<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------------------
GABLES RESIDENTIAL TRUST
AND GABLES REALTY LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
GABLES RESIDENTIAL TRUST--MARYLAND 58-2077868
GABLES REALTY LIMITED PARTNERSHIP--DELAWARE 58-2077966
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
2859 PACES FERRY ROAD, OVERLOOK III, SUITE 1450, ATLANTA, GEORGIA 30339
(770) 436-4600
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
MARCUS E. BROMLEY, CHIEF EXECUTIVE OFFICER
GABLES RESIDENTIAL TRUST, 2859 PACES FERRY ROAD, OVERLOOK III, SUITE 1450,
ATLANTA, GEORGIA 30339
(770) 436-4600
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------------------------
COPY TO:
GILBERT G. MENNA, P.C.
ETTORE A. SANTUCCI, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE, BOSTON, MASSACHUSETTS 02109
(617) 570-1000
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is used to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES BEING AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
REGISTERED(1) REGISTERED (2) UNIT (3) PRICE (4)
<S> <C> <C> <C>
Gables Residential Trust
Preferred Shares(7)
Common Shares(8)
Warrants(9)...................................... $500,000,000 N.A. $500,000,000
Gables Realty Limited Partnership
Debt Securities.................................. $300,000,000 N.A. $300,000,000
<CAPTION>
TITLE OF SECURITIES BEING AMOUNT OF
REGISTERED(1) REGISTRATION FEE
<S> <C>
Gables Residential Trust
Preferred Shares(7)
Common Shares(8)
Warrants(9)...................................... $81,367(5)
Gables Realty Limited Partnership
Debt Securities.................................. $73,670(6)
</TABLE>
(1) This registration statement also covers contracts which may be issued by
Gables Residential Trust or Gables Realty Limited Partnership under which
the counter party may be required to purchase Preferred Shares, Common
Shares or Warrants of Gables Residential Trust or Debt Securities of Gables
Realty Limited Partnership, which contracts would be issued with the
Preferred Shares, Common Shares and/or Warrants of Gables Residential Trust
or Debt Securities of Gables Realty Limited Partnership registered hereby,
as the case may be. In addition, the Securities registered hereunder may be
sold separately, together or as units with other Securities registered
hereunder.
(2) The amount to be registered consists of up to $500,000,000 of an
indeterminate amount of Preferred Shares, Common Shares and/or Warrants to
be issued by Gables Residential Trust and up to $300,000,000 of Debt
Securities to be issued by Gables Realty Limited Partnership. There is also
being registered hereunder such currently indeterminate number of Preferred
Shares or Common Shares as may be issued upon conversion of the Preferred
Shares or upon exercise of the Warrants registered hereby, as the case may
be. Pursuant to Rule 429 under the Securities Act of 1933, as amended, (i)
the $500,000,000 of Preferred Shares, Common Shares and/or Warrants includes
the amount of $144,627,765 of such securities covered by the Registration
Statement on Form S-3 (No. 333-30093), which have not been sold, and (ii)
the $300,000,000 of Debt Securities includes the amount of $35,000,000 of
such securities covered by the Registration Statement on Form S-3 (No.
333-30093), which have not been sold.
(3) The proposed maximum offering price per unit has been omitted pursuant to
Securities Act Release No. 6964. The registration fee has been calculated in
accordance with Rule 457(o) under the Securities Act of 1933, as amended,
and reflects the offering price rather than the principal amount of any Debt
Securities issued at a discount.
(4) Estimated solely for purposes of computing the registration fee. No separate
consideration will be received for Preferred Shares or Common Shares issued
upon conversion of Preferred Shares or upon exercise of the Warrants.
(5) The total registration fee for all $500,000,000 of these securities is
$139,000. Pursuant to Rule 429 under the Securities Act of 1933, as amended,
the amount of $144,627,765 of such securities covered by the Registration
Statement on Form S-3 (No. 333-30093) is being carried forward and the
corresponding registration fee of $40,206 that was previously paid at the
time of filing shall be applied to the fee payable pursuant to this
registration statement. In addition, a filing fee of $17,427 that was
previously paid in connection with the Registration Statement on Form S-3
(No. 333-64497) which is being withdrawn concurrently with the filing of
this registration statement shall also be applied to the fee payable
pursuant to this registration statement. Accordingly, after application of
total credits, an amount of $81,367 is being paid simultaneously with this
filing with respect to the Preferred Shares, Common Shares and/or Warrants
being registered hereunder.
(6) The total registration fee for all $300,000,000 of these securities is
$83,400. Pursuant to Rule 429 under the Securities Act of 1933, as amended,
the amount of $35,000,000 of such securities covered by the Registration
Statement on Form S-3 (No. 333-30093) is being carried forward and the
corresponding registration fee of $9,730 that was previously paid at the
time of filing shall be applied to the fee payable to this registration
statement. Accordingly, after application of this credit, an amount of
$73,670 is being paid simultaneously with this filing with respect to Debt
Securities being registered hereunder.
(7) Including such indeterminate number of Preferred Shares as may issued from
time to time at indeterminate prices or upon conversion of or upon exercise
of Warrants registered hereby, as the case may be.
(8) Including such indeterminate number of Common Shares as may be issued from
time to time at indeterminate prices or upon conversion of Preferred Shares
registered hereby or upon exercise of Warrants registered hereby, as the
case may be.
(9) Including such indeterminate number of Warrants or other rights, including
without limitation share purchase or subscription rights, as may be issued
from time to time at indeterminate prices.
THE PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT RELATES TO AND
CONSTITUTES A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-3
(NO. 333-30093) OF THE REGISTRANT, AND IT IS INTENDED TO BE THE COMBINED
PROSPECTUS REFERRED TO IN RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 3, 1998
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OF SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
$500,000,000
GABLES RESIDENTIAL TRUST
PREFERRED SHARES
COMMON SHARES
WARRANTS
$300,000,000
GABLES REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
------------------
Gables Resident Trust is a real estate investment trust that owns
institutional-quality apartment communities across the Sunbelt region of the
United States through its subsidiary, Gables Realty Limited Partnership. By this
prospectus Gables Residential Trust may offer from time to time in one or more
series, (i) preferred shares of beneficial interest, $.01 par value per share
("Preferred Shares"), (ii) common shares of beneficial interest, $.01 par value
per share ("Common Shares"), and (iii) warrants or other rights to purchase
Preferred Shares or Common Shares ("Warrants") up to an aggregate amount of
$500,000,000. Gables Realty Limited Partnership may offer from time to time in
one or more series unsecured, non-convertible investment grade debt securities
(the "Debt Securities") up to an aggregate amount of $300,000,000. Throughout
this prospectus we will refer to the Preferred Shares, Common Shares, Warrants
and Debt Securities as "Securities." This prospectus provides you with a general
description of the Securities we may offer. Each time we sell Securities we will
provide a prospectus supplement that will contain specific information about the
terms of such offering. The prospectus supplement may also add, update or change
information in this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest in our Securities. This
prospectus may not be used to consummate sales of Securities unless it is
accompanied by a prospectus supplement.
We may sell the offered Securities: (a) directly to one or more purchasers;
(b) through agents; or (c) through underwriters or dealers. If we sell
Securities through agents or underwriters, we will name them in a prospectus
supplement and any applicable purchase price, fees, commissions or discounts. No
Securities may be sold without delivery of a prospectus supplement describing
the method and terms of the offering of such Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS YOU SHOULD
CONSIDER BEFORE YOU INVEST IN OUR 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 December , 1998.
<PAGE>
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "WE," US" OR "OUR
COMPANY" IN THIS PROSPECTUS REFER COLLECTIVELY TO GABLES RESIDENTIAL TRUST, A
MARYLAND REAL ESTATE INVESTMENT TRUST, AND ITS SUBSIDIARIES, INCLUDING GABLES
REALTY LIMITED PARTNERSHIP, A DELAWARE LIMITED PARTNERSHIP (THE "OPERATING
PARTNERSHIP"), AND THEIR RESPECTIVE PREDECESSOR ENTITIES FOR THE APPLICABLE
PERIODS, CONSIDERED AS A SINGLE ENTERPRISE. GABLES GP, INC., A WHOLLY-OWNED
SUBSIDIARY OF GABLES RESIDENTIAL TRUST, IS THE SOLE GENERAL PARTNER OF THE
OPERATING PARTNERSHIP.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") 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 is part of the Registration Statement. This
prospectus does not contain all the information contained in the Registration
Statement because we have omitted certain parts of the Registration Statement in
accordance with the rules and regulations of the SEC. For further information,
we refer you to the Registration Statement, which you may read and copy at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the SEC's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois
60661-2511. You may also obtain copies at the prescribed rates from the Public
Reference Section of the SEC at its principal office in Washington, D.C. You may
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants, including,
Gables Residential Trust and Gables Realty Limited Partnership, that file
electronically with the SEC. You may access the SEC's web site at
http://www.sec.gov.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and we are required to file
reports and proxy statements and other information with the SEC. 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 SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Our Common Shares
are listed on the New York Stock Exchange ("NYSE") under the symbol "GBP." You
may also read our reports, proxy and other information statements and other
information which we file at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus is part of a Registration Statement that we filed with the
SEC to register the Securities. It does not repeat important information that
you can find in our Registration Statement or in the reports and other documents
that we file with the SEC. The SEC allows us to "incorporate by reference" the
information that we file with them (Gables Residential Trust's SEC file number
is 1-12590; Gables Realty Limited Partnership's SEC file number is 000-22683).
This means that we can disclose important information to you by referring you to
other documents that are legally considered to be part of this prospectus, and
later information that we file with the SEC will automatically update and
supersede the information in this prospectus and the documents listed below. We
incorporate by reference the specific documents listed below (for both Gables
Residential Trust and Gables Realty Limited Partnership) and any future filings
made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Exchange Act
until we sell all of the Securities:
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998;
- Current Report on Form 8-K dated March 16, 1998;
2
<PAGE>
- Current Report on Form 8-K dated March 23, 1998;
- Current Report on Form 8-K dated April 1, 1998 and all amendments thereto;
- Gables Residential Trust's Current Report on Form 8-K dated June 18, 1998;
- Current Report on Form 8-K dated October 5, 1998;
- Current Report on Form 8-K dated October 8, 1998;
- Current Report on Form 8-K dated November 12, 1998;
- the Proxy Statement prepared by Gables Residential Trust in connection
with its 1998 Annual Meeting of Shareholders;
- the description of Gables Residential Trust's Common Shares contained in
its Registration Statement on Form 8-A, including all amendments and
reports updating such description;
- the description of Gables Residential Trust's 8.30% Series A Cumulative
Redeemable Preferred Shares contained in its Registration Statement on
Form 8-A; and
- Gables Realty Limited Partnership's Registration Statement on Form 10, as
filed with the SEC on June 11, 1997, including all amendments and reports
updating such Registration Statement.
You may request a copy of the documents incorporated by reference at no cost
by writing or telephoning us at the following address: Gables Residential Trust,
2859 Paces Ferry Road, Overlook III, Suite 1450, Atlanta, Georgia 30339,
attention: Chief Financial Officer (telephone number (770) 436-4600).
3
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR SECURITIES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS TOGETHER WITH ALL OF THE INFORMATION INCLUDED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT BEFORE YOU DECIDE
TO PURCHASE OUR SECURITIES. THIS SECTION INCLUDES OR REFERS TO CERTAIN
FORWARD-LOOKING STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE
QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED IN
THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION OF APARTMENT COMMUNITIES
We intend to continue to develop and construct multifamily apartment home
communities. Our development and construction activities may be exposed to the
following risks:
- we may be unable to obtain, or face delays in obtaining, necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorizations;
- we may abandon development opportunities that we have already begun to
explore;
- we may incur construction costs for a community which exceed our original
estimates due to increased materials, labor or other costs, which could
make completion of the community uneconomical;
- occupancy rates and rents at a newly completed development may fluctuate
depending on a number of factors, including market and economic
conditions, and may result in the community not being profitable;
- we may not be able to obtain financing with favorable terms for the
development of a community; and
- we may be unable to complete construction and lease-up of a community on
schedule, resulting in increased debt service expense and construction or
reconstruction costs.
We also intend to continue to acquire multifamily apartment home communities
on a select basis. Our acquisition activities may be exposed to the following
risks:
- the acquired property may fail to perform as we expect in analyzing our
investment; and
- our estimate of the costs of repositioning or redeveloping the acquired
property may prove inaccurate.
Construction costs have been increasing in our target markets, and the cost
to develop new communities and update acquired communities has, in some cases,
exceeded our original estimates. We may experience similar cost increases in the
future. We cannot assure you that we will be able to charge rents upon
completing the development or redevelopment of communities that will be
sufficient to offset the effects of any increases in construction or
reconstruction costs.
REAL ESTATE FINANCING RISKS
NO LIMITATION ON GABLES RESIDENTIAL TRUST'S DEBT. While our current policy
is not to incur debt that would make a ratio of debt-to-total market
capitalization greater than 60%, our Amended and Restated Declaration of Trust,
as amended ("Declaration of Trust"), and Second Amended and Restated Bylaws, as
amended ("Bylaws"), do not contain any such limitations. Because we do not have
any debt incurrence restrictions in our Declaration of Trust or Bylaws, we could
increase the amount of outstanding debt at any time. To the extent that
additional equity securities are issued to finance future developments and
acquisitions instead of incurring additional debt, the interests of our existing
shareholders could be diluted. Our ability to execute our business strategy
depends on our access to an appropriate blend of debt
4
<PAGE>
financing, including unsecured lines of credit and other forms of secured and
unsecured debt, and equity financing, including common and preferred equity.
EXISTING DEBT MATURITIES, BALLOON PAYMENTS AND REFINANCING RISKS. We are
subject to the risks normally associated with debt financing, including the risk
that our cash flow will be insufficient to meet required payments of principal
and interest. We anticipate that only a small portion of the principal of our
debt will be repaid prior to maturity. Although we may be able to use cash flow
to make future principal payments, we cannot assure you that sufficient cash
flow will be available to make all required principal payments. Therefore, we
are likely to need to refinance at least a portion of our outstanding debt as it
matures. There is a risk that we may not be able to refinance existing debt or
that the terms of any refinancing will not be as favorable as the terms of the
existing debt.
RISK OF RISING INTEREST RATES. We expect to incur variable rate debt under
credit facilities or in connection with the acquisition, construction and
reconstruction of multifamily apartment communities in the future, as well as
for other purposes. Accordingly, if interest rates increase, so will our
interest costs.
BOND COMPLIANCE REQUIREMENTS. Some of our multifamily apartment communities
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." The bond
compliance requirements for our current tax-exempt bonds, and the requirements
of any future tax-exempt bond financing, may have the effect of limiting our
income from communities subject to such financing. Under the terms of our
tax-exempt bonds, we must comply with various restrictions on the use of the
communities financed by such bonds, including a requirement that a percentage of
apartments be made available to low and middle income households.
In addition, some of our tax-exempt bond financing documents require that a
financial institution guarantee payment of the principal of, and interest on,
the bonds (a "credit enhancement"). The credit enhancement may take the form of
a letter of credit, surety bond, guarantee agreement or other additional
collateral. If the financial institution defaults in its credit enhancement
obligations, or we are unable to renew the applicable credit enhancement or
otherwise post satisfactory collateral, a default will occur under the
applicable tax-exempt bonds and the community could be foreclosed upon.
REAL ESTATE INVESTMENT RISKS
GENERAL REAL ESTATE OWNERSHIP RISKS. If our communities do not generate
revenues sufficient to meet our operating expenses, including debt service and
capital expenditures, our cash flow and ability to make required payments of
interest and principal on our Debt Securities and pay distributions to our
shareholders will be adversely affected. The following factors, among others,
may adversely affect the revenues generated by our apartment communities.
- the national and local economic climates;
- local real estate market conditions, such as oversupply of apartment
homes;
- the perceptions by prospective residents of the safety, convenience and
attractiveness of our communities and the neighborhoods where they are
located;
- our ability to provide adequate management, maintenance and insurance; and
- increased operating costs (including real estate taxes and utilities).
Certain significant expenditures associated with each equity investment
(such as debt service payments, if any, real estate taxes, insurance and
maintenance costs) are generally not reduced when circumstances cause a
reduction in income from a community. For example, if we mortgage a community to
secure payment of debt and are unable to meet the mortgage payments, we could
sustain a loss as a result of foreclosure on the community or the exercise of
other remedies by the mortgagee.
5
<PAGE>
RISKS ASSOCIATED WITH LOCAL MARKET CONDITIONS. Local market and economic
conditions may significantly affect apartment home occupancy or rental rates in
that market. Occupancy and rental rates, in turn, may significantly affect our
profitability and our ability to satisfy our financial obligations. The risks
associated with local market conditions include the following:
- the local economic climate (which may be adversely impacted by plant
closings, industry slowdowns and other factors);
- local real estate conditions (such as an oversupply of, or a reduced
demand for, apartment homes);
- a decline in household formation that adversely affects occupancy or
rental rates;
- the inability or unwillingness of residents to pay rent increases;
- the potential effect of rent control or rent stabilization laws, or other
laws regulating housing, on some of our communities, which could prevent
us from raising rents to offset increases in operating costs; and
- the local rental market may limit the extent to which rents may be
increased to meet increased expenses without decreasing occupancy rates.
Any of these risks could adversely affect our ability to achieve our desired
yields on our communities and to make expected distributions to shareholders.
DIFFICULTY OF SELLING APARTMENT COMMUNITIES. Real estate can be hard to
sell, especially if local market conditions are poor. This may limit our ability
to change our portfolio promptly in response to changes in economic or other
conditions. In addition, federal tax laws limit our ability to sell communities
that we have owned for fewer than four years, and this may affect our ability to
sell communities without adversely affecting returns to our shareholders.
COMPETITION. Our apartment communities compete with numerous housing
alternatives in attracting residents, including other rental apartments and
single-family homes that are available for rent, as well as new and existing
single-family homes for sale. Competitive residential housing in a particular
area could adversely affect our ability to lease apartment homes and increase or
maintain rents.
FAILURE TO INTEGRATE THE SIGNIFICANT NEW OPERATIONS AND ACQUIRED COMMUNITIES
UNDER MANAGEMENT. Our ability to manage growth effectively will require us,
among other things, to successfully apply our experience in managing our
existing portfolio of multifamily apartment communities to a larger number of
properties. In addition, we must be able to successfully manage the integration
of a substantial number of new management and operations personnel as our
organization grows in size and complexity.
FAILURE TO SUCCEED IN NEW MARKETS. We may make selected acquisitions
outside of our current market areas from time to time if appropriate
opportunities arise. Our historical experience in the Sunbelt region does not
ensure that we will be able to operate successfully in other market areas new to
us. There can be no assurance that we will not be exposed to the risks related
to entry into new markets, which include, among others: (i) a lack of market
knowledge and understanding of the local economies; (ii) an inability to obtain
land for development or to identify acquisition opportunities; (iii) an
inability to obtain construction tradespeople; and (iv) an unfamiliarity with
local governmental and permitting procedures.
DECREASE OF FEE MANAGEMENT BUSINESS WOULD RESULT IN DECREASE IN REVENUES
We manage properties owned by third parties for a fee. There is a risk that
the management contracts will be terminated and/or that the rental revenues upon
which management fees are based will decline and management fee income will
decrease accordingly.
6
<PAGE>
SHARE OWNERSHIP LIMIT MAY DISCOURAGE TAKEOVER BENEFICIAL TO SHAREHOLDERS
For us to maintain our qualification as a real estate investment trust for
federal income tax purposes, not more than 50% in value of our outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined for federal income tax purposes to include certain
entities). See "Federal Income Tax Considerations" on page 38. Our Declaration
of Trust includes certain restrictions regarding transfers of our shares of
beneficial interest and ownership limits that are intended to assist us in
satisfying such limitations. The ownership limit may have the effect of
delaying, deferring or preventing someone from taking control of us, even though
such a change of control could involve a premium price for our shareholders or
otherwise could be in our shareholders' best interests. See "Limits on Ownership
of Shares of Beneficial Interest" on page 33.
LIMITS ON CHANGES IN CONTROL MAY DISCOURAGE TAKEOVER BENEFICIAL TO SHAREHOLDERS
Certain provisions in our Declaration of Trust, our Bylaws and Maryland law
may have the effect of discouraging a third party from attempting to acquire us
which makes a change in control more unlikely. The result may be a limitation on
the opportunity for shareholders to receive a premium for their Common Shares
over then-prevailing market prices. See "Certain Provisions of Maryland Law and
Our Declaration of Trust and Bylaws" on page 35.
COMPLIANCE OR FAILURE TO COMPLY WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR
LAWS COULD RESULT IN SUBSTANTIAL COSTS
The Americans with Disabilities Act (the "ADA") generally requires that
public accommodations, including office buildings and hotels be made accessible
to disabled persons. We believe that our properties are in substantial
compliance with the ADA and that we will not be required to make substantial
capital expenditures to address the requirements of the ADA. However, compliance
with the ADA could require removal of access barriers and noncompliance could
result in imposition of fines by the federal government or the award of damages
to private litigants. If, pursuant to the ADA, we are required to make
substantial alterations in one or more of our properties, it could adversely
affect our financial condition and results of operations, as well as the amount
of cash available for distribution to our shareholders.
A number of additional federal, state and local laws exist that impact our
communities with respect to access thereto by disabled persons. For example, the
Fair Housing Act of 1988 requires apartment communities first occupied after
March 13, 1990 to be accessible to the handicapped. Noncompliance with the Fair
Housing Act of 1988 could result in the imposition of fines or an award of
damages to private litigants.
We cannot ascertain the ultimate cost of compliance with the ADA or other
similar legislation. While we do not expect any such cost to materially affect
us, the costs could be substantial.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST WOULD CAUSE US TO BE TAXED
AS A CORPORATION
If we fail to qualify as a real estate investment trust for federal income
tax purposes, we will be taxed as a corporation for both current and past years.
We intend at all times to operate so as to qualify as a real estate investment
trust. Although we believe that we are organized and will continue to operate in
such a manner, we cannot assure you that this is true, or that we will remain
qualified as such in the future. This is because qualification as a real estate
investment trust involves the application of highly technical and complex
provisions of the Internal Revenue Code of 1986, as amended, as to which there
are only limited judicial and administrative interpretations and involves the
determination of various factual matters and circumstances not entirely within
our control. In addition, we cannot assure you that future legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws (or their application) with respect to
qualification as a real estate investment trust for federal income tax purposes
or the federal income tax consequences of such qualification.
7
<PAGE>
If, in any taxable year, we fail to qualify as a real estate investment
trust, we will be subject to federal income tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates. In
addition, unless entitled to relief under certain statutory provisions, we would
be disqualified from treatment as a real estate investment trust for the four
taxable years following the year during which qualification is lost. The
additional tax liability resulting from the failure to qualify as a real estate
investment trust would significantly reduce or eliminate the amount of funds
available for distribution to our shareholders. In addition, we would no longer
be required to make distributions to our shareholders. See "Federal Income Tax
Considerations" on page 31.
MARKET CONDITIONS MAY HAVE A POTENTIAL ADVERSE IMPACT ON MARKET PRICE
The market value of the Securities could be substantially affected by
general market conditions, including changes in interest rates. An increase in
market interest rates may lead purchasers of the Securities to demand a higher
annual yield, which could adversely affect the market price of our outstanding
Common Shares and other Securities. Moreover, numerous other factors such as
government regulatory action and changes in tax laws could have a significant
impact on the future market price of our Common Shares or other Securities.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION MAY RESULT IN SUBSTANTIAL
COSTS
Under various federal, state and local environmental laws, a current or
previous owner or operator of real estate may be required (often regardless of
knowledge or responsibility) to investigate and remediate the effects of
hazardous or toxic substances or petroleum product releases at its properties,
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 them in connection
with the contamination. These costs could be substantial. The presence of such
substances (or the failure to properly remediate the contamination) may
materially and adversely affect the owner's ability to borrow against, sell or
rent the affected property. In addition, certain environmental laws create liens
on contaminated sites in favor of the government for damages and costs it incurs
in connection with the contamination.
8
<PAGE>
GABLES RESIDENTIAL TRUST AND THE OPERATING PARTNERSHIP
- We are one of the largest owners, operators, developers and acquirors of
multifamily apartment communities in the Sunbelt region. We have a
strategic focus on the ownership of Class AA/A multifamily apartment
communities that are situated in-fill locations or master-planned
communities near major employment centers in the Sunbelt region.
- We obtain ownership in apartment communities by developing vacant land
into a new community or by acquiring an existing community which we
sometimes reposition or redevelop. In selecting sites for development,
redevelopment or acquisition, we focus on locations with close proximity
to expanding employment centers and convenience to recreation areas,
entertainment, shopping and dining. As a result, we believe that the
communities we currently own and the land parcels on which we have the
right to develop communities are attractive to the type of residents we
seek.
- Gables Residential Trust is a self-administered and self-managed real
estate investment trust organized under the laws of the State of Maryland
in 1993 to continue and expand the operations of its privately owned
predecessor organization. Gables Residential Trust has elected to be taxed
as a real estate investment trust for federal income tax purposes and
operates principally through Gables Realty Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"). Gables Residential
Trust is currently an 80.3% economic owner of the Operating Partnership
(excluding the Operating Partnership's non-convertible preferred equity).
Gables Residential Trust controls the Operating Partnership through Gable
GP, Inc., a Texas corporation and a wholly-owned subsidiary ("GGPI"),
which is the sole general partner of the Operating Partnership.
- Gables Residential Trust's Common Shares are listed on the NYSE under the
symbol "GBP." Our executive offices are located at 2859 Paces Ferry Road
in Atlanta, Georgia 30339 and our telephone number is (770) 436-4600.
USE OF PROCEEDS
We are required by the terms of the partnership agreement of the Operating
Partnership to invest the net proceeds of any sale of Common Shares or Preferred
Shares in the Operating Partnership in exchange for additional units of limited
partnership of the Operating Partnership ("Units") or preferred Units, as the
case may be. As will be more fully described in the applicable prospectus
supplement, we intend to use the net proceeds from the sale of Securities for
one or more of the following:
- repayment of indebtedness;
- acquisition or development of new properties;
- maintenance of currently owned properties; and
- general corporate purposes.
9
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following is a description of the general terms of the Debt Securities.
Because Gables Residential Trust conducts its business principally through the
Operating Partnership, the Operating Partnership, and not Gables Residential
Trust, will issue the Debt Securities. Therefore, references to "we" and "us" in
this section refer to the Operating Partnership and not Gables Residential
Trust. The Debt Securities may be either senior Debt Securities or subordinated
Debt Securities. We will provide specific terms of a series of Debt Securities
and the extent to which these general provisions apply to that series in a
supplement to this prospectus. Accordingly, for a description of the terms of
any series of Debt Securities, reference must be made to both this prospectus
and any accompanying prospectus supplement.
The senior Debt Securities will be issued under an Indenture (the "Senior
Indenture"), dated as of a date prior to such issuance, between us and First
Union National Bank, as Trustee (the "Trustee"). The subordinated Debt
Securities will be issued under a separate Indenture (the "Subordinated
Indenture"), dated as of a date prior to such issuance, between us and the
Trustee. The Trustee is one of the lenders to our revolving line of credit, and
may, from time to time, enter into other commercial relationships with us. The
Senior Indenture and the Subordinated Indenture are sometimes collectively
referred to in this prospectus as the "Indentures." The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended. Copies
of the Indentures are filed as exhibits to our registration statement and are
incorporated into this prospectus by reference. The following summaries
highlight some of the provisions of the Indentures but they may not contain all
of the information that is important to you. Except as otherwise indicated, the
terms of the Indentures are identical. As used under this caption, the term
"Debt Securities" includes the Debt Securities being offered by this prospectus
and all other Debt Securities issued by us under the Indentures. Capitalized
terms used herein and not defined shall have the meanings assigned to them in
the applicable Indenture.
GENERAL
The Indentures do not limit the amount of Debt Securities that we may issue,
and we may issue Debt Securities in one or more series. All Debt Securities of
one series need not be issued at the same time and 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. The Debt Securities will be
unsecured. Unless we give you different information in the prospectus
supplement, the senior Debt Securities will be our unsubordinated obligations
and will rank equally with all of our other unsecured and unsubordinated
indebtedness. Payments on the subordinated Debt Securities will be subordinated
to the prior payment in full of all of our senior indebtedness, as described
under "--Subordination" and in the applicable prospectus supplement.
Each Indenture provides that we may, but do not need to, designate more than
one Trustee thereunder. Any Trustee under an Indenture may resign or be removed
and a successor Trustee may be appointed to act with respect to the series of
Debt Securities administered by the resigning or removed Trustee. 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 prospectus supplement for each offering will provide the following
terms, where applicable:
- the title of the Debt Securities and whether the Debt Securities are
senior or subordinated;
- the aggregate principal amount of the Debt Securities and any limit on
their aggregate principal amount;
10
<PAGE>
- the price (expressed as a percentage of the principal) at which the Debt
Securities will be issued;
- the portion of the principal payable upon declaration of acceleration of
the maturity, if other than the principal amount;
- the date or dates, or the method for determining the date or dates, on
which the principal of the Debt Securities will be payable;
- the interest rate or rates (which may be fixed or variable) of the Debt
Securities, or the method by which the rate or rates is determined;
- the date or dates, or the method for determining the date or dates, from
which interest will accrue;
- the dates on which interest will be payable;
- the record dates for interest payment dates, or the method by which we
will determine those dates;
- the persons to whom interest shall be payable;
- the basis upon which interest will be calculated if other than that of a
360-day year of twelve 30-day months;
- the place or places where the principal of (and premium, if any) and
interest on the Debt Securities will be payable;
- where the Debt Securities may be surrendered for conversion or
registration of transfer or exchange;
- where notices or demands to or upon us in respect of the Debt Securities
and the applicable Indenture may be served;
- the times, prices and other terms and conditions upon which we may redeem
the Debt Securities;
- any obligation we have to redeem, repay or purchase the Debt Securities
pursuant to any sinking fund or analogous provision, or at the option of
holders of the Debt Securities, and the times and prices at which we must
redeem, repay or purchase the Debt Securities pursuant to such an
obligation;
- if other than U.S. dollars, the currency or currencies in which the Debt
Securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies and the terms and conditions relating thereto;
- whether the principal of (and premium, if any) or interest on the Debt
Securities of the series are to be payable, at our election or at the
election of a holder, in a currency or currencies, other than that in
which the Debt Securities are denominated or stated to be payable and
other related terms and conditions;
- whether the amount of payments of principal of (and premium, if any) or
interest, on the Debt Securities may be determined according to an index,
formula or other method and how such amounts will be determined;
- whether we will issue the Debt Securities in certificated or book-entry
form and, if so, the identity of the depository for such Debt Securities;
- whether the Debt Securities will be in registered or bearer form and, if
in registered form, the denominations, if other than $1,000 or any
integral multiple, and, if in bearer form, the denominations and any other
terms and conditions;
11
<PAGE>
- any restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of the series may be
exchanged for Registered Securities of the series and vice versa (if
permitted by applicable laws and regulations);
- whether any Debt Securities of the series are to be issuable initially in
temporary global form and whether any Debt Securities of the series are to
be issuable in permanent global form with or without coupons and, if so,
whether beneficial owners of interests in any such permanent global
security may exchange their interests for other Debt Securities of the
series;
- if Registered Securities of the series are to be issuable as a global
security, the identity of the depository for such series;
- the applicability, if any, of the defeasance and covenant defeasance
provisions described here or in the applicable Indenture;
- whether and under what circumstances we will pay any additional amounts on
the Debt Securities in respect of any tax, assessment or governmental
charge and, if so, whether we will have the option to redeem the Debt
Securities in lieu of making such a payment;
- if any Debt Securities are issuable in temporary or permanent global form,
the circumstances, if any, in the applicable prospectus supplement, under
which beneficial owners of interests in the global security may obtain
definitive Debt Securities and the manner in which payments on a permanent
global debt security will be made;
- with respect to any Debt Securities that provide for optional redemption
or prepayment upon the occurrence of certain events (such as a change of
control of the Operating Partnership), (i) the possible effects of such
provisions on the market price of the Securities or in deterring certain
mergers, tender offers or other takeover attempts, and the intention of
the Operating Partnership to comply with the requirements of Rule 14e-1
under the Exchange Act and any other applicable securities laws in
connection with such provisions; (ii) whether the occurrence of the
specified events may give rise to cross-defaults on other indebtedness
such that payment on such Debt Securities may be effectively subordinated;
and (iii) the existence of any limitation on the Operating Partnership's
financial or legal ability to repurchase such Debt Securities upon the
occurrence of such an event (including, if true, the lack of assurance
that such a repurchase can be effected) and the impact, if any, under the
Indenture of such a failure, including whether and under what
circumstances such a failure may constitute an event of default;
- the name of the applicable trustee and the nature of any material
relationship with the Operating Partnership or with any of its affiliates,
and the percentage of Debt Securities of the class necessary to require
the trustee to take action;
- any deletions from, modifications of, or additions to the events of
default or covenants of the Operating Partnership, 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
- any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
We may issue Debt Securities 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"). The applicable prospectus supplement will describe the federal
income tax consequences and other relevant considerations applicable to Original
Issue Discount Securities.
Except as described under "--Merger, Consolidation or Sale of Assets" or as
may be set forth in any prospectus supplement, the Debt Securities will not
contain any provisions that would limit our ability to
12
<PAGE>
incur indebtedness or that would afford holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving us, Gables
Residential Trust or any of our respective affiliates or in the event of a
change of control or reorganization, restructuring, merger or similar
transaction involving us that may adversely affect the holders of the Debt
Securities. In addition, except as described under "--Merger, Consolidation or
Sale of Assets," we may, in the future, enter into certain transactions, such as
the sale of all or substantially all of our assets or a merger or consolidation,
that would increase, substantially reduce or eliminate the amount of our
indebtedness or substantially reduce or eliminate our assets, which may have an
adverse effect on our ability to service our indebtedness, including the Debt
Securities. Neither Maryland General Corporation Law nor the governing
instruments of Gables Residential Trust and the Operating Partnership define the
term "substantially all" in connection with the sale of assets. Additionally,
Maryland cases interpreting the words "substantially all" all rely heavily upon
the facts and circumstances of the particular case. Consequently, to determine
whether a sale of "substantially all" of our assets has occurred, a holder of
Debt Securities must review the financial and other information that we
disclosed to the public. Gables Residential Trust's Declaration of Trust
contains restrictions on ownership and transfers of Common Shares and Preferred
Shares of Gables Residential Trust that are designed to preserve Gables
Residential Trust's status as a real estate investment trust and, therefore, may
act to prevent or hinder a change of control. See "Limits on Ownership of Shares
of Beneficial Interest." We will provide you with more information in the
applicable prospectus supplement regarding any deletions, modifications, or
additions, to the events of default or covenants that are described below,
including any addition of a covenant or other provision providing event risk or
similar protection.
PAYMENT
Unless we give you different information in the applicable prospectus
supplement, the principal of (and applicable premium, if any) and interest on
any series of the Debt Securities will be payable at the corporate trust office
of the Trustee. We will provide you with the address of the Trustee in the
applicable prospectus supplement. We may also pay interest by mailing a check to
the address of the person entitled to it as it appears in the applicable
register for the Debt Securities or by wire transfer of funds to that person at
an account maintained within the United States.
All monies that we pay to a paying agent or a Trustee for the payment of the
principal, any premium, or interest on any Debt Security will be repaid to us if
unclaimed at the end of two years after the obligation underlying payment
becomes due and payable. After funds have been returned to us, the holder of the
Debt Security may look only to us for payment.
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, a holder of Debt Securities of any series may exchange them for
any authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and kind upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent that we designate for such purpose. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, a
holder of Debt Securities of any series may surrender them for registration of
transfer or exchange at the corporate trust office of the applicable Trustee or
at the office of any transfer agent that we designate for such purpose. Every
Debt Security surrendered for 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. Payment of a service charge will
not be required for any registration of transfer or exchange of any Debt
Securities, but we or the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith. If
the applicable prospectus supplement
13
<PAGE>
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by us with respect to any series of Debt Securities, we 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 we will be
required to maintain a transfer agent in each place of payment for such series.
We may at any time designate additional transfer agents with respect to any
series of Debt Securities.
Neither we nor any Trustee shall be required to do any of the following:
- 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 that the notice of redemption of any Debt Securities selected for
redemption is mailed and ending at the close of business on the day of
such mailing;
- 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; and
- 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 provide that we may, without the consent of the holders of
any outstanding Debt Securities, consolidate with, or sell, lease or convey all
or substantially all of our assets to, or merge with or into, any other entity
provided that (i) either we shall be the continuing entity, or the successor
entity (if other than us) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets, and which is
organized under the laws of any domestic jurisdiction and assumes (A) our
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 our obligation or the obligation of any our subsidiaries a result
thereof as having been incurred by us or by 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 require us to do or cause to be done all things
necessary to preserve and keep in full force and effect our existence, rights
and franchises; PROVIDED, HOWEVER, that we will not be required to preserve any
right or franchise if we determine that the preservation thereof is no longer
desirable in the conduct of our business.
MAINTENANCE OF PROPERTIES. The Indentures require us to cause all of our
material properties used or useful in the conduct of our business or the
business of any of our subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, as in our judgment may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; PROVIDED, HOWEVER, that neither we nor any of our subsidiaries
will be prevented from selling or otherwise disposing of our respective
properties for value in the ordinary course of business.
INSURANCE. The Indentures require us to cause each of our insurable
properties and the insurable properties of our subsidiaries to be insured
against loss or damage at least equal to their then full insurable
14
<PAGE>
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 require us 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 us or any of our subsidiaries or upon our income, profits or
property or of any of our subsidiaries and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon our
property or the property of any of our subsidiaries; PROVIDED, HOWEVER, that we
will 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 Operating Partnership
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 provides that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder:
- default for 30 days in the payment of any installment of interest on any
Debt Security of such series;
- default for 5 days in the payment of principal of (or premium, if any, on)
any Debt Security of such series at its maturity;
- default for 5 days in making any sinking fund payment as required for any
Debt Security of such series;
- default in the performance or breach of any other covenant or warranty of
the Operating Partnership 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;
- a default under any bond, debenture, note, 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 us (or by any
of our subsidiaries, the repayment of which we have guaranteed or for
which we are directly responsible or liable as obligor or guarantor)
having an aggregate principal amount outstanding of at least $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, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after there shall have
been given, by registered or certified mail, to us by the Trustee, or to
us and the Trustee by the holders of at least 10% in principal amount of
the outstanding Debt Securities of that series, a written notice
specifying such default and requiring us to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" under such Indenture;
PROVIDED, HOWEVER, that such a default on indebtedness which constitutes
tax-exempt financing having an aggregate principal amount outstanding not
exceeding $25,000,000 that results solely from a failure of an entity
providing credit support for such indebtedness to honor a demand for
payment on a letter of credit shall not constitute an Event of Default;
- certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Operating
Partnership or any Significant Subsidiary of the Operating Partnership;
and
- any other event of default provided with respect to a particular series of
Debt Securities.
15
<PAGE>
When we use the term "Significant Subsidiary" we refer to 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 us (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) we 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 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 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 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 payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof.
The Indentures 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
16
<PAGE>
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, we will be required to
deliver to each Trustee a certificate, signed by one of several specified
officers of GGPI, as our general partner, 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, do any of the following:
- change the stated maturity of the principal of, or any installment of
interest (or premium, if any) on, any such Debt Security;
- reduce the principal amount of, or the rate or amount of interest on, or
any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would
be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right
of repayment of the holder of any such Debt Security;
- change the place of payment, or the coin or currency, for payment of
principal of, premium, if any, or interest on any such Debt Security;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any such Debt Security;
- 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; and
- 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, our compliance with
certain restrictive covenants of the applicable Indenture.
The Operating Partnership and the respective Trustee thereunder may make
modifications and amendments of an Indenture without the consent of any holder
of Debt Securities for any of the following purposes:
- to evidence the succession of another person to us as obligor under such
Indenture;
- to add to the covenants of the Operating Partnership for the benefit of
the holders of all or any series of Debt Securities or to surrender any
right or power conferred upon us in such Indenture;
- to add events of default for the benefit of the holders of all or any
series of Debt Securities;
17
<PAGE>
- 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;
- to change or eliminate any provisions of an Indenture, provided that any
such change or elimination shall become effective only when there are no
Debt Securities outstanding of any series created prior thereto which are
entitled to the benefit of such provision;
- to secure the Debt Securities;
- to establish the form or terms of Debt Securities of any series;
- 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;
- 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; and
- 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 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 us or any other obligor upon the
Debt Securities or by any affiliate of ours or of such other obligor shall be
disregarded.
The Indentures 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 us 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 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
18
<PAGE>
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 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 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 our creditors 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,
but our obligation 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 we receive 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 Operating Partnership 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 our general creditors.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by us in respect
of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed:
- indebtedness incurred by us for money borrowed or represented by
purchase-money obligations;
- indebtedness incurred by us evidenced by notes, debentures, bonds, or
other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement;
- obligations as lessee under leases of property either made as part of any
sale and leaseback transaction to which we are a party or otherwise;
- indebtedness, obligations and liabilities of others in respect of which we
are liable contingently or otherwise to pay or advance money or property
or as guarantor, endorser or otherwise or which we have agreed to purchase
or otherwise acquire; and
- any binding commitment we have 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 the preceding clauses as to which, in the instrument
creating or
19
<PAGE>
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 incurred by us 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 our most recent fiscal
quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, we will
be permitted, at our option, to discharge certain obligations to holders of any
series of Debt Securities issued under any Indenture that have not already been
delivered to the applicable Trustee for cancellation and that either have become
due and payable or will become due and payable within one year (or scheduled for
redemption within one year) by irrevocably depositing with the applicable
Trustee, in trust, funds in 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 provide that, unless otherwise indicated in the applicable
prospectus supplement, we 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) ("defeasance"), or (ii) to be
released from our 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, our
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 our irrevocable
deposit 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, we have 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 federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to 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 federal
income tax law occurring after the date of the
20
<PAGE>
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.
When we use the term "Government Obligations" we mean 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, HOWEVER 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
we have 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 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.
When we use the term "Conversion Event" we mean 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 we effect 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, we would remain
liable to make payment of such amounts due at the time of acceleration.
21
<PAGE>
The applicable prospectus supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
shares of beneficial interest of Gables Residential Trust or any equity interest
in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities 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.
22
<PAGE>
DESCRIPTION OF PREFERRED SHARES
The following is a description of the general terms and provisions of our
Preferred Shares and may not contain all the information that is important to
you. You can access complete information by referring to our Declaration of
Trust and Bylaws and to any applicable amendment to the Declaration of Trust
designating terms of a series of Preferred Shares. You should note that Gables
Residential Trust, not the Operating Partnership, will issue Preferred Shares.
Therefore, references to "the Company," "we" and "us" in this section refer to
Gables Residential Trust and not the Operating Partnership.
GENERAL
Under our Declaration of Trust, we have authority to issue up to 171,000,000
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 20,000,000 Preferred Shares, par value
$.01 per share. At November 12, 1998, we had outstanding 4,600,000 shares of
8.30% Series A Cumulative Redeemable Preferred Shares and 180,000 shares of
5.00% Series Z Cumulative Redeemable Preferred Shares. Additionally, we have
reserved 2,000,000 shares of 8.625% Series B Cumulative Redeemable Preferred
Shares, none of which are currently outstanding but which may be issued upon
exchange of preferred Units as described below. The general terms of the Series
A, B and Z Cumulative Redeemable Preferred Shares are as set forth below.
- SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
outstanding 4,600,000 shares of 8.30% Series A Cumulative Redeemable
Preferred Shares (the "Series A Preferred Shares"). Dividends on the
Series A Preferred Shares are cumulative from the date of original
issuance and are payable quarterly at the rate of 8.30% per annum of the
$25.00 liquidation preference. The Series A Preferred Shares rank as to
rights to dividends and in liquidation on a parity with the Series B
Preferred Shares (as defined below) and senior to the Series Z Preferred
Shares (as defined below). We may redeem the Series A Preferred Shares at
any time on or after July 24, 2002 for cash at a redemption price of
$25.00 per share, plus all accrued and unpaid dividends. The Series A
Preferred Shares have no stated maturity and are not subject to any
sinking fund or mandatory redemption and are not convertible into any
other of our securities.
- SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES. We have reserved
2,000,000 shares of 8.625% Series B Cumulative Redeemable Preferred Shares
(the "Series B Preferred Shares"), none of which are currently
outstanding, for issuance upon exercise by the holders of the Operating
Partnership's 2,000,000 Series B Preferred Units ("Series B Preferred
Units") of their right to exchange Series B Preferred Units for Series B
Preferred Shares on a one-for-one basis. The exchange right is exercisable
in whole but not in part (i) at any time on or after November 15, 2008,
(ii) at any time if full quarterly distributions are not made for six
quarters, or (iii) upon the occurrence of certain specified events related
to the treatment of the Series B Preferred Units for federal income tax
purposes. Distributions on the Series B Preferred Units are, and dividends
on the Series B Preferred Shares, if and when issued, will be, cumulative
from the date of original issuance and are, or will be, payable quarterly
at the rate of 8.625% per annum of the $25.00 liquidation preference. The
Series B Preferred Shares rank as to rights to dividends and in
liquidation on a parity with the Series A Preferred Shares and senior to
the Series Z Preferred Shares. We may redeem the Series B Preferred Units
and the Series B Preferred Shares at any time on or after November 15,
2003 for cash at a redemption price of $25.00 per unit or share, plus all
accumulated, accrued and unpaid distributions or dividends; in addition we
may redeem the Series B Preferred Units before November 15, 2003 if the
holders elect to exchange them for Series B Preferred Shares. The Series B
Preferred Units and Series B Preferred Shares have no stated maturity, are
not subject to any sinking fund or mandatory redemption, and are not
convertible into any other of our securities.
23
<PAGE>
- SERIES Z CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
outstanding 180,000 shares of 5.00% Series Z Cumulative Redeemable
Preferred Shares (the "Series Z Preferred Shares"). Dividends on the
Series Z Preferred Shares are cumulative from the date of original
issuance and are payable on June 18 of each year, commencing June 18,
2008, at the rate of 5.00% per annum of the $25.00 liquidation preference.
We may redeem the Series Z Preferred Shares at any time for cash at a
redemption price of $25.00 per share, plus all accrued and unpaid
dividends. The Series Z Preferred Shares are subject to mandatory
redemption on June 18, 2018. The Series Z Preferred Shares are not subject
to any sinking fund and are not convertible into any other of our
securities. With respect to dividends and liquidation distributions, the
Series Z Preferred Shares currently rank junior to all other designated
Preferred Shares, including the Series A Preferred Shares and the Series B
Preferred Shares.
No other Preferred Shares were outstanding as of the date of this
prospectus. We may issue Preferred Shares from time to time, in one or more
series, as authorized by our Board of Trustees. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland General
Corporation Law ("MGCL") and our Declaration of Trust to fix for each series,
subject to the provisions of our 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
You should refer to the prospectus supplement relating to the Preferred
Shares offered thereby for specific terms, including the following terms:
- the title and stated value of such Preferred Shares;
- the number of Preferred Shares offered, the liquidation preference per
share and the offering price of such Preferred Shares;
- the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Shares;
- the date from which dividends on such Preferred Shares shall accumulate,
if applicable;
- the procedures for any auction and remarketing, if any, for such Preferred
Shares;
- the provision for a sinking fund, if any, for such Preferred Shares;
- the provision for redemption, if applicable, of such Preferred Shares;
- any listing of such Preferred Shares on any securities exchange;
- 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);
- any other specific terms, preferences, rights, limitations or restrictions
of such Preferred Shares;
- a discussion of federal income tax considerations applicable to such
Preferred Shares;
- the relative ranking and preference of such Preferred Shares as to
dividend rights and rights upon our liquidation, dissolution or the
winding up of our affairs;
24
<PAGE>
- 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 our liquidation, dissolution or the
winding up of our affairs; and
- any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a
real estate investment trust.
RANK
Unless otherwise specified in the prospectus supplement, the Preferred
Shares will, with respect to dividend rights and rights upon our liquidation,
dissolution or winding up our affairs, rank (i) senior to all classes or series
of our Common Shares, and to all equity securities ranking junior to such
Preferred Shares with respect to dividend rights or rights upon our liquidation,
dissolution or winding up our affairs; (ii) on a parity with all equity
securities issued by us, 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 our liquidation, dissolution or winding up of our
affairs; and (iii) junior to all equity securities issued by us, the terms of
which specifically provide that such equity securities rank senior to the
Preferred Shares with respect to dividend rights or rights upon our liquidation,
dissolution or winding up of our affairs. 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 our Board of Trustees, out of our assets which are
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 our share transfer books
on such record dates as shall be fixed by our Board of Trustees.
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 our Board of Trustees 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 we 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 of our shares of beneficial
interest 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
25
<PAGE>
accumulation in respect of unpaid dividends for prior dividend periods if 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 of our shares of beneficial interest 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 of our shares of beneficial interest
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 us (except by conversion into or
exchange for other of our shares of beneficial interest ranking junior to the
Preferred Shares of such series as to dividends and upon liquidation).
Any dividend payment we make 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 our option, 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 us 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. We may pay the redemption price 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 our shares of beneficial interest, 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 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, we will not redeem any
Preferred Shares of such
26
<PAGE>
series unless we redeem all outstanding Preferred Shares of such series
simultaneously; PROVIDED, HOWEVER, that the foregoing shall not prevent the
purchase or acquisition of Preferred Shares of such series to preserve our real
estate investment trust status or pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding 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, we shall not purchase or
otherwise acquire directly or indirectly any Preferred Shares of such series
(except by conversion into or exchange for our shares of beneficial interest
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 our real
estate investment trust status 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, we will determine the number of shares to be redeemed 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 that we determine.
We will mail notice of redemption 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 our stock transfer books. Each
notice shall state the following:
- the redemption date;
- the number of shares and series of the Preferred Shares to be redeemed;
- the redemption price;
- the place or places where certificates for such Preferred Shares are to be
surrendered for payment of the redemption price;
- that dividends on the shares to be redeemed will cease to accrue on such
redemption date;
- the date upon which the holder's conversion rights, if any, as to such
shares shall terminate; and
- if fewer than all the Preferred Shares of any series are to be redeemed,
the specific number of Preferred Shares to be redeemed from each such
holder.
If notice of redemption of any Preferred Shares has been given and if we have
set aside the funds necessary for such redemption 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
our affairs, then, before we make any distribution or payment to the holders of
any Common Shares or any other class or series of our shares of beneficial
interest ranking junior to the Preferred Shares in the distribution of assets
upon any liquidation, dissolution or winding up of ours, the holders of each
series of Preferred Shares shall be entitled to receive out of our assets which
are legally available for distribution to shareholders liquidating
27
<PAGE>
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 our
remaining assets. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, our available assets 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
our shares of beneficial interest 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.
If we have made liquidating distributions in full to all holders of
Preferred Shares, we will distribute our remaining assets 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, our consolidation or merger with
or into any other corporation, trust or entity, or the sale, lease or conveyance
of all or substantially all of our property or business, shall not be deemed to
constitute a liquidation, dissolution or winding up of our affairs.
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, we 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 of our authorized shares of beneficial interest 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 our Declaration of Trust or the amendment to our Declaration of Trust
designating the terms 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 we 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, we have redeemed or called for redemption all outstanding shares of
such series of Preferred Shares and, if called for redemption, have deposited
sufficient funds in trust to effect such redemption.
28
<PAGE>
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 our option or at the option of the holders of the
Preferred Shares, 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 us to qualify as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, not more than 50% in value of our outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code of 1986, as amended,
to include certain entities) during the last half of a taxable year. To assist
us in meeting this requirement, we may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of our
outstanding equity securities, including any of our Preferred Shares. Therefore,
amendment to our Declaration of Trust designating 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
"Limits on Ownership 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.
29
<PAGE>
DESCRIPTION OF COMMON SHARES
The following is a description of the general terms and provisions of our
Common Shares and may not contain all the information that is important to you.
You can access complete information by referring to our Declaration of Trust and
Bylaws. You should note that Gables Residential Trust, not the Operating
Partnership, will issue Common Shares. Therefore, references to "we" and "us" in
this section refer to Gables Residential Trust and not the Operating
Partnership.
GENERAL
Under our Declaration of Trust, we have authority to issue 100,000,000
Common Shares, par value $.01 per share. As of November 12, 1998, 26,188,304
Common Shares were issued and outstanding. In addition, as of November 12, 1998,
6,429,909 Units which are exchangeable for Common Shares on a one-for-one basis
were outstanding. All Common Shares will, when issued, be duly authorized, fully
paid and nonassessable. This means that the full price for the outstanding
Common Shares will have been paid at issuance and that you, as a holder of such
Common Shares, will not be later required to pay us any additional monies for
such Common Shares.
DIVIDENDS
Subject to preferential rights of any other shares of beneficial interest or
the provisions of our Declaration of Trust regarding Excess Shares (as defined
below), as a holder of Common Shares, you may receive distributions out of
assets that we can legally use to pay distributions, when and if, they are
authorized declared by our Board of Trustees, and you may also share in the same
proportion as other holders out of assets that we can legally use to pay
distributions after we pay or make adequate provision for all of our known debts
and liabilities in the event we are liquidated, dissolved or our affairs are
wound up.
VOTING RIGHTS
Subject to the provisions of our Declaration of Trust regarding Excess
Shares, as a holder of Common Shares, you have the exclusive power to vote on
all matters presented to our shareholders, including the election of trustees,
except as provided otherwise by Maryland law or as provided with respect to any
other shares of beneficial interest. As a holder of Common Shares, you are
entitled to one vote per share. There is no cumulative voting in the election of
our trustees, which means that at any meeting of our shareholders, the holders
of a majority of the outstanding Common Shares can cast all of their votes for
each trustee to be elected at such meeting, elect all of the trustees then
standing for election and the votes held by the holders of the remaining Common
Shares will not be sufficient to elect any trustee.
OTHER RIGHTS
Subject to the provisions of our Declaration of Trust regarding Excess
Shares, all Common Shares have equal dividend, distribution, liquidation and
other rights, and have no preference, appraisal (except as provided by Maryland
law) or exchange rights.
As a holder of Common Shares, you have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any of our Securities.
Our Declaration of Trust prohibits us from merging or selling all or
substantially all of our assets without the approval of a majority of the
outstanding shares that are entitled to vote on such matters. In addition, the
Operating Partnership's partnership agreement requires that such actions also be
approved by partners holding 75% of the Units of the Operating Partnership.
30
<PAGE>
RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, no more than 50% in value of our outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code of 1986, as amended,
to include certain entities) during the last half of a taxable year. To assist
us in meeting this requirement, we may take certain actions to limit the
beneficial ownership of our outstanding equity securities, directly or
indirectly, by one individual. See "Limits on Ownership of Shares of Beneficial
Interest" on page 27.
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is BankBoston, N.A.,
Boston, Massachusetts.
31
<PAGE>
DESCRIPTION OF WARRANTS
We have no Warrants or other share purchase rights outstanding (other than
options issued under our Third Amended and Restated 1994 Share Option and
Incentive Plan, as amended). We may issue Warrants for the purchase of Preferred
Shares or Common Shares. You should note that Gables Residential Trust, not the
Operating Partnership will issue Warrants. Therefore, references to "we" and
"us" in this section refer to Gables Residential Trust and not the Operating
Partnership. Warrants may be issued independently, together with any other
Securities offered by any prospectus supplement or through a dividend or other
distribution to our shareholders and may be attached to or separate from such
Securities. We may issue Warrants under a warrant agreement to be entered into
between us and a warrant agent. We will name any warrant agent in the applicable
prospectus supplement. The warrant agent will act solely as our agent 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 is a description of the general
terms and provisions of any Warrants we may issue and may not contain all the
information that is important to you. You can access complete information by
referring to the applicable prospectus supplement. In the applicable prospectus
supplement, we will describe the terms of the Warrants and applicable warrant
agreement, including, where applicable, the following:
- the title of such Warrants;
- their aggregate number;
- the price or prices at which we will issue the Warrants;
- the designation, number and terms of the Preferred Shares or Common Shares
that can be purchased upon exercise of the Warrants;
- 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;
- the date, if any, on and after which the Warrants and the related
Preferred Shares or Common Shares, if any, will be separately
transferable;
- the price at which each Preferred Share or Common Share that can be
purchased upon exercise of such Warrants may be purchased;
- the date on which the right to exercise the Warrants shall commence and
the date on which such right shall expire;
- the minimum or maximum amount of such Warrants which may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain federal income tax considerations; and
- any other terms of such Warrants, including terms, procedures and
limitations relating to the transferability, exchange and exercise of such
Warrants.
32
<PAGE>
LIMITS ON OWNERSHIP OF SHARES OF BENEFICIAL INTEREST
OWNERSHIP LIMIT
For us to qualify as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code") among other things, not
more than 50% in value of our 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 us against the risk of losing our status as a
REIT due to a concentration of ownership among our shareholders, our 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 our 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 our 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 our disqualification 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 us being "closely held" within the meaning of Section 856(h) of the
Code, shall be void and have no effect. The intended transferee will acquire no
rights to the shares of beneficial interest. The foregoing restrictions will not
apply if our Board of Trustees determines that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a REIT. In
addition, the foregoing restrictions do 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 our outstanding shares.
SHARES OWNED IN EXCESS OF OWNERSHIP LIMIT
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 us
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 us that shares of beneficial interest have been
transferred in violation of the provisions of our Declaration of Trust shall be
repaid to us upon demand. The Excess Shares are not treasury shares, but rather
constitute a separate class of our issued and outstanding shares of beneficial
interest. The original transferee-shareholder may, at any time the Excess Shares
are held by us 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
33
<PAGE>
our option, to have acted as an agent on our behalf in acquiring the Excess
Shares and to hold the Excess Shares on our behalf.
RIGHT TO PURCHASE EXCESS SHARES
In addition to the foregoing transfer restrictions, we will have the right,
for a period of 90 days during the time any Excess Shares are held by us 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 our Declaration of Trust) of the
shares of beneficial interest on the date we exercise our option to purchase.
The 90-day period begins on the date of the violative transfer if the original
transferee-shareholder gives notice to us 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 us containing the information specified in our
Declaration of Trust no later than January 30 of each year. Each shareholder
will upon demand be required to disclose to us in writing any information with
respect to the direct, indirect and constructive ownership of shares of
beneficial interest 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 Gables Residential Trust unless the Board of Trustees determines that
maintenance of REIT status is no longer in our best interests.
34
<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW AND
OUR DECLARATION OF TRUST AND BYLAWS
The following is a summary of certain provisions of Maryland law and our
Declaration of Trust and Bylaws. The description below is intended as only a
summary and is qualified in its entirety by reference to Maryland General
Corporation Law and our Declaration of Trust and Bylaws.
MARYLAND BUSINESS COMBINATION STATUTE
Maryland law 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 directors 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 directors 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
Maryland law provides that "control shares" of a Maryland REIT 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.
35
<PAGE>
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) 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 us 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 our Declaration of Trust specifically
provides that no shareholder of ours will be personally liable for any of our
obligations. Our Bylaws further provide that we will 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 we will
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 us. Inasmuch as we will carry public liability
insurance which we consider adequate, any risk of personal liability to
shareholders is limited to situations in which our assets plus our insurance
coverage would be insufficient to satisfy the claims against us and our
shareholders.
LIMITATION OF TRUSTEES' AND OFFICERS' LIABILITY
Under Maryland law, a REIT formed in Maryland is permitted to limit, by
provision in its declaration of trust, the liability of trustees and officers so
that none of its trustees or officers shall be liable to it or to any
shareholder for money damages except to the extent that:
- 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
- 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.
Our Declaration of Trust has incorporated the provisions of such law
limiting the liability of trustees and officers. GGPI's Articles of
Incorporation contain similar provisions that are consistent with Texas law.
Our Bylaws require us 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 we have received a written affirmation by the Indemnitee
36
<PAGE>
that he or she has met the standard of conduct necessary for indemnification by
us as authorized by our Bylaws. We shall not be required to indemnify an
Indemnitee if:
- it is established that (a) the Indemnitee's act or omission was committed
in bad faith or was the result of active or deliberate dishonesty, (b) the
Indemnitee actually received an improper personal benefit in money,
property or services or (c) in the case of a criminal proceeding, the
Indemnitee had reasonable cause to believe that the Indemnitee's act or
omission was unlawful;
- the proceeding was initiated by the Indemnitee;
- the Indemnitee received payment for such expenses pursuant to insurance or
otherwise; or
- the proceeding arises under Section 16 of the Securities Exchange Act of
1934, as amended.
Pursuant to our Bylaws, the Indemnitee is required to repay the amount paid
or reimbursed by us if it shall ultimately be determined that the standard of
conduct was not met. Our Bylaws also permit us 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
We have entered into indemnification agreements with each of our trustees
and officers. The indemnification agreements require, among other things, that
we indemnify our trustees and officers to the fullest extent permitted by law
and advance to our trustees and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. Under these agreements, we must also indemnify and advance all
expenses incurred by our trustees and officers seeking to enforce their rights
under the indemnification agreements and cover our trustees and officers under
our directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by our Declaration of Trust and our Bylaws, it provides greater
assurance to our trustees and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by our
Board of Trustees or by our shareholders to eliminate the rights it provides.
37
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in the Securities. In this section,
as well as in the section entitled "Limits on Ownership of Shares of Beneficial
Interest" above, we refer to the Internal Revenue Code of 1986, as amended, as
the "Code." The following discussion is not exhaustive of all possible tax
considerations and is not tax advice. Moreover, this summary does not deal with
all tax aspects that might be relevant to a particular prospective shareholder
in light of his/her personal circumstances; nor does it deal with 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 us concerning our
compliance with the requirements for qualification as a REIT.
WE URGE YOU, AS A PROSPECTIVE INVESTOR, TO CONSULT YOUR OWN TAX ADVISOR,
WITH RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO YOU OF THE PURCHASE, HOLDING AND SALE OF OUR SECURITIES.
FEDERAL INCOME TAXATION
In the opinion of our tax counsel, Goodwin, Procter & Hoar LLP, commencing
with our first taxable year ended December 31, 1994, we have been organized in
conformity with the requirements for qualification as a "real estate investment
trust" under the Code, and our method of operation will enable us to continue to
meet the requirements for qualification and taxation as a "real estate
investment trust" under the Code, provided that we operated and continue to
operate in accordance with various assumptions and factual representations made
by us concerning our business, properties and operations. We may not, however,
have met or continue to meet such requirements. Such qualification depends upon
us 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 our representations regarding our 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 we have qualified and continue to qualify for taxation as a REIT, we
generally will not be subject to federal corporate income taxes on that portion
of our 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.
Additionally, a REIT may elect to retain and pay taxes on a designated amount of
its net long-term capital gains, in which case the shareholders of the REIT will
include their proportionate share of the undistributed long-term capital gains
in income and receive a credit or refund for their share of the tax paid by the
REIT.
Even if we qualify for taxation as a REIT, however, we will be subject to
federal income tax, as follows:
- First, we will be taxed at regular corporate rates on our undistributed
REIT taxable income, including undistributed net capital gains.
- Second, under certain circumstances, we may be subject to the "alternative
minimum tax."
- Third, if we have 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, we will be subject to tax at the highest corporate
rate on such income.
38
<PAGE>
- Fourth, if we have 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 we should fail to satisfy either the 75% or 95% gross income
test (discussed below) but have nonetheless maintained our qualification
as a REIT because certain other requirements have been met, we will be
subject to a 100% tax on the net income attributable to the greater of the
amount by which we fail the 75% or 95% test, multiplied by a fraction
intended to reflect our profitability.
- Sixth, if we fail to distribute during each year at least the sum of (i)
85% of our ordinary income for such year, (ii) 95% of our capital gain net
income for such year and (iii) any undistributed taxable income from prior
periods, we will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
- Seventh, if we 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 we subsequently recognize gain on the
disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which we acquired the asset, 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) our 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
We elected to be taxable as a REIT for our taxable year ended December 31,
1994, and in order to have so qualified, we must have met and continued to meet
the requirements discussed below, relating to our 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,
respectively) will 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).
39
<PAGE>
Our Declaration of Trust currently includes certain restrictions regarding
transfers of Common Shares and Preferred Shares, which restrictions are intended
(among other things) to assist us in continuing to satisfy conditions (v) and
(vi) above. In rendering its opinion that we are organized and operated in a
manner that has allowed us to qualify as a REIT, Goodwin, Procter & Hoar LLP is
relying on our representations that the ownership of our Common Shares and
Preferred Shares will satisfy the "100 shareholder" and "five or fewer"
requirements. There can be no assurance, however, that the restrictions in the
Declaration of Trust will, as a matter of law, preclude us from failing to
satisfy these conditions or that a transfer in violation of these restrictions
would not cause us to fail these conditions.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. We have 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 are held by the REIT. GGPI, the general
partner of the Operating Partnership and certain other entities organized to
serve as the general partner of special purpose limited partnerships are
"qualified REIT subsidiaries." Thus, all of the assets, liabilities, and items
of income, deduction and credit of GGPI and the other "qualified REIT
subsidiaries" will be treated as our assets and liabilities and our items of
income, deduction and credit. Unless the context requires otherwise, all
references to "we," "us" and "our Company" in this "Federal Income Tax
Considerations" section, refer to Gables Residential Trust and its qualified
REIT subsidiaries.
In the case of a REIT that is a partner in a partnership, regulations issued
by the U.S. Treasury Department ("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, our 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) and any other entity
taxable as a partnership for federal income tax purposes in which it holds an
interest will be treated as our assets and liabilities and our items of income
for purposes of applying the requirements described herein.
INCOME TESTS. To maintain qualification as a REIT, two gross income
requirements must be satisfied annually.
- First, at least 75% of our 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 our 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.
Additionally, with respect to each of our tax years beginning on or before
January 1, 1997, 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 have represented
less than 30% of our gross income
40
<PAGE>
(including gross income from prohibited transactions) for each such taxable year
(the "Former 30% Gross Income Test").
Rents received or deemed to be received by us 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, directly or indirectly, actually 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. For taxable
years beginning after August 5, 1997, a REIT may, however, provide
services with respect to its properties and the income will qualify as
"rents from real property" if (i) with respect to any given property,
amounts received from the provision of such services do not exceed 1% of
all amounts received by the REIT with respect to such property (i.e., "De
Minimis Services") and (ii) any other services provided are of a kind
which 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."
We have not charged, and do not anticipate charging rent that is based in
whole or in part on the income or profits of any person. We have not derived,
and do not anticipate deriving, rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents.
We have provided and will provide certain services with respect to the
Communities. We believe that the services with respect to the Communities that
have been and will be provided by us are usually or customarily rendered in
connection with the rental of space for occupancy only and are not otherwise
rendered to particular tenants or, for tax years beginning after August 5, 1997,
have been and will be De Minimis Services. Therefore, we believe 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. We
believe that services with respect to the Communities that we believe may not be
provided by us 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).
Generally the Management Companies receive fees in consideration of the
performance of property management services with respect to properties owned by
third parties. Any such fee income is taxable to the Management Company that
provided the services. 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 tests. 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 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 nonqualifying 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. We
41
<PAGE>
believe, however, that the aggregate amount of such fees and other nonqualifying
income in any taxable year will not cause us to exceed the limits on
nonqualifying income under the REIT gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income test for
any taxable year, we may nevertheless qualify as a REIT for that year if we are
eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) our failure to meet these tests
was due to reasonable cause and not due to willful neglect, (ii) we attach a
schedule of the sources of our income to our 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,
we would be entitled to the benefit of these relief provisions. For example, if
we fail to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on such income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause. As
discussed above in "Federal Income Tax Considerations--Federal Income Taxation,"
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 we
failed the Former 30% Gross Income Test in a taxable year beginning on or prior
to January 1, 1997, and any such failure to qualify would have caused us to fail
to qualify as a REIT. See the discussion below on the consequences of failing to
qualify as a REIT in "Federal Income Tax Considerations--Failure to Qualify."
ASSET TESTS. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
- First, at least 75% of the value of our total assets must be represented
by real estate assets, cash, cash items and government securities.
- Second, no more than 25% of our 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 us may not exceed 5% of the value of
our total assets (the "5% test"), and we 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 our ownership of limited
partnership units of the Operating Partnership ("Units"), we will be considered
to own our pro rata share of such stock. Neither we nor the Operating
Partnership, however, owns more than 1% of the voting securities of any
Management Company. In addition, we and our senior management do not believe
that our pro rata share of the value of the securities of any of the Management
Companies exceeds 5% of the total value of our assets. Our belief is based in
part upon our 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. We have
not obtained any independent appraisals 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 our 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
we acquire securities of an issuer. Thus, the 5% value requirement must be
satisfied not only on the date we acquire equity and debt securities of the
Management Companies, but also each time we increase our ownership of such
securities of the Management Companies (including as a result of increasing our
interest in the Operating Partnership as limited partners exercise their
redemption rights). Although we plan to take steps to ensure that we satisfy the
5% value test for any quarter with respect to which retesting is to occur, such
steps may not always be successful or may require a reduction in our overall
interest in a Management Company.
After initially meeting the asset tests at the close of any quarter, we will
not lose our 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.
42
<PAGE>
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. We intend to maintain and believe that we have maintained adequate
records of the value of our 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.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to be taxed as a REIT, we are
required to distribute dividends (other than capital gain dividends) to our
shareholders in an amount at least equal to (a) the sum of (i) 95% of our "REIT
taxable income" (computed without regard to the dividends-paid deduction and our
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 noncash income. Such distribution must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before we timely file our federal income tax return for such year and if paid on
or before the first regular dividend payment after such declaration. Even if we
satisfy the foregoing distribution requirements, to the extent that we do not
distribute all of our net capital gain or "REIT taxable income" as adjusted, we
will be subject to tax thereon at regular capital gains or ordinary corporate
tax rates. Furthermore, if we should fail to distribute during each calendar
year at least the sum of (a) 85% of our ordinary income for that year, (b) 95%
of our capital gain net income for that year and (c) any undistributed taxable
income from prior periods, we would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. In
addition, during our Recognition Period, if we dispose of any asset subject to
the Built-In Gain Rules, we 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.
We believe we have made and intend 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 us to
meet these distribution requirements.
It is expected that our REIT taxable income has been and will be less than
our cash flow due to the allowance of depreciation and other noncash charges in
computing REIT taxable income. Accordingly, we anticipate that we will generally
have sufficient cash or liquid assets to enable us to satisfy the 95%
distribution requirement. It is possible, however, that we, 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 our
taxable income, 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, we 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, we 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 our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. We will, however, be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
EARNINGS AND PROFITS. 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, we acquired the assets of Wood Properties,
Inc. ("Wood Properties"). We believe that as of the time of our acquisition of
the assets of Wood Properties, Wood Properties had no earnings and profits for
federal income tax purposes. Our belief
43
<PAGE>
is based upon a review of Wood Properties' tax returns, as well as a review of
the minute books of Wood Properties for such periods. Nothing came to our
attention during the course of such reviews that would cause us to believe that
Wood Properties had undistributed C corporation earnings and profits. If, as a
result of an examination of Wood Properties' returns by the IRS, the IRS
determines that Wood Properties had undistributed earnings and profits at the
time of our acquisition of its assets, we believe that 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. In the event that 1994 distributions were
insufficient to distribute any such earnings and profits, and we were unable to
utilize the certain "deficiency dividend" procedures in the Treasury
Regulations, we would fail to qualify as a REIT.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us 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 we are entitled to relief
under specific statutory provisions, we 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
we would be entitled to such statutory relief. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limit on such income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause.
TAXATION OF U.S. SHAREHOLDERS
When we refer to a "U.S. Shareholder," we mean a holder of Common Shares and
Preferred Shares that is (for federal income tax purposes) (a) an individual who
is a citizen or resident of the United States, (b) a corporation created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia or (c) a partnership, trust or estate treated as a domestic
partnership, trust or estate. For any taxable year for which we qualify 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 our
current or accumulated earnings and profits as determined for federal income tax
purposes. For purposes of determining whether distributions are out of current
or accumulated earnings and profits, our earnings and profits will be allocated
first to any of our outstanding Preferred Shares and then to our Common Shares.
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 we make 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 our 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 us and received by the
shareholder on December 31 of the year, provided that the dividend is actually
paid by us during January of the following calendar year. Shareholders may not
include on their own federal income tax returns any of our tax losses.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution by us up to the amount required to be distributed in
order to avoid imposition of the 4% excise tax discussed in
44
<PAGE>
"Federal Income Tax Considerations--Federal Income Taxation" above. Moreover,
any "deficiency dividend" will be treated as an ordinary or capital gain
dividend, as the case may be, regardless of our 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 us as capital gain dividends will be treated as long-term capital
gains (to the extent they do not exceed our actual net capital gains) 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.
RETAINED CAPITAL GAINS. A REIT may elect to retain, rather than distribute,
its net long-term capital gains received during the year. To the extent
designated by the REIT in a notice to its shareholders, the REIT will pay the
income tax on such gains and the REIT shareholders must include their
proportionate share of the undistributed long-term capital gains so designated
in income. Each REIT shareholder will be deemed to have paid its share of the
tax paid by the REIT, which will be credited or refunded to the shareholder. The
basis of each shareholder's REIT shares will be increased by its proportionate
amount of the undistributed long-term capital gains (net of the tax paid by the
REIT) included in such shareholder's long-term capital gains.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS. Distributions
(including deemed distributions of undistributed long-term capital gains) from
our Company and gain from the disposition of the Securities 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 our 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 the Securities or capital gain dividends (including
deemed distributions of undistributed long-term capital gains) generally will be
excluded from investment income.
SALE OF THE SECURITIES. Upon the sale or exchange of the Securities, the
holder will generally recognize gain or loss equal to the difference between the
amount realized on such sale and the tax basis of such Securities. Assuming such
Securities are held as a capital asset, such gain or loss will be a long-term
capital gain or loss if the Securities have been held for more than one year.
However, any loss recognized by a holder on the sale of Common Shares or
Preferred Shares held for not more than six months and with respect to which
capital gains were required to be included in such holder's income will be
treated as a long-term capital loss to the extent of the amount of such capital
gains so included.
TREATMENT OF TAX-EXEMPT SECURITY HOLDERS. Distributions (including deemed
distributions of undistributed long-term capital gains) from our 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 or
Preferred 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 (including deemed distributions of undistributed
long-term capital gains) 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 (including deemed
distributions of undistributed long-term capital gains) 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
45
<PAGE>
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. Distributions by the Operating
Partnership to a tax-exempt holder of Debt Securities will generally not
constitute UBTI unless the acquisition of such Debt Securities is debt financed
within the meaning of Section 514(c) of the Code.
TAXATION OF HOLDERS OF DEBT SECURITIES
STATED INTEREST AND MARKET DISCOUNT. Holders of Debt Securities will be
required to include stated interest on the Debt Securities in gross income for
federal income tax purposes in accordance with their methods of accounting for
tax purposes. Purchasers of Debt Securities should be aware that the holding and
disposition of Debt Securities may be affected by the market discount provisions
of the Code. These rules generally provide that, subject to a statutorily
defined de minimis exception, if a holder of a debt instrument purchases it at a
market discount and thereafter recognizes gain on a disposition of the debt
instrument (including a gift or payment on maturity), the lesser of such gain
(or appreciation, in the case of a gift) and the portion of the market discount
that accrued while the debt instrument was held by such holder will be treated
as ordinary interest income at the time of the disposition. For this purpose, a
purchase at a market discount includes a purchase after original issuance at a
price below the debt instrument's stated principal amount. The market discount
rules also provide that a holder who acquires a debt instrument at a market
discount (and who does not elect, as described below, to include such market
discount in income on a current basis) may be required to defer a portion of any
interest expense that may otherwise be deductible on any indebtedness incurred
or maintained to purchase or carry such debt instrument until the holder
disposes of the debt instrument in a taxable transaction.
A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the SEC or of the IRS. If a holder of a Debt Security elects to
include market discount in income in accordance with the preceding sentence, the
foregoing rules with respect to the recognition of ordinary income on a sale or
certain other dispositions of such Debt Security and the deferral of interest
deductions on indebtedness related to such Debt Security would not apply.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis of an obligation held
as a capital asset exceeds the amount payable at maturity of the obligation,
such excess may constitute amortizable bond premium that the holder may elect to
amortize under the constant interest rate method and deduct over the period from
his acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult his tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
DISPOSITION. In general, a holder of a Debt Security will recognize gain or
loss upon the sale, exchange, redemption, payment upon maturity or other taxable
disposition of the Debt Security measured by the difference between (i) the
amount of cash and the fair market value of property received (except to the
extent that such cash or other property is attributable to the payment of
accrued interest not previously included in income, which amount will be taxable
as ordinary income) and (ii) the holder's tax basis in the Debt Security (as
increased by any market discount previously included in income by the holder and
decreased by any amortizable bond premium deducted over the term of the Debt
Security). Subject to the market discount and amortizable bond premium rules
above, any such gain or loss will generally be
46
<PAGE>
long-term capital gain or loss, provided the Debt Security was a capital asset
in the hands of the holder and had been held for more than one year.
BACKUP WITHHOLDING ON SECURITIES
Under the backup withholding rules, a domestic holder of Securities may be
subject to backup withholding at the rate of 31% with respect to interest or
dividends paid on, and gross proceeds from the sale of, the Securities unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of Securities who does not provide us with his
current taxpayer identification number may be subject to penalties imposed by
the Commissioner of the IRS. Any amount paid as backup withholding will be
creditable against the holder's income tax liability.
We will report to holders of Securities and the IRS the amount of any
"reportable payments" (including any interest or dividends paid) and any amount
withheld with respect to the Securities during the calendar year.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP ON REIT
QUALIFICATION. Substantially all of our investments are through the Operating
Partnership. The Operating Partnership may involve special tax considerations.
Such considerations include (i) the allocations of income and expense items of
the Operating Partnership, which could affect the computation of our taxable
income, (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 our qualifications as a REIT. In addition, the Operating Partnership owns
certain properties through subsidiary partnerships. 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 or
any other partnership in which the Operating Partnership has an interest were
treated as an association taxable as a corporation, we 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 our perspective,
the carryover basis of contributed interests in the Communities in the hands of
the Operating Partnership
47
<PAGE>
could cause us (i) to be allocated lower amounts of depreciation deductions for
tax purposes than would be allocated to us 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 us as a result of such sale, with a corresponding benefit to the other
partners in the Operating Partnership. These allocations possibly could cause us
to recognize taxable income in excess of cash proceeds, which might adversely
affect our ability to comply with REIT distribution requirements, although we do
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 our admission 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 Debt Securities held by the
Operating Partnership. In general, the Management Companies conduct activities,
such as property management for 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. We anticipate 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 us. Any federal, state or local
income taxes that the Management Companies are required to pay will reduce the
cash available for distribution by us to our shareholders.
As described above, the value of the equity and debt securities of a
Management Company held by us (or to be held by us in the case of any additional
Management Companies) cannot exceed 5% of the value of our assets at a time when
a holder of Units in the Operating Partnership exercises his redemption right
(or we otherwise are 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 our assets
is increasing at a commensurate rate.
SPECIAL TAX CONSIDERATIONS OF NON-U.S. SHAREHOLDERS
The rules governing 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. IF YOU ARE A
PROSPECTIVE NON-U.S. SHAREHOLDER, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD
TO AN INVESTMENT BY YOU IN THE SECURITIES, INCLUDING ANY REPORTING REQUIREMENTS.
DISTRIBUTIONS NOT ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A UNITED
STATES REAL PROPERTY INTEREST. Distributions to Non-U.S. Shareholders that are
not attributable to gain from sales or exchanges by us of U.S. real property
interests and are not designated by us as capital gains dividends will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. 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 or Preferred 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
48
<PAGE>
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). Distributions in excess of our current and accumulated earnings
and profits 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 or Preferred 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 or Preferred 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 or
Preferred Shares, as described below.
DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A UNITED
STATES REAL PROPERTY INTEREST. For any year in which we qualify as a REIT,
distributions that are attributable to gain from sales or exchanges by us of
U.S. real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of U.S.
real property interests are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with 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.
WITHHOLDING OBLIGATIONS FROM DISTRIBUTIONS TO FOREIGN
STOCKHOLDERS. Although tax treaties may reduce our withholding obligations, we
generally will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the IRS, (i) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% of ordinary dividends paid out of
earnings and profits. In addition, if we designate prior distributions as
capital gain dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding. A distribution in excess of our earnings and profits will be
subject to 30% dividend withholding if at the time of the distribution it cannot
be determined whether the distribution will be in an amount in excess of our
current or accumulated earnings and profits. If the amount of tax withheld by
our Company with respect to a distribution to a Non-U.S. Shareholder exceeds the
shareholder's United States tax liability with respect to such distribution, the
Non-U.S. Shareholder may file for a refund of such excess from the IRS.
Furthermore, the U.S. Treasury Department has issued final Treasury regulations
governing information reporting and certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S.
Shareholders (the "New Withholding Regulations"). These New Withholding
Regulations, which will apply to covered payments after December 31, 1999, may
alter the procedure for claiming the benefits of an income treaty.
SALES OF COMMON SHARES OR PREFERRED SHARES BY A NON-U.S. SHAREHOLDER. Gain
recognized by a Non-U.S. Shareholder upon a sale of his Common Shares or
Preferred Shares generally will not be taxed under FIRPTA if we are 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 we will be a "domestically controlled REIT," and, therefore, sales of
Common Shares or Preferred Shares will not be subject to taxation under FIRPTA.
However, because the Common Shares and Preferred Shares will be traded publicly,
we may not 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 or Preferred 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 or
49
<PAGE>
Preferred 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, a purchaser of Common Shares or Preferred Shares
subject to taxation under FIRPTA would generally be required to deduct and
withhold a tax equal to 10% of the amount realized on the disposition by a
Non-U.S. Shareholder. Any amount withheld would be creditable against the
Non-U.S. Shareholder's FIRPTA tax liability. See "--Withholding Obligations from
Distributions to Foreign Shareholders" of this section for a discussion of the
New Withholding Regulations.
STATE AND LOCAL TAX
Our 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 our Company and the
shareholders in such jurisdictions may differ from the federal income tax
treatment described above. Consequently, as a prospective investor, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our Securities.
50
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of Gables Residential Trust and the predecessor to Gables Residential
Trust for the periods shown:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JANUARY 26- JANUARY 1-
NINE MONTHS ENDED ------------------------------- DECEMBER 31, JANUARY 25, YEAR ENDED
SEPTEMBER 30, 1998 1997 1996 1995 1994 1994(1)(2) DECEMBER 31, 1993(1)
--------------------- --------- --------- --------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios............ 1.64x 1.84x 1.83x 1.40x 1.83x .89x 1.22x
</TABLE>
- ------------------------
(1) Ratios for the period January 1-January 25, 1994 and the year ended December
31, 1993 reflect periods prior to our recapitalization and initial public
offering on January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
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, gain on sale of real estate assets, loss on treasury locks
and extraordinary items, plus fixed charges. Fixed charges consist of interest
expense, capitalized interest, credit enhancement fees and loan cost
amortization.
RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the consolidated ratios of earnings to
combined fixed charges and preferred dividends of Gables Residential Trust and
the predecessor to Gables Residential Trust for the periods shown:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
JANUARY 26- JANUARY 1-
NINE MONTHS ENDED ------------------------------- DECEMBER 31, JANUARY 25, YEAR ENDED
SEPTEMBER 30, 1998 1997 1996 1995 1994 1994(1)(2) DECEMBER 31, 1993(1)
--------------------- --------- --------- --------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios............ 1.53x 1.74x 1.83x 1.40x 1.83x .89x 1.22x
</TABLE>
- ------------------------
(1) Ratios for the period January 1 through January 25, 1994 and the year ended
December 31, 1993 reflect periods prior to our recapitalization and initial
public offering on January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
The ratios of earnings to combined fixed charges and preferred dividends was
computed by dividing earnings by the aggregate of fixed charges and preferred
dividends. For this purpose, earnings consist of net income (loss) before
minority interest, gain on sale of real estate assets, loss on treasury locks
and extraordinary items, plus fixed charges and preferred dividends. Fixed
charges consist of interest expense, capitalized interest, credit enhancement
fees and loan cost amortization.
51
<PAGE>
PLAN OF DISTRIBUTION
Gables Residential Trust may sell Preferred Shares, Common Shares and
Warrants and the Operating Partnership may sell Debt 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. We may also
make direct sales to investors through subscription rights distributed to our
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, we may then 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 the Securities, underwriters or agents may
receive compensation from us or from purchasers of the Securities, for whom they
may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell the 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 the Securities may be deemed to be underwriters under the Securities Act, and
any discounts or commissions they receive from us 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 us 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
notice of issuance. We may elect to list any series of Debt Securities or
Preferred Shares, respectively, on an exchange, but are 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, any series of Debt Securities,
Preferred Shares or Warrants.
Until the distribution of the Securities is completed, rules of the SEC may
limit the ability of any underwriters and selling group members to bid for and
purchase the Securities. As an exception to these rules, underwriters are
permitted to engage in certain transactions that stabilize the price of the
Securities. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Securities.
If any underwriters create a short position in the Securities in connection
with an offering, I.E., if they sell more Securities than are set forth on the
cover page of the applicable prospectus supplement, the underwriters may reduce
that short position by purchasing the Securities in the open market.
The lead underwriters may also impose a penalty bid on certain other
underwriters and selling group members participating in an offering. This means
that if the lead underwriters purchase Securities in the open market to reduce
the underwriters' short position or to stabilize the price of the Securities,
they may reclaim the amount of any selling concession from the underwriters and
selling group members who sold those Securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The
52
<PAGE>
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it were to discourage resales of the security before the
distribution is completed.
We do not make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the Securities. In addition, we do not make any representation that
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Under agreements into which we may enter, underwriters, dealers and agents
who participate in the distribution of the Securities may be entitled to
indemnification by us against certain liabilities, including liabilities under
the Securities Act.
Underwriters, dealers and agents may engage in transactions with us, perform
services for us, or be our tenants in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by certain
institutions to purchase the Securities from us at the public offering price set
forth in such prospectus supplement pursuant to delayed delivery contracts
("Company Contracts") providing the payment and delivery on the date or dates
stated in such prospectus supplement. Institutions with which such contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases we must approve such institutions. The
obligations of any purchaser under any such contracts will be subject to the
condition that the purchase of the Securities shall not at the time of delivery
be prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such other agents will not have any responsibility
in respect of the validity or performance of such contracts.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by certain
institutions to purchase Debt Securities from the Operating Partnership at the
public offering price set forth in such prospectus supplement pursuant to
delayed delivery contracts ("Operating Partnership Contracts") providing for
payment and delivery on the date or dates stated in such prospectus supplement.
Each Operating Partnership Contract will be for an amount no less than, and the
aggregate principal amounts of Debt Securities sold pursuant to Operating
Partnership Contracts shall be not less nor more than, the respective amounts
stated in the applicable prospectus supplement. Institutions with which such
contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but will in all cases be subject to our
approval. The obligations of any purchaser under any such contract will be
subject to the conditions that (i) the purchase of the Debt Securities shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such purchaser is subject, and (ii) if the Debt
Securities are being sold to underwriters, the Operating Partnership shall have
sold to such underwriters the total principal amount of the Debt Securities less
the principal amount thereof covered by the Operating Partnership Contracts. 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.
53
<PAGE>
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for us by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR CONTAINED IN
THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE
YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER OF
THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS
OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents
by Reference............................................................ 2
Risk Factors.............................................................. 4
Gables Residential Trust and the Operating Partnership.................... 9
Use of Proceeds........................................................... 9
Description of Debt Securities............................................ 10
Description of Preferred Shares........................................... 23
Description of Common Shares.............................................. 30
Description of Warrants................................................... 32
Limits on Ownership of Shares of Beneficial Interest...................... 33
Certain Provisions of Maryland Law and Our Declaration of Trust and
Bylaws.................................................................. 35
Federal Income Tax Considerations......................................... 38
Ratios of Earnings to Fixed Charges....................................... 51
Ratios of Earnings to Combined Fixed Charges and Preferred Dividends...... 51
Plan of Distribution...................................................... 52
Legal Matters............................................................. 54
Experts................................................................... 54
</TABLE>
$500,000,000
GABLES RESIDENTIAL TRUST
PREFERRED SHARES
COMMON SHARES
WARRANTS
$300,000,000
GABLES REALTY LIMITED
PARTNERSHIP
DEBT SECURITIES
---------------------
PROSPECTUS
---------------------
DECEMBER , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated fees and expenses payable by
the Company and the Operating Partnership in connection with the issuance and
distribution of the Securities registered hereby (all amounts except the
registration fee are estimated):
<TABLE>
<S> <C>
Registration fee (net)............................................................ $ 155,037
Printing and duplicating expenses................................................. 10,000
Legal fees and expenses........................................................... 50,000
Accounting fees and expenses...................................................... 5,000
Blue sky fees and expenses........................................................ 5,000
Trustee Fees...................................................................... 5,000
Miscellaneous..................................................................... 10,000
---------
Total............................................................................. $ 240,037
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Company's Declaration of Trust provides certain limitations on the
liability of the Company's trustees and officers for monetary damages to the
Company. The Declaration of Trust and the Bylaws obligate the Company to
indemnify its trustees and officers, and permit the Company to indemnify its
employees and other agents, against certain liabilities incurred in connection
with their service in such capacities. These provisions could reduce the legal
remedies available to the Company and the shareholders against these
individuals.
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
Exchange Act. Pursuant to the Bylaws, the 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 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. The Bylaws of GGPI, a Texas corporation and
wholly-owned subsidiary of the Company and the general partner of the Operating
Partnership, contain similar provisions that are consistent with Texas law.
Each of the Company's officers and trustees (the "Indemnitees") has entered
into an indemnification agreement with the Company, the Operating Partnership
and GGPI (the "Indemnitors"). The indemnification agreements require, among
other matters, that the Indemnitors indemnify the Indemnitees to the fullest
extent permitted by law and advance to the Indemnitees all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted. The Company must also
II-1
<PAGE>
indemnify and advance all expenses incurred by Indemnitees seeking to enforce
their rights under the indemnification agreements and cover the Indemnitees
under the Company's trustees' and officers' liability insurance. Although the
form of indemnification agreement offers substantially the same scope of
coverage afforded by law, it provides assurance to trustees and officers that
indemnification will be available because such contracts cannot be modified
unilaterally in the future by the Board of Trustees or the shareholders to
eliminate the rights they provide.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
4.1 Amended and Restated Declaration of Trust of the Company (incorporated
herein by reference to the Company's Registration Statement on Form S-11
(File No. 33-70570), as amended).
4.2 Articles Supplementary to the Company's Amended and Restated Declaration
of Trust creating a series of Preferred Shares of beneficial interest,
par value $.01 per share, called the 8.30% Series A Cumulative
Redeemable Preferred Shares (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated July 24, 1997
(File No. 1-12590)).
4.3 Articles of Amendment to the Company's Amended and Restated Declaration of
Trust (incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-12590)).
4.4 Articles Supplementary to the Company's Amended and Restated Declaration
of Trust creating a series of Preferred Shares of beneficial interest,
par value $.01 per share, called the 5.00% Series Z Cumulative
Redeemable Preferred Shares (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 (File No. 1-12590)).
4.5 Articles Supplementary to the Company's Amended and Restated Declaration
of Trust creating a series of Preferred Shares of beneficial interest,
par value $.01 per share, called the 8.625% Series B Cumulative
Redeemable Preferred Shares (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated November 12, 1998
(File No. 1-12590)).
4.6 Second Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
8-A/A-2 (File No. 1-12590)).
4.7 Fourth Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (incorporated herein by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K dated November 12, 1998
(File No. 1-12590)).
4.8 Indenture, dated as of March 23, 1998, between the Operating Partnership
and First Union National Bank (incorporated herein by reference to
Exhibit 4.1 to the Operating Partnership's Report on Form 8-K dated
March 23, 1998 (File No. 000-22683)).
4.9 Supplemental Indenture No. 1, dated March 23, 1998, between the Operating
Partnership and First Union National Bank (incorporated herein by
reference to Exhibit 4.2 to the Operating Partnership's Report on Form
8-K dated March 23, 1998 (File No. 000-22683)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
4.10 Supplemental Indenture No. 2, dated September 30, 1998, between the
Operating Partnership and First Union National Bank (incorporated herein
by reference to Exhibit 4.2 to the Operating Partnership's Report on
Form 8-K dated October 5, 1998 (File No. 000-22683)).
4.11 Supplemental Indenture No. 3, dated October 5, 1998, between the Operating
Partnership and First Union National Bank (incorporated herein by
reference to Exhibit 4.2 to the Operating Partnership's Report on Form
8-K dated October 8, 1998 (File No. 000-22683)).
4.12 Form of Senior Debt Security (included in Exhibit No. 4.8).
4.13 Indenture for Subordinated Debt Securities (incorporated herein by
reference to Exhibit 4.7 to the Company's and the Operating
Partnership's Registration Statement on Form S-3 (File No. 333-30093)).
4.14 Form of Subordinated Debt Security (included in Exhibit No. 4.13).
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities and interests being registered.
8.1. Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
12.1 Calculation of Ratios of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Dividends.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of Exhibits 5.1
and 8.1 hereto).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification of Senior Trustee (incorporated
herein by reference to Exhibit 25.1 to the Company's and the Operating
Partnership's Registration Statement on Form S-3 (File No. 333-30093)).
25.2 Statement of Eligibility and Qualification of Subordinate Trustee
(incorporated herein by reference to Exhibit 25.2 to the Company's and
the Operating Partnership's Registration Statement on Form S-3 (File No.
333-30093)).
</TABLE>
- ------------------------
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any acts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and
II-3
<PAGE>
price represent no more than a 20% change in the maximum
aggregate offering price set forth in "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the undersigned registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the respective registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the provisions described under
Item 15 above, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the respective
registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
such registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(d) The undersigned registrant Gables Realty Limited Partnership, hereby
undertakes to file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
(e) The undersigned registrants hereby undertake to supplement the
prospectus, after the expiration of the subscription period, to set forth
the results of the subscription offer, the transactions by the
underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the terms of any
subsequent reoffering thereof. If any public offering by the underwriters
is to be made on terms differing from those set forth on the cover page
of the prospectus, a post-effective amendment will be filed to set forth
the terms of such offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrants
certify that they have reasonable grounds to believe that they meet all of the
requirements for filing on Form S-3 and have duly caused this Registration
Statement to be signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia on this 3rd day of December
1998.
<TABLE>
<S> <C> <C>
GABLES RESIDENTIAL TRUST
By: /s/ MARVIN R. BANKS, JR.
-----------------------------------------
Marvin R. Banks, Jr.
CHIEF FINANCIAL OFFICER
GABLES REALTY LIMITED PARTNERSHIP
By: Gables GP, Inc., as General Partner
By: /s/ MARVIN R. BANKS, JR.
-----------------------------------------
Marvin R. Banks, Jr.
CHIEF FINANCIAL OFFICER
</TABLE>
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person has signed this Registration
Statement (i) in their capacity as an officer or trustee of Gables Residential
Trust (the "Company") and (ii) as an officer and director of Gables GP, Inc.,
("GGPI"), in its capacity as the general partner of Gables Realty Limited
Partnership.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board of
Trustees of the Company,
Chairman of the Board of
* Directors of GGPI,
- ------------------------------ Chief Executive Officer December 3, 1998
Marcus E. Bromley of the Company and GGPI
(Principal Executive
Officer)
Chief Financial Officer of
/s/ MARVIN R. BANKS, JR. the Company and GGPI
- ------------------------------ (Principal Financial December 3, 1998
Marvin R. Banks, Jr. Officer and Principal
Accounting Officer)
President and Chief
* Operating Officer of the
- ------------------------------ Company and GGPI, December 3, 1998
John T. Rippel Trustee of the Company
and Director of GGPI
Senior Vice President of
* the Company and GGPI,
- ------------------------------ Trustee of the Company December 3, 1998
Chris D. Wheeler and Director of GGPI
*
- ------------------------------ Trustee of the Company and December 3, 1998
David M. Holland Director of GGPI
*
- ------------------------------ Trustee of the Company and December 3, 1998
Lauralee E. Martin Director of GGPI
*
- ------------------------------ Trustee of the Company and December 3, 1998
John W. McIntyre Director of GGPI
*
- ------------------------------ Trustee of the Company and December 3, 1998
D. Raymond Riddle Director of GGPI
</TABLE>
<TABLE>
<S> <C>
/s/ MARVIN R. BANKS, JR.
----------------------------
Marvin R. Banks, Jr.
By: ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
4.1 Amended and Restated Declaration of Trust of the Company (incorporated herein by reference to
the Company's Registration Statement on Form S-11 (File No. 33-70570), as amended).
4.2 Articles Supplementary to the Company's Amended and Restated Declaration of Trust creating a
series of Preferred Shares of beneficial interest, par value $.01 per share, called the 8.30%
Series A Cumulative Redeemable Preferred Shares (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated July 24, 1997 (File No. 1-12590)).
4.3 Articles of Amendment to the Company's Amended and Restated Declaration of Trust (incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 (File No. 1-12590)).
4.4 Articles Supplementary to the Company's Amended and Restated Declaration of Trust creating a
series of Preferred Shares of beneficial interest, par value $.01 per share, called the 5.00%
Series Z Cumulative Redeemable Preferred Shares (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-12590)).
4.5 Articles Supplementary to the Company's Amended and Restated Declaration of Trust creating a
series of Preferred Shares of beneficial interest, per value $.01 per share, called the
8.625% Series B Cumulative Redeemable Preferred Shares (incorporated herein by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated November 12, 1998 (File No.
1-12590)).
4.6 Second Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit
3.1 to the Company's Registration Statement on Form 8-A/A-2 (File No. 1-12590)).
4.7 Fourth Amended and Restated Agreement of Limited Partnership of the Operating Partnership
(incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K
dated November 12, 1998 (File No. 1-12590)).
4.8 Indenture, dated as of March 23, 1998, between the Operating Partnership and First Union
National Bank (incorporated herein by reference to Exhibit 4.1 to the Operating Partnership's
Report on Form 8-K dated March 23, 1998 (File No. 000-22683)).
4.9 Supplemental Indenture No. 1, dated March 23, 1998, between the Operating Partnership and First
Union National Bank (incorporated herein by reference to Exhibit 4.2 to the Operating
Partnership's Report on Form 8-K dated March 23, 1998 (File No. 000-22683)).
4.10 Supplemental Indenture No. 2, dated September 30, 1998, between the Operating Partnership and
First Union National Bank (incorporated herein by reference to Exhibit 4.2 to the Operating
Partnership's Report on Form 8-K dated October 5, 1998 (File No. 000-22683)).
4.11 Supplemental Indenture No. 3, dated October 5, 1998, between the Operating Partnership and
First Union National Bank (incorporated herein by reference to Exhibit 4.2 to the Operating
Partnership's Report on Form 8-K dated October 8, 1998 (File No. 000-22683)).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
4.12 Form of Senior Debt Security (included in Exhibit No. 4.8).
4.13 Indenture for Subordinated Debt Securities (incorporated herein by reference to Exhibit 4.7 to
the Company's and the Operating Partnership's Registration Statement on Form S-3 (File No.
333-30093)).
4.14 Form of Subordinated Debt Security (included in Exhibit No. 4.13).
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities and interests being
registered.
8.1. Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
12.1 Calculation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred
Dividends.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of Exhibits 5.1 and 8.1 hereto).
24.1 Powers of Attorney.
25.1 Statement of Eligibility and Qualification of Senior Trustee (incorporated herein by reference
to Exhibit 25.1 to the Company's and the Operating Partnership's Registration Statement on
Form S-3 (File No. 333-30093)).
25.2 Statement of Eligibility and Qualification of Subordinate Trustee (incorporated herein by
reference to Exhibit 25.2 to the Company's and the Operating Partnership's Registration
Statement on Form S-3 (File No. 333-30093)).
</TABLE>
II-8
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
December 3, 1998
Gables Residential Trust
Gables Realty Limited Partnership
2859 Paces Ferry Road
Overlook III, Suite 1450
Atlanta, Georgia 30339
Re: Legality of Securities to be Registered
under Registration Statement on Form S-3
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Gables
Residential Trust, a Maryland real estate investment trust (the "Company"),
in connection with the registration statement on Form S-3 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to an
indeterminate amount of (i) Preferred Shares, Common Shares and Warrants (as
such terms are defined in the Registration Statement) authorized for issuance
under the Company's Amended and Restated Declaration of Trust (the
"Declaration of Trust"), with an aggregate public offering price of up to
$500,000,000 and (ii) Debt Securities (as such term is defined in the
Registration Statement) of Gables Realty Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"), with an aggregate public
offering price of up to $300,000,000 (such securities being referred to
collectively as the "Securities"). The Registration Statement provides that
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 prospectus
supplements (each a "Prospectus Supplement") to the Prospectus contained in
the Registration Statement.
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Gables Residential Trust
Gables Realty Limited Partnership
December 3, 1998
Page 2
In connection with rendering this opinion, we have examined the
Declaration of Trust of the Company, as amended to the date hereof and on file
with the Maryland State Department of Assessments and Taxation; the Second
Amended and Restated Bylaws of the Company; the Fourth Amended and Restated
Agreement of Limited Partnership of the Operating Partnership; such records of
the corporate and partnership proceedings of the Company and the Operating
Partnership, respectively, as we deem appropriate for the purposes of this
opinion; and the Registration Statement and the exhibits thereto.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America and The Commonwealth of
Massachusetts, the Maryland General Corporation Law and the Delaware Revised
Uniform Limited Partnership Act.
Based upon the foregoing, we are of the opinion that:
(1) When specifically authorized for issuance by the
Company's Board of Trustees or an authorized committee thereof (the "Authorizing
Resolution") and when issued as described in the Registration Statement and a
Prospectus Supplement that is consistent with the Authorizing Resolution, and
upon receipt by the Company of the consideration provided for in the Authorizing
Resolution (which consideration is not less than the $.01 par value per share in
the case of Common Shares or Preferred Shares), the Common Shares and Preferred
Shares will be legally issued, fully paid and nonassessable, and the Warrants
will be binding obligations of the Company.
(2) When specifically authorized for issuance by the general
partner of the Operating Partnership (the "General Partner Authorization") and
when issued as described in the Registration Statement and a Prospectus
Supplement that is consistent with the General Partnership Authorization, upon
execution and authentication of the Debt Securities as provided in the relevant
indentures, and upon receipt by the Operating Partnership of the consideration
provided for in the General Partner Authorization, the Debt Securities will be
binding obligations of the Operating Partnership, enforceable in accordance with
their terms, except that (i) enforcement of the rights and remedies created
thereby may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and by equitable principles which may limit the
right to obtain the remedy of specific performance or other injunctive relief
and (ii) we express no opinion as to the legality, validity or binding nature of
any choice of law provision.
<PAGE>
GOODWIN, PROCTER & HOAR LLP
Gables Residential Trust
Gables Realty Limited Partnership
December 3, 1998
Page 3
The foregoing assumes that all requisite steps will be taken to comply
with the requirements of the Securities Act and applicable requirements of state
laws regulating the offer and sale of securities.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
December 3, 1998
Gables Residential Trust
2859 Paces Ferry Road
Overlook III, Suite 1450
Atlanta, Georgia 30339
Re: Certain Federal Income Tax Matters
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Gables
Residential Trust, a Maryland real estate investment trust (the "Company"), in
connection with the registration by the Company of the Company's Preferred
Shares, Common Shares and Warrants with an aggregate public offering price of up
to $500,000,000 and Debt Securities of Gables Realty Limited Partnership with an
aggregate public offering price of up to $300,000,000 pursuant to a Registration
Statement filed on or about December 3, 1998 (the "Registration Statement") by
the Company with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, on Form S-3. This opinion relates to the Company's
qualification for federal income tax purposes as a real estate investment trust
("REIT") within the meaning of Sections 856-860 of the Internal Revenue Code of
1986, as amended (the "Code").
In rendering the following opinion, we have examined the Amended and
Restated Declaration of Trust and Second Amended and Restated Bylaws of the
Company, and such other records, certificates and documents as we have deemed
necessary or appropriate for purposes of rendering the opinion set forth herein.
We have reviewed the Registration Statement and the descriptions set
forth therein of the Company and its investments and activities. We have relied
upon the representations of the Company and its affiliates and certain officers
thereof (including, without limitation, representations contained in
representation letter dated as of this date) regarding the manner in which the
Company has been and will continue to be owned and operated. We have neither
independently investigated nor verified such representations, and we assume that
such representations are true, correct and complete and that all representations
made "to the best of the knowledge and belief" of any person(s) or party(ies) or
with similar qualification are and will be true, correct and complete as if made
without such qualification. We assume that the Company has been and will be
operated in accordance with applicable laws and the terms and
<PAGE>
GOODWIN, PROCTOR & HOAR LLP
Gables Residential Trust
December 3, 1998
Page 2
conditions of applicable documents and that the descriptions of the Company and
its investments and the proposed investments, activities, operations and
governance of the Company set forth in the Registration Statement and all prior
registration statements filed with the Securities and Exchange Commission
continue to be true. In addition, we have relied on certain additional facts and
assumptions described below. Capitalized terms not otherwise defined herein
shall have the meaning ascribed to such terms in the Registration Statement.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. We also
have assumed, without investigation, that all documents, certificates,
warranties and covenants on which we have relied in rendering the opinion set
forth below and that were given or dated earlier than the date of this letter
continue to remain accurate, insofar as relevant to the opinion set forth
herein, from such earlier date through and including the date of this letter.
The discussion and conclusions set forth below are based upon the Code,
the Income Tax Regulations and Procedure and Administration Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all of which are subject to change. No assurance can therefore be given
that the federal income tax consequences described below will not be altered in
the future.
Based upon and subject to the foregoing, and provided that the Company
continues to meet the applicable asset composition, source of income,
shareholder diversification, distribution and other requirements of the Code
necessary for a corporation to qualify as a REIT, we are of the opinion that:
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 the Company's method of operation, as described in
the representations referred to above, will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code.
We express no opinion with respect to the transactions described in the
Registration Statement other than that expressly set forth herein. You should
recognize that our opinion is not binding on the Internal Revenue Service
("IRS") and that the IRS may disagree with the
<PAGE>
GOODWIN, PROCTOR & HOAR LLP
Gables Residential Trust
December 3, 1998
Page 3
opinion contained herein. Although we believe that our opinion will be sustained
if challenged, there can be no assurance that this will be the case. Except as
specifically discussed above, the opinion expressed herein is based upon the law
as it currently exists. Consequently, future changes in the law may cause the
federal income tax treatment of the transactions described herein to be
materially and adversely different from that described above.
This opinion is provided to you solely in connection with the filing of
the Registration Statement and may not be relied upon for any other purpose or
by any other person. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to our firm under the
caption "Federal Income Tax Considerations" in the Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 12.1
Gables Residential Trust
Ratio of earnings to fixed charges
Dollars in thousands
<TABLE>
<CAPTION>
Gables Residential
Gables Residential Trust Trust Predecessor
----------------------------------------------- --------------------------
Nine months Year ended 12-31 1-26-94 1-1-94 Year ended
ended ---------------------- 12-31-94 1-25-94 12-31-93
9-30-98 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) before minority
interest, gain on sale of real
estate assets, loss on treasury
locks and extraordinary items $29,405 $31,931 $27,541 $18,369 $15,972 ($92) $ 4,520
------------------------------------------------ -----------------------
Plus Fixed Charges:
Interest expense 28,059 24,804 21,112 13,088 8,345 1,043 12,253
Credit enhancement fees 1,006 509 576 710 661 35 591
Interest capitalized 6,089 5,161 4,373 7,481 3,031 54 1,053
Loan cost amortization expense 787 992 1,348 932 893 234 1,132
Loan cost amortization capitalized 155 182 285 1,508 1,176 0 110
------------------------------------------------ -----------------------
Total fixed charges (1) 36,096 31,648 27,694 23,719 14,106 1,366 15,139
Less:
Interest capitalized 6,089 5,161 4,373 7,481 3,031 54 1,053
Loan cost amortization capitalized 155 182 285 1,508 1,176 0 110
------------------------------------------------ -----------------------
Adjusted earnings (2) 59,257 58,236 50,577 33,099 25,871 1,220 18,496
------------------------------------------------ -----------------------
Ratio (2 divided by 1) 1.64 1.84 1.83 1.40 1.83 0.89 1.22
------------------------------------------------ -----------------------
------------------------------------------------ -----------------------
Coverage deficiency (146)
</TABLE>
<PAGE>
Gables Residential Trust
Ratio of earnings to combined fixed charges and preferred dividends
Dollars in thousands
<TABLE>
<CAPTION>
Gables Residential
Gables Residential Trust Trust Predecessor
----------------------------------------------- --------------------------
Nine months Year ended 12-31 1-26-94 1-1-94 Year ended
ended ---------------------- 12-31-94 1-25-94 12-31-93
9-30-98 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) before minority
interest, gain on sale of real
estate assets, loss on treasury
locks and extraordinary items $29,405 $31,931 $27,541 $18,369 $15,972 ($92) $ 4,520
------------------------------------------------ ----------------------
Plus Fixed Charges and Preferred Dividends:
Interest expense 28,059 24,804 21,112 13,088 8,345 1,043 12,253
Credit enhancement fees 1,006 509 576 710 661 35 591
Interest capitalized 6,089 5,161 4,373 7,481 3,031 54 1,053
Loan cost amortization expense 787 992 1,348 932 893 234 1,132
Loan cost amortization capitalized 155 182 285 1,508 1,176 0 110
Preferred dividends 7,222 4,163 0 0 0 0 0
------------------------------------------------ ----------------------
Total fixed charges and preferred
dividends (1) 43,318 35,811 27,694 23,719 14,106 1,366 15,139
Less:
Interest capitalized 6,089 5,161 4,373 7,481 3,031 54 1,053
Loan cost amortization capitalized 155 182 285 1,508 1,176 0 110
------------------------------------------------ ----------------------
Adjusted earnings (2) 66,479 62,399 50,577 33,099 25,871 1,220 18,496
------------------------------------------------ ----------------------
Ratio (2 divided by 1) 1.53 1.74 1.83 1.40 1.83 0.89 1.22
------------------------------------------------ ----------------------
------------------------------------------------ ----------------------
Coverage deficiency (146)
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
March 6, 1998 included in Gables Residential Trust's Form 10-K for the year
ended December 31, 1997, our reports dated March 6, 1998 included in Gables
Realty Limited Partnership's Form 10-K for the year ended December 31, 1997, and
to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
November 30, 1998
Atlanta, Georgia
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
trustees of Gables Residential Trust (the "Company") and officers and directors
of Gables G.P., Inc. ("GGPI"), the general partner of Gables Realty Limited
Partnership (the "Operating Partnership"), hereby severally constitute Marcus E.
Bromley, John T. Rippel and Marvin R. Banks, and each of them singly, our true
and lawful attorneys with full power to them, and each of them singly, to sign
for us and in our names in the capacities indicated below, the Registration
Statement filed herewith and any and all amendments to said Registration
Statement, and generally to do all such things in our names and in our
capacities as officers and trustees to enable the Company and the Operating
Partnership to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Marcus E. Bromley Chairman of the Board of Trustees of the Company, November 9, 1998
- ------------------------ Chairman of the Board of Directors of GGPI,
Marcus E. Bromley Chief Executive Officer of the Company and GGPI
(Principal Executive Officer)
/s/ Marvin R. Banks, Jr. Chief Financial Officer of the Company and November 9, 1998
- ------------------------ GGPI (Principal Financial Officer
Marvin R. Banks, Jr. and Principal Accounting Officer)
/s/ John T. Rippel President and Chief Operating Officer November 9, 1998
- ------------------------ of the Company and GGPI,
John T. Rippel Trustee of the Company and Director
of GGPI
/s/ Chris D. Wheeler Senior Vice President of the Company and November 9, 1998
- ------------------------ GGPI, Trustee of the Company and Director
Chris D. Wheeler of GGPI
/s/ David M. Holland Trustee of the Company and Director November 9, 1998
- ------------------------ of GGPI
David M. Holland
/s/ Lauralee E. Martin Trustee of the Company and Director November 9, 1998
- ------------------------ of GGPI
Lauralee E. Martin
/s/ John W. McIntyre Trustee of the Company and Director November 9, 1998
- ------------------------ of GGPI
John W. McIntyre
/s/ D. Raymond Riddle Trustee of the Company and Director November 9, 1998
- ------------------------ of GGPI
D. Raymond Riddle
</TABLE>
