when issued, be fully paid
and nonassessable and will have no preemptive rights. The Board of Trustees
could authorize the issuance of Preferred Shares with terms and conditions that
could have the effect of discouraging a takeover or other transaction that
holders of Common Shares might believe to be in their best interests or in which
holders of some, or a majority, of the Common Shares might receive a premium for
their shares over the then market price of such Common Shares.
TERMS
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Declaration of Trust and Bylaws and any
applicable amendment to the Declaration of Trust designating terms of a series
of Preferred Shares (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of Preferred Shares offered, the liquidation preference
per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred
Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares, including the conversion
price or rate (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to
such Preferred Shares;
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(12) The relative ranking and preference of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares of the Company, and to all equity securities ranking
junior to such Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company, the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Shares with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company,
the terms of which specifically provide that such equity securities rank senior
to the Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Trustees of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any shares of beneficial interest
of the Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Shares of such series for any period unless (i) if such
series of Preferred Shares has a cumulative dividend, full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Shares of such series for all past dividend periods and the then
current dividend period; or (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends for the then current dividend period
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Shares of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Preferred Shares of
any series and the shares of any other series of Preferred Shares ranking on a
parity as to dividends with the Preferred Shares of such series, all dividends
declared upon Preferred Shares of such series and any other series of Preferred
Shares ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per share of
Preferred Shares of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Preferred Shares of such series (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if
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such Preferred Shares does not have a cumulative dividend) and such other series
of Preferred Shares bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) shall be declared or paid or set aside for payment nor
shall any other distribution be declared or made upon the Common Shares, or any
other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation, nor shall any Common Shares, or any other shares of beneficial
interest of the Company ranking junior to or on a parity with the Preferred
Shares of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of beneficial interest of the Company, the
terms of such Preferred Shares may provide that, if no such shares of beneficial
interest shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
the applicable shares of beneficial interest of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
such series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period; and (ii) if a
series of Preferred Shares does not have a cumulative dividend, full dividends
on all of the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
such series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding
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Preferred Shares of such series. In addition, unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends on all
outstanding shares of such series of Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period; and (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends on the Preferred Shares of such
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any Preferred Shares of such series (except by conversion
into or exchange for shares of beneficial interest of the Company ranking junior
to the Preferred Shares of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by any other equitable manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the Preferred Shares of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of shares
of beneficial interest of the Company ranking junior to the Preferred Shares in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable Prospectus Supplement,
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid noncumulative dividends for
prior dividend periods). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Shares will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Shares and
the corresponding amounts payable on all other classes or series of shares of
beneficial interest of the Company ranking on a parity with the Preferred Shares
in the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of shares of beneficial interest shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
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If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of shares of beneficial interest
ranking junior to the Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the Preferred Shares of such series outstanding at the time, given in person or
by proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of shares of beneficial interest ranking prior to such
series of Preferred Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of beneficial interest of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Company's Declaration of Trust or the Designating
Amendment for such series of Preferred Shares, whether by merger, consolidation
or otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of such series of Preferred Shares or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as the Preferred Shares remain
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Shares, and provided further that (A) any increase in the amount of
the authorized Preferred Shares or the creation or issuance of any other series
of Preferred Shares, or (B) any increase in the amount of authorized shares of
such series or any other series of Preferred Shares, in each case ranking on a
parity with or junior to the Preferred Shares of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Common Shares
into which the Preferred Shares are convertible, the conversion price or rate
(or manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders of the Preferred Shares
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Shares.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions
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to limit the beneficial ownership, directly or indirectly, by a single person of
the Company's outstanding equity securities, including any Preferred Shares of
the Company. Therefore, the Designating Amendment for each series of Preferred
Shares may contain provisions restricting the ownership and transfer of the
Preferred Shares. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Shares. See
"Restrictions on Transfers of Shares of Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON SHARES
The description of the Company's Common Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Declaration of Trust and Bylaws, as in effect.
GENERAL
Under the Declaration of Trust, the Company has authority to issue
100,000,000 shares of Common Shares, par value $.01 per share. At July 21, 1995,
the Company had outstanding 10,579,089 Common Shares. In addition, on such date
3,199,445 Units of Limited Partnership of the Operating Partnership (the
"Units") were outstanding (other than those held directly or indirectly by the
Company) and may be exchanged for Common Shares on a one-for-one basis. All
Common Shares offered hereby will, when issued, be duly authorized, fully paid
and nonassessable.
TERMS
Subject to the preferential rights of any other shares or series of shares
of beneficial interest and to the provisions of the Company's Declaration of
Trust regarding Excess Shares, holders of Common Shares will be entitled to
receive distributions on Common Shares if, as and when authorized and declared
by the Board of Trustees of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, each outstanding Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the election of
trustees, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election, and the holders of the remaining Common Shares will not
be able to elect any trustee.
Holders of Common Shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, all Common Shares will have equal dividend, distribution,
liquidation and other rights, and will have no preference, appraisal or exchange
rights.
The Company's Declaration of Trust provides that the Company cannot merge
with or sell all or substantially all of the assets of the Company, except
pursuant to a resolution approved by shareholders holding a majority of the
shares entitled to vote on the resolution. In addition, the partnership
agreement of the Operating Partnership requires that any merger or sale of all
or substantially all of the assets of the Operating Partnership be approved by
partners holding 75% of the Units.
20
<PAGE> 44
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "Restrictions on Transfers of
Shares of Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is The First
National Bank of Boston, Boston, Massachusetts.
DESCRIPTION OF WARRANTS
The Company has no Warrants or other share purchase rights outstanding
(other than options issued under the Company's Amended and Restated 1994 Share
Option and Incentive Plan). The Company may issue Warrants for the purchase of
Preferred Shares or Common Shares. Warrants may be issued independently,
together with any other Securities offered by any Prospectus Supplement or
through a dividend or other distribution to the Company's shareholders and may
be attached to or separate from such Securities. Warrants may be issued under a
warrant agreement (each, a "Warrant Agreement") to be entered into between the
Company and a warrant agent specified in the applicable Prospectus Supplement
(the "Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of a particular series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable Warrant Agreement will be set forth in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, number and terms of the Preferred
Shares or Common Shares purchasable upon exercise of such Warrants; (5) the
designation and terms of the other Securities, if any, with which such Warrants
are issued and the number of such Warrants issued with each such Security; (6)
the date, if any, on and after which such Warrants and the related Preferred
Shares or Common Shares, if any, will be separately transferable; (7) the price
at which each Preferred Share or Common Share purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; (10) information with respect to book-entry procedures, if any; (11) a
discussion of certain federal income tax considerations; and (12) any other
terms of such Warrants, including terms, procedures and limitations relating to
the transferability, exchange and exercise of such Warrants.
RESTRICTIONS ON TRANSFERS OF SHARES OF BENEFICIAL INTEREST
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding shares of beneficial interest 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 (other
than the first year), and such shares of beneficial interest must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year) or during a proportionate part of
a shorter taxable year. In order to protect the Company against the risk of
losing its status as a REIT due to a concentration of ownership among its
shareholders, the Declaration of Trust provides that no holder (other than
persons approved by the trustees at their option and in their discretion) may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8% (the "Ownership Limit") of the Company's
21
<PAGE> 45
shares of beneficial interest. The Board of Trustees does not expect that it
would waive the Ownership Limit in the absence of the ruling from the IRS or an
opinion of counsel satisfactory to it that the changes in ownership will not
then or in the future jeopardize the Company's status as a REIT. Any transfer of
shares of beneficial interest (including warrants) or any security convertible
into shares of beneficial interest that would create a direct or indirect
ownership of shares of beneficial interest in excess of the Ownership Limit or
that would result in the disqualification of the Company as a REIT, including
any transfer that results in the shares of beneficial interest being owned by
fewer than 100 persons or that 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 shares of beneficial
interest. The foregoing restrictions on transferability and ownership will not
apply if the Board of Trustees 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. In addition, the foregoing restrictions do not apply to an all cash tender
offer which has been accepted by at least two-thirds of the Company's
outstanding shares.
Shares of beneficial interest owned, or deemed to be owned, or transferred
to a shareholder in excess of the Ownership Limit will automatically be
exchanged for Excess Shares that will be transferred, by operation of law, to
the Company as trustee of a trust for the exclusive benefit of the transferees
to whom such shares of beneficial interest may be ultimately transferred without
violating the Ownership Limit. While the Excess Shares are held in trust, they
will not be entitled to vote, they will not be considered for purposes of any
shareholder vote or the determination of a quorum for such vote, and, except
upon liquidation, they 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 shares of beneficial
interest have been transferred in violation of the provisions of the Company's
Declaration of Trust shall be repaid to the Company upon demand. The Excess
Shares are not treasury shares, but rather constitute a separate class of issued
and outstanding shares of beneficial interest of the Company. The original
transferee-shareholder may, at any time the Excess Shares are held by the
Company in trust, transfer the interest in the trust representing the Excess
Shares to any individual whose ownership of the shares of beneficial interest
exchanged into such Excess Shares would be permitted under the Ownership Limit,
at a price not in excess of the price paid by the original
transferee-shareholder for the shares of beneficial interest that were exchanged
for Excess Shares. Immediately upon the transfer to the permitted transferee,
the Excess Shares will automatically be exchanged for shares of beneficial
interest of the class from which they were converted. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring the Excess Shares and to hold the
Excess Shares on behalf of the Company.
In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Shares are held by
the Company in trust, to purchase all or any portion of the Excess Shares from
the original transferee-shareholder for the lesser of the price paid for the
shares of beneficial interest by the original transferee-shareholder or the
market price (as determined in the manner set forth in the Declaration of Trust)
of the shares of beneficial interest on the date the Company exercises its
option to purchase. The 90-day period begins on the date of the violative
transfer if the original transferee-shareholder gives notice to the Company of
the transfer or, if no such notice is given, the date the Board of Trustees
determines that a violative transfer has been made.
Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding Common Shares must
file a written notice with the Company containing the information specified in
the Declaration of Trust no later than January 30 of each year. 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 as the Board of Trustees 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.
This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Board of Trustees determines that maintenance
of REIT status is no longer in the best interests of the Company.
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<PAGE> 46
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and the
Company's Declaration of Trust and Bylaws does not purport to be complete and is
qualified by reference to Maryland law and the Company's Declaration of Trust
and Bylaws.
MARYLAND BUSINESS COMBINATION STATUTE
The MGCL establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested shareholders" unless
exemptions are applicable. Among other things, the law prohibits for a period of
five years a merger and other specified or similar transactions between a
company and an interested shareholder and requires a supermajority vote for such
transactions after the end of the five-year period.
"Interested shareholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of the Maryland
corporation. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested shareholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an interested shareholder
or its affiliates for a period of five years after the date on which the
shareholder first became an interested shareholder. Thereafter, the transaction
may not be consummated unless recommended by the Board of Trustees and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding voting shares and 66 2/3% of the votes entitled to be
cast by all holders of outstanding voting shares other than the interested
shareholder. A business combination with an interested shareholder that is
approved by the Board of Trustees of a Maryland corporation at any time before
an interested shareholder first becomes an interested shareholder is not subject
to the special voting requirements. An amendment to a Maryland corporation's
charter electing not to be subject to the foregoing requirements must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding voting shares and 66 2/3% of the votes
entitled to be cast by holders of outstanding voting shares who are not
interested shareholders. Any such amendment is not effective until 18 months
after the vote of shareholders and does not apply to any business combination of
a corporation with a shareholder who was an interested shareholder on the date
of the shareholder vote.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
The MGCL provides that "control shares" of a Maryland real estate
investment trust acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of beneficial interest owned by the
acquiror or by officers of trustees who are employees of the trust. "Control
shares" are voting shares of beneficial interest which, if aggregated with all
other such shares of beneficial interest previously acquired by the acquiror or
in respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority of all voting power. Control
shares do not include shares of beneficial interest the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees to call a special meeting of shareholders to be
held within 50 days of demand to consider voting rights for the shares. If no
request for a meeting is made, the trust may itself present the question at any
shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved)
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<PAGE> 47
for fair value determined, without regard to the absence of voting rights for
the control shares, as of the date of the last control share acquisition by the
acquiror or of any meeting of shareholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and the acquiror becomes entitled to vote a
majority of the shares of beneficial interest entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares of
beneficial interest as determined for purposes of such appraisal rights may not
be less than the highest price per share paid by the acquiror in the control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust.
The business combination statute and the control share acquisition statute
could have the effect of discouraging offers to acquire the Company and of
increasing the difficulty of consummating any such offer.
LIMITATION OF SHAREHOLDER'S LIABILITY
Under Maryland law, shareholders generally are not responsible for the
corporation's debts or obligations, and the Company's Declaration of Trust
specifically provides that no shareholder of the Company will be personally
liable for any obligations of the Company. The Company's bylaws further provide
that the Company shall indemnify each shareholder against any claim or liability
to which the shareholder may become subject by reason of his or her being or
having been a shareholder, and that the Company shall reimburse each shareholder
for all legal and other expenses reasonably incurred by him or her in connection
with any such claim or liability. However, with respect to tort claims,
contractual claims where shareholder liability is not so negated, claims for
taxes and certain statutory liability, the shareholder may, in some
jurisdictions, including Texas, be personally liable to the extent that such
claims are not satisfied by the Company. Inasmuch as the Company will carry
public liability insurance which it considers adequate, any risk of personal
liability to shareholders is limited to situations in which the Company's assets
plus its insurance coverage would be insufficient to satisfy the claims against
the Company and its shareholders.
LIMITATION OF TRUSTEES' AND OFFICERS' LIABILITY
Under Maryland law a real estate investment trust formed in Maryland is
permitted to limit, by provision in its declaration of trust, the liability of
trustees and officers so that no trustee or officer of the Company shall be
liable to the Company or to any shareholder for money damages except to the
extent that (i) the trustee or officer actually received an improper benefit in
money, property, or services, for the amount of the benefit or profit in money,
property, or services actually received, or (ii) a judgment or other final
adjudication adverse to the trustee or officer is entered in a proceeding based
on a finding in a proceeding that the trustee's or officer's action was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The Company's Declaration of Trust has
incorporated the provisions of such law limiting the liability of trustees and
officers.
The Company's Bylaws require it to indemnify, to the full extent of
Maryland law, any present or former trustee or officer (and such person's spouse
and children) (an "Indemnitee") who is or was a party or threatened to be made a
party to any proceeding by reason of his or her service in that capacity,
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him or her in connection with the proceeding,
provided that the Company shall have received a written affirmation by the
Indemnitee that he or she has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws. The Company shall
not be required to indemnify an Indemnitee if (a) it is established that (i) the
Indemnitee's act or omission was committed in bad faith or was the result of
active or deliberate dishonesty, (ii) the Indemnitee actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, the Indemnitee had reasonable cause to believe that the
Indemnitee's act or omission was unlawful, (b) the proceeding was initiated by
the Indemnitee, (c) the Indemnitee received payment for such expenses pursuant
to insurance or otherwise or (d) the proceeding arises under Section 16 of the
Securities Exchange Act of 1934, as amended. Pursuant to the Bylaws, the
24
<PAGE> 48
Indemnitee is required to repay the amount paid or reimbursed by the Company if
it shall ultimately be determined that the standard of conduct was not met. The
Company's Bylaws also permit the Company to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
the MGCL or to which the Indemnitee may be entitled. GGPI's bylaws contain
similar provisions that are consistent with Texas law.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of the
Company's officers and trustees. The indemnification agreements require, among
other things, that the Company indemnify its officers and trustees to the
fullest extent permitted by law and advance to the officers and trustees all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Under these agreements, the Company also must
indemnify and advance all expenses incurred by officers and trustees seeking to
enforce their rights under the indemnification agreements, and cover officers
and trustees under the Company's trustees' and officers' liability insurance.
Although the form of indemnification agreement offers substantially the same
scope of coverage afforded by provisions in the Declaration of Trust and the
Bylaws, it provides greater assurance to trustees and officers that
indemnification will be available because, as a contract, it cannot be modified
unilaterally in the future by the Board of Trustees or by the Company's
shareholders to eliminate the rights it provides.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to continue
to operate, in such a manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
shareholders. For the particular provisions that govern the federal income tax
treatment of the Company and its shareholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its shareholders. If the Company fails to qualify during any
taxable year as a REIT, unless certain relief provisions are available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its shareholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its shareholders out of current or accumulated earnings
and profits will be taxed to shareholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the shareholders. To
the extent that distributions to shareholders exceed current or accumulated
earnings and profits, they will constitute a return of capital, rather than
dividend or capital gain income, and will reduce the basis for the shareholder's
shares of beneficial interest with respect to which the distribution is paid or,
to the extent that they exceed such basis, will be taxed in the same manner as
gain from the sale of those shares of beneficial interest.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. Foreign investors also
should consult their own tax advisors concerning the tax consequences of an
investment in the Company, including the possibility of United States income tax
withholding on Company distributions.
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<PAGE> 49
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Company and its predecessor for the periods shown:
<TABLE>
<CAPTION>
QUARTER
ENDED JANUARY 26- JANUARY 1- YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, JANUARY 25, -------------------------------------------
1995 1994 1994(1)(2) 1993(1) 1992(1) 1991(1)(2) 1990(1)(2)
--------- ------------ ----------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio................................. 1.44x 1.83x .89x 1.22x 1.17x .70x .76x
</TABLE>
- ---------------
(1) Ratios for the period January 1 - January 25, 1994 and the years ended 1993,
1992, 1991 and 1990 reflect periods prior to the recapitalization and
initial public offering of the Company on January 26, 1994.
(2) The earnings for these periods were inadequate to cover fixed charges as
follows:
<TABLE>
<S> <C>
Period January 1 - January 25, 1994.............................. $ 146,000
Year ended December 31, 1991..................................... 5,014,000
Year ended December 31, 1990..................................... 2,968,000
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of net income (loss) before
minority interest and extraordinary items plus fixed charges. Fixed charges
consist of interest expense, capitalized interest, credit enhancement fees and
loan cost amortization. To date, the Company has not issued any Preferred
Shares; therefore, the ratios of earnings to combined fixed charges and
Preferred Shares dividend requirements are the same as the ratios of earnings to
fixed charges presented above.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, directly to one or more
individual, institutional or other purchasers, through agents or through a
combination of any such methods of sale. Direct sales to investors may also be
accomplished through subscription rights distributed to the Company's
shareholders on a pro rata basis, which may or may not be transferrable. In
connection with any distribution of subscription rights to shareholders, if all
of the underlying Securities are not subscribed for, the Company may sell the
unsubscribed Securities directly to third parties or may engage the services of
one or more underwriters, dealers or agents, including standby underwriters, to
sell the unsubscribed Securities to third parties.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices (any of which may represent a discount
from the prevailing market prices).
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from the Company and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Shares which are listed on the NYSE. Any Common Shares
sold pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official
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<PAGE> 50
notice of issuance. The Company may elect to list any series of Debt Securities
or Preferred Shares on an exchange, but is not obligated to do so. It is
possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Securities from the Company at the
public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount no less than, and the aggregate principal amounts of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by the Contracts. If in conjunction with the
sale of Securities to institutions under Contracts, Securities are also being
sold to the public, the consummation of the sale under the Contracts shall occur
simultaneously with the consummation of the sale to the public. The underwriters
and such other agents will not have any responsibility in respect of the
validity or performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for the Company by Goodwin, Procter & Hoar, Boston, Massachusetts.
EXPERTS
The financial statements and schedules referred to and incorporated by
reference in this Prospectus or elsewhere in the Registration Statement of which
this Prospectus is a part have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said report.
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<PAGE> 51
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH THEY RELATE. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary............................... S-1
Risk Factors.......................... S-3
Use of Proceeds....................... S-6
The Company........................... S-7
Federal Income Tax Considerations..... S-11
Plan of Distribution.................. S-22
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 3
Description of Debt Securities........ 3
Description of Preferred Shares....... 15
Description of Common Shares.......... 20
Description of Warrants............... 21
Restrictions on Transfers of Shares of
Beneficial Interest................. 21
Certain Provisions of Maryland Law and
of the Company's Declaration of
Trust and Bylaws.................... 23
Federal Income Tax Considerations..... 25
Ratios of Earnings to Fixed Charges... 26
Plan of Distribution.................. 26
Legal Matters......................... 27
Experts............................... 27
</TABLE>
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1,435,000 SHARES
GABLES RESIDENTIAL
TRUST
COMMON SHARES
OF BENEFICIAL INTEREST
(PAR VALUE $.01 PER SHARE)
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P R O S P E C T U S S U P P L E M E N T
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September 26, 1996
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