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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
REGISTRATION STATEMENT NO. 333-68359
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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GABLES RESIDENTIAL TRUST
AND GABLES REALTY LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
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<S> <C>
GABLES RESIDENTIAL TRUST-- 58-2077868
MARYLAND
GABLES REALTY LIMITED 58-2077966
PARTNERSHIP--DELAWARE
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
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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)
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COPY TO:
GILBERT G. MENNA, P.C.
ETTORE A. SANTUCCI, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109
(617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after this registration statement becomes effective.
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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. / /
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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.
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SUBJECT TO COMPLETION
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 OR SALE IS NOT PERMITTED.
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PRELIMINARY PROSPECTUS DATED MARCH , 1999
PROSPECTUS
$500,000,000
GABLES RESIDENTIAL TRUST
PREFERRED SHARES
COMMON SHARES
WARRANTS
$300,000,000
GABLES REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
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This prospectus provides you with a general description of equity securities
that Gables Residential Trust may offer and debt securities that Gables Realty
Limited Partnership may offer. Each time we sell securities we will provide a
prospectus supplement that will contain specific information about the terms of
such offering and may add to or update the information in this prospectus.
Our common shares and currently outstanding Series A preferred shares are
listed on the New York Stock Exchange under the symbols "GBP" and "GBP Pra,"
respectively.
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BEGINNING ON PAGE 4, WE HAVE LISTED SEVERAL "RISK FACTORS" THAT YOU SHOULD
CONSIDER.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or 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.
The date of this prospectus is March , 1999.
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UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "WE," US," "OUR
COMPANY" OR "GABLES TRUST" 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 "GABLES 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 TRUST, IS THE
SOLE GENERAL PARTNER OF GABLES OPERATING PARTNERSHIP.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended, with respect
to the securities offered hereunder. Throughout this prospectus we will refer to
the common shares, the preferred shares, the warrants and the debt securities
offered hereunder as 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 parts of the
registration statement in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information, we refer you to the
registration statement, which you may read and copy at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Securities and Exchange Commission'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 Securities and
Exchange Commission at its principal office in Washington, D.C. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants, including, Gables Trust and Gables
Operating Partnership, that file electronically with the Securities and Exchange
Commission. You may access the Securities and Exchange Commission's web site at
http://www.sec.gov.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and we are required to file reports and proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information can be inspected and copied
at the locations described above. Copies of such materials can be obtained by
mail from the Public Reference Section of the Securities and Exchange Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. Our common shares and currently outstanding Series A
preferred shares are listed on the New York Stock Exchange under the symbols
"GBP" and "GBP Pra," respectively. You may also read our reports, proxy and
other information statements and other information which we file at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information that we file with them (Gables Residential Trust's
Securities and Exchange Commission file number is 1-12590; Gables Realty Limited
Partnership's Securities and Exchange Commission 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 Securities and Exchange Commission 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 Trust and Gables Operating Partnership and any
future filings made with
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the Securities and Exchange Commission under Section 13(a), 13(c), 14, or 15(d)
of the Securities 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;
- 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;
- Current Report on Form 8-K dated March 8, 1999;
- 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 Securities and Exchange Commission 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).
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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.
DEVELOPMENT AND CONSTRUCTION RISKS COULD IMPACT OUR PROFITABILITY
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, which could result in increased costs and could require us
to abandon our activities entirely with respect to the project for which
we are unable to obtain permits or authorizations;
- we may abandon development opportunities that we have already begun to
explore and as a result we may fail to recover expenses already incurred
in connection with exploring such development opportunities;
- 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 and we may not be able to
increase rents to compensate for the increase in construction costs;
- 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, which may make us unable to proceed with its
development; 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.
Construction costs have been increasing in our target markets, and the cost
to update acquired communities has, in some cases, exceeded our original
estimates. We may experience similar cost increases in the future. Our inability
to charge rents that will be sufficient to offset the effects of any increases
in reconstruction costs may impact our profitability.
ACQUISITIONS MAY NOT YIELD ANTICIPATED RESULTS
We intend to continue to acquire multifamily apartment home communities on a
select basis. Our acquisition activities and their success may be exposed to the
following risks:
- the acquired property may fail to perform as we expected in analyzing our
investment; and
- our estimate of the costs of repositioning or redeveloping the acquired
property may prove inaccurate.
POLICY OF LIMITING DEBT LEVEL MAY BE CHANGED
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, and
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Second Amended and Restated Bylaws, as amended, do not contain any such
limitations. Our ratio of debt-to-total-market-capitalization (i.e., the total
consolidated debt of Gables Trust as a percentage of the market value of issued
and outstanding equity securities plus total consolidated debt) as of December
31, 1998 was approximately 46.8%. Throughout this prospectus we will refer to
our Amended and Restated Declaration of Trust, as amended, as our "declaration
of trust" and to our "Bylaws," as amended, as our "bylaws". 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. In the event that the
price of our common shares increases, we could incur additional debt without
increasing the ratio of debt-to-total-market-capitalization and without a
concurrent increase in our ability to service such additional debt.
INCURRENCE OF ADDITIONAL DEBT AND RELATED ISSUANCE OF EQUITY MAY BE DILUTIVE TO
SHAREHOLDERS
Future issuance of equity may dilute the interest of existing shareholders.
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
financing, including unsecured lines of credit and other forms of secured and
unsecured debt, and equity financing, including common and preferred equity.
INSUFFICIENT CASH FLOW COULD AFFECT OUR DEBT FINANCING AND CREATE REFINANCING
RISK
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.
RISING INTEREST RATES WOULD INCREASE INTEREST COSTS AND COULD AFFECT THE MARKET
PRICE OF OUR SECURITIES
We expect to incur variable rate debt under credit facilities 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 to the extent the variable
rate increase is not hedged effectively. In addition, an increase in market
interest rates may lead purchasers of our securities to demand a higher annual
yield, which could adversely affect the market price of our outstanding equity
or debt securities.
INTEREST RATE HEDGING CONTRACTS MAY INVOLVE MATERIAL CHANGES AND MAY NOT PROVIDE
ADEQUATE PROTECTION
From time to time when we anticipate offerings of debt securities, we may
seek to decrease our exposure to fluctuations in interest rates during the
period prior to the pricing of the securities by entering into interest rate
hedging contracts. We may do so to increase the predictability of our financing
costs. Also, from time to time we rely on interest rate hedging contracts to
offset our exposure to moving interest rates with respect to debt financing
arrangements at variable interest rates. The settlement of interest rate hedging
contracts has in the past and may in the future involve charges to earnings that
may be material in amount. Such charges are typically driven by the extent and
timing of fluctuations in interest rates. Despite our efforts to minimize our
exposure to interest rate fluctuations, there is no guarantee that we will be
able to maintain our hedging contracts at their existing levels of coverage or
that the amount of coverage maintained will cover all of our outstanding
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indebtedness at any such time. If our efforts are unsuccessful, we may not meet
our objective of reducing the extent of our exposure to interest rate
fluctuations.
BOND COMPLIANCE REQUIREMENTS COULD LIMIT INCOME AND RESTRICT USE OF COMMUNITIES
AND CAUSE FAVORABLE FINANCING TO BECOME UNAVAILABLE
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. The guarantee may take the form of a letter of credit, surety bond,
guarantee agreement or other additional collateral. If the financial institution
defaults in its guarantee obligations, or we are unable to renew the applicable
guarantee or otherwise post satisfactory collateral, a default will occur under
the applicable tax-exempt bonds and the community could be foreclosed upon.
FAILURE TO GENERATE SUFFICIENT REVENUE COULD LIMIT CASH FLOW AVAILABLE FOR DEBT
SERVICE AND DISTRIBUTIONS TO SHAREHOLDERS
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.
Significant expenditures associated with each 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.
UNFAVORABLE CHANGES IN MARKET AND ECONOMIC CONDITIONS COULD HURT OCCUPANCY OR
RENTAL RATES
The market and economic conditions in metropolitan areas of the southeastern
and southwestern regions of the United States may significantly affect apartment
home occupancy or rental rates. Occupancy and rental rates in those markets, in
turn, may significantly affect our profitability and our
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ability to satisfy our financial obligations. The risks that may affect
conditions in those markets include the following:
- the economic climate which may be adversely impacted by plant closings,
industry slowdowns and other factors;
- 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 any of our communities, which could prevent us
from raising rents to offset increases in operating costs; and
- the 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 COULD LIMIT FLEXIBILITY
Real estate in the metropolitan areas of the southeastern and southwestern
regions of the United States can be hard to sell, especially if 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.
INCREASED COMPETITION COULD LIMIT OUR ABILITY TO LEASE APARTMENT HOMES OR
INCREASE OR MAINTAIN RENTS
Our apartment communities in metropolitan areas 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.
SIGNIFICANT NEW OPERATIONS AND ACQUIRED COMMUNITIES UNDER MANAGEMENT REQUIRE
INTEGRATION WITH THE EXISTING BUSINESS AND, IF NOT PROPERLY INTEGRATED, COULD
CREATE INEFFICIENCIES
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 new
management and operations personnel as our organization grows in size and
complexity.
FAILURE TO SUCCEED IN NEW MARKETS MAY LIMIT GROWTH
We may make selected acquisitions outside of our current market areas from
time to time, if appropriate opportunities arise. Our historical experience in
the southeastern and southwestern regions of the United States does not ensure
that we will be able to operate successfully in other market areas new to us. We
may be exposed to a variety of risks if we choose to enter into new markets.
These risks include, among others:
- a lack of market knowledge and understanding of the local economies;
- an inability to obtain land for development or to identify acquisition
opportunities;
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- an inability to obtain construction tradespeople; and
- 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. Most of our
management contracts are terminable upon 30-days notice. 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.
SHARE OWNERSHIP LIMIT MAY PREVENT TAKEOVERS 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, the term
"individuals" includes a number of specified entities. See "Federal Income Tax
Considerations and Consequences of Your Investment" on page 40. Our declaration
of trust includes 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 35.
LIMITS ON CHANGES IN CONTROL MAY DISCOURAGE TAKEOVER ATTEMPTS BENEFICIAL TO
SHAREHOLDERS
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 "Important Provisions of Maryland Law and Our Declaration of
Trust and Bylaws" on page 37.
COMPLIANCE OR FAILURE TO COMPLY WITH AMERICANS WITH DISABILITIES ACT AND OTHER
SIMILAR LAWS COULD RESULT IN SUBSTANTIAL COSTS
The Americans with Disabilities Act generally requires that public
accommodations, including office buildings and hotels be made accessible to
disabled persons. Noncompliance could result in imposition of fines by the
federal government or the award of damages to private litigants. If, pursuant to
the Americans with Disabilities Act, we are required to make substantial
alterations and capital expenditures in one or more of our properties, including
the removal of access barriers, 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 Americans with
Disabilities Act or other similar legislation. The costs could be substantial.
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FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST WOULD CAUSE US TO BE TAXED
AS A CORPORATION WHICH WOULD SIGNIFICANTLY LOWER FUNDS AVAILABLE FOR
DISTRIBUTION TO SHAREHOLDERS
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 the application of the tax laws with
respect to qualification as a real estate investment trust for federal income
tax purposes or the federal income tax consequences of such qualification.
If, in any taxable year, we fail to qualify as a real estate investment
trust, we will be subject to federal income tax on our taxable income at regular
corporate rates, plus any applicable alternative minimum tax. In addition,
unless entitled to relief under applicable 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 and Consequences of Your Investment" on page 40.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN SUBSTANTIAL
COSTS
We are in the business of acquiring, owning, operating and developing real
estate properties. From time to time we will sell to third parties some of our
properties. Under various federal, state and local environmental laws, we may be
required, often regardless of knowledge or responsibility but by virtue of our
current or previous ownership or operation of real estate, to investigate and
remediate the effects of hazardous or toxic substances or petroleum product
releases at our properties. We may also be held liable to a governmental entity
or to third parties for property damage and for investigation and clean-up costs
incurred by us 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 our ability to
borrow against, sell or rent the affected property. In addition, applicable
environmental laws create liens on contaminated sites in favor of the government
for damages and costs it incurs in connection with the contamination.
HOLDERS OF MAJORITY IN INTEREST OF DEBT SECURITIES MAY WAIVE RESTRICTIVE
COVENANTS
The holders of a majority in aggregate principal amount of any outstanding
series of debt securities may, on behalf of all of the holders of such series,
waive our compliance with some of the restrictive covenants contained in the
indenture governing such securities.
GABLES TRUST AND GABLES OPERATING PARTNERSHIP
- We are one of the largest owners, operators, developers and acquirors of
multifamily apartment communities in the southeastern and southwestern
regions of the United States. We have a strategic focus on the ownership
of Class AA/A multifamily apartment communities that are situated in urban
locations or master-planned communities near major employment centers in
these regions.
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- 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 Trust is a 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 Trust has elected to be
taxed as a real estate investment trust for federal income tax purposes
and operates principally through Gables Operating Partnership, a Delaware
limited partnership. Excluding Gables Operating Partnership's
non-convertible preferred equity, Gables Trust is currently an 80.3%
economic owner of Gables Operating Partnership. Gables Trust controls
Gables Operating Partnership through Gables GP, Inc., a Texas corporation
and a wholly-owned subsidiary, which is the sole general partner of Gables
Operating Partnership.
- Our executive offices are located at 2859 Paces Ferry Road in Atlanta,
Georgia 30339 and our telephone number is (770) 436-4600.
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USE OF PROCEEDS
We are required by the terms of the partnership agreement of Gables
Operating Partnership to invest the net proceeds of any sale of common shares or
preferred shares of Gables Trust in Gables Operating Partnership in exchange for
additional units of limited partnership of Gables Operating Partnership or
preferred units, as the case may be. We will refer to units of limited
partnership of Gables Operating Partnership throughout this prospectus as
"units". 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.
The prospectus supplement will also include the allocation of the net
proceeds from the sale of securities among the various uses listed above.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of Gables Trust and the predecessor to Gables Trust for the periods
shown. The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of net income
(loss) before minority interest and extraordinary items, plus fixed charges.
Fixed charges consist of interest expense, capitalized interest, credit
enhancement fees and loan cost amortization.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 26- JANUARY 1-
NINE MONTHS ENDED ------------------------------- DECEMBER 31, JANUARY 25,
SEPTEMBER 30, 1998 1997 1996 1995 1994 1994(1)(2)
------------------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratios....................... 1.49x 1.97x 1.83x 1.40x 1.83x .89x
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993(1)
---------------------
<S> <C>
Ratios....................... 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.
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 Trust and the
predecessor to Gables Trust for the periods shown. The ratios of earnings to
combined fixed charges and preferred dividends were 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 and
extraordinary items, plus fixed charges and preferred dividends. Fixed charges
consist of interest expense, capitalized interest, credit enhancement fees and
loan cost amortization.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 26- JANUARY 1-
NINE MONTHS ENDED ------------------------------- DECEMBER 31, JANUARY 25,
SEPTEMBER 30, 1998 1997 1996 1995 1994 1994(1)(2)
------------------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratios............................... 1.40x 1.86x 1.83x 1.40x 1.83x .89x
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993(1)
---------------
<S> <C>
Ratios............................... 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.
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We will provide you with information in the applicable prospectus supplement
as to the ratios of earnings to fixed charges and earnings to combined fixed
charges and preferred dividends of Gables Trust as of its most recent fiscal
quarter.
DESCRIPTION OF DEBT SECURITIES
The following is a description of the material terms of the debt securities.
Because Gables Trust conducts its business principally through Gables Operating
Partnership, Gables Operating Partnership, and not Gables Trust, will issue the
debt securities. Therefore, references to "we" and "us" in this section refer to
Gables Operating Partnership and not Gables 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
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, dated as of a
date prior to such issuance, between us and First Union National Bank, as
trustee. We will refer to any such indenture throughout this prospectus as the
"senior indenture." The subordinated debt securities will be issued under a
separate indenture, dated as of a date prior to such issuance, between us and
the trustee. We will refer to any such indenture throughout this prospectus as
the "subordinate indenture" and to a trustee under any senior or subordinate
indenture as 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
summarizes the material provisions of the indentures but 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;
- allow us to issue debt securities in one or more series;
- do not require us to issue all of the debt securities of a series at the
same time;
- allow us to reopen series to issue additional debt securities without the
consent of the debt security holders of such series; and
- provide that 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
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<PAGE>
and apart from the trust administered by any other trustee. 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 they are senior or
subordinated;
- the aggregate principal amount of the debt securities being offered, the
aggregate principal amount of the debt securities outstanding as of the
most recent practicable date and any limit on their aggregate principal
amount, including the aggregate principal amount of debt securities
authorized;
- the price at which the debt securities will be issued expressed as a
percentage of the principal;
- 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 fixed or variable interest rate or rates 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, any premium 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 United States 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, any premium 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;
13
<PAGE>
- whether the amount of payments of principal, any premium or interest, on
the debt securities may be determined according to an index, formula or
other method and how such amounts will be determined;
- in the event that there is no physical delivery of the debt securities and
instead they and any transactions thereon are evidenced by a computerized
entry in the records of a depository company, information with respect to
the procedures for such computerized recording, if any;
- 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;
- 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 events such as a change of control of
Gables Operating Partnership, among others:
- the possible effects of such provisions on the market price of the
securities or in deterring particular mergers, tender offers or other
takeover attempts, and the intention of Gables Operating Partnership to
comply with the requirements of Rule 14e-1 under the Securities
Exchange Act and any other applicable securities laws in connection
with such provisions;
- 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
- the existence of any limitation on Gables Operating Partnership's
financial or legal ability to repurchase such debt securities upon the
occurrence of such an event 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 Gables 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 Gables 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
14
<PAGE>
- 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. We will refer to any such
debt securities throughout this prospectus as "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 incur indebtedness or
that would afford holders of debt securities protection in the event of a highly
leveraged or similar transaction involving us, Gables 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 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 Trust and Gables
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 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, any premium 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.
15
<PAGE>
Subject to the limitations imposed upon debt securities issued that are
evidenced by a computerized entry in the records of a depository company instead
of by physical delivery, 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, and
- 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 in addition to the applicable trustee, the applicable prospectus supplement
refers to any transfer agent 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:
- 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:
- either we are the continuing entity, or the successor entity, if other
than us, assumes our obligations (A) to pay principal, any premium and
interest on all of the debt securities and (B) pursuant to the covenants
and conditions contained in each indenture;
- immediately after giving effect to such transaction and treating any
indebtedness that becomes our obligation or the obligation of any of our
subsidiaries 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, occurs and continues; and
- an officers' certificate and legal opinion covering such conditions are
delivered to each trustee.
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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. However, the indentures do not require us to preserve any right
or franchise if we determine that any right or franchise is no longer desirable
in the conduct of our business.
MAINTENANCE OF PROPERTIES. If we deem it to be necessary to properly and
advantageously carry on our business, 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
- cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof.
However, the indentures do not prohibit us or our subsidiaries from selling
or otherwise disposing of our respective properties for value in the ordinary
course of business.
INSURANCE. The indentures require us and our subsidiaries' insurable
properties to be insured against loss or damage in an amount at least equal to
their then full insurable value with insurers of recognized responsibility and,
if described in the applicable prospectus supplement, having a specified rating
from a recognized insurance rating service.
PAYMENT OF TAXES AND OTHER CLAIMS. The indentures require us to pay or,
discharge or cause to be paid or discharged, before they become delinquent:
- all taxes, assessments and governmental charges levied or imposed on us,
our subsidiaries, or our subsidiaries' income, profits or property, and
- all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien upon our or our subsidiaries' property.
However, we will not be required to pay, discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is contested in good faith.
ADDITIONAL COVENANTS. The prospectus supplement relating thereto will set
forth any additional covenants of Gables Operating Partnership with respect to
any series of debt securities.
17
<PAGE>
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless the applicable prospectus supplement states otherwise, the indentures
provide 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 or any premium 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
Gables Operating Partnership contained in the indenture continued for 60
days after written notice as provided in the applicable indenture, but not
of a covenant added to the indenture solely for the benefit of a series of
debt securities issued thereunder other than such series;
- a default under any bond, debenture, note, mortgage, indenture or
instrument under which there may be issued, secured or evidenced any
existing or later created indebtedness for money borrowed by us or our
subsidiaries, if we are directly responsible or liable as obligor or
guarantor, having an aggregate principal amount outstanding of at least
$10,000,000, which results in such indebtedness becoming or being declared
due and payable prior to the date it otherwise would have, 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;
- bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of Gables Operating Partnership or any
Significant Subsidiary of Gables Operating Partnership; and
- any other event of default provided with respect to a particular series of
debt securities.
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 occurs and is continuing with respect to debt
securities of any series outstanding, then 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 of all the debt securities
of that series to be due and payable. If the debt securities of that series are
original issue discount securities or indexed securities, then 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 portion of the
principal amount as may be specified in the terms thereof to be due and payable.
However, at any time after such a declaration of acceleration 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
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<PAGE>
outstanding under the applicable indenture may rescind and annul such
declaration and its consequences if:
- we have deposited with the applicable trustee all required payments of the
principal, any premium, and interest, plus applicable fees, expenses,
disbursements and advances of the applicable trustee; and
- all events of default, other than the non-payment of accelerated principal
or a specified portion thereof have been cured or waived.
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, may waive any past
default with respect to such series and its consequences, except a default:
- in the payment of the principal, any premium, or interest; or
- 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 unless such default has been cured or
waived. However, the trustee may withhold notice if specified responsible
officers of such trustee consider such withholding to be in the interest of the
holders of debt securities. The trustee may not withhold notice of a default in
the payment of principal, any premium 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.
The indentures provide that holders of debt securities of any series may not
institute any proceedings, judicial or otherwise, with respect to such indenture
or for any remedy thereunder, unless the trustee fails to act for a period of 60
days 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, any premium 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 has no obligation to
exercise any of its rights or powers at the request or direction of any holders
of any series of debt securities then outstanding under such indenture, unless
such holders have offered to the trustee 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 shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable trustee, or
of exercising any trust or power conferred upon such trustee. However, a trustee
may refuse to follow any direction which:
- is in conflict with any law or the applicable indenture,
- may involve such trustee in personal liability or
- 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 Gables GP, Inc., as our general partner, stating whether or not such
officer has knowledge of any default under the applicable indenture. If the
officer has knowledge of any default, the notice must specify the nature and
status of the default.
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MODIFICATION OF THE INDENTURES
The indentures provide that modifications and amendments may be made only
with the consent of the affected holders of not less than a majority in
principal amount of all outstanding debt securities issued under such indenture.
However, no such modification or amendment may, without the consent of the
holder of each such debt security affected thereby:
- change the stated maturity of the principal of, any installment of
interest on, or any premium 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 particular provisions thereof or
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 particular past defaults or covenants, except to increase
the required percentage to effect such action or to provide that some of
the 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
material restrictive covenants of the applicable indenture.
Gables 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 Gables 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;
- to add or change any provisions of an indenture to facilitate the issuance
of, or to liberalize specified 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;
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- 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, the following shall be disregarded:
- 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;
- the principal amount of any debt security denominated in a foreign
currency that shall be deemed outstanding shall be the United States
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 United States dollar equivalent on the issue date of such
debt security of the amount determined as provided in the preceding bullet
point;
- 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
- debt securities owned by us or any other obligor upon the debt securities
or by any affiliate of ours or of such other obligor.
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 the modifications and amendments of an indenture described above, 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.
Notwithstanding the preceding paragraph, except as referred to above, any
resolution relating to a request, demand, authorization, direction, notice,
consent, waiver or other action that may be made, given or taken 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 such holders.
Any resolution passed or decision taken at any properly held meeting of
holders of debt securities of any series will be binding on all holders of such
series. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be persons holding or representing a majority in
principal amount of the outstanding debt securities of a series. However, if any
action is to be taken relating to a consent or waiver which may be given by the
holders of not less than a specified
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percentage in principal amount of the outstanding debt securities of a series,
the persons holding such percentage will constitute a quorum.
Notwithstanding the foregoing provisions, the indentures provide that if any
action is to be taken at a meeting 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:
- there shall be no minimum quorum requirement for such meeting; and
- 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 Gables 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;
- 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:
- any such indebtedness, obligation or liability referred to in the
preceding clauses as to which, in the instrument creating or evidencing
the same pursuant to which the same is
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outstanding, it is provided that such indebtedness, obligation or
liability is not superior in right of payment to the Subordinated
securities or ranks on an equal basis with the subordinated securities;
- 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
- 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, the
indentures allow us to discharge our 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
- have become due and payable, are scheduled for redemption or will
become due and payable 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,
any premium and interest to the date of such deposit if such debt
securities have become due and payable or, if they have not, to the
stated maturity or redemption date.
Unless otherwise indicated in the applicable prospectus supplement, the
indentures provide that, 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, premium, and interest on such debt
securities, and any mandatory sinking fund or analogous payments thereon, on the
scheduled due dates therefor, we may elect either
- to defease and be discharged from any and all obligations with respect to
such debt securities, or
- to be released from our obligations with respect to such debt securities
under the applicable indenture 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.
Notwithstanding the above, we may not elect to defease and be discharged from
the obligation to pay any additional amounts upon the occurrence of particular
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.
The indentures will only allow us to establish the trust described in the
paragraph above if, among other things, we have delivered to the applicable
trustee an opinion of counsel to the effect that the
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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. 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 or a change in applicable
federal income tax law occurring after the date of the indenture. In the event
of such defeasance, the holders of such debt securities would thereafter be able
to look only to such trust fund for payment of principal, any premium, and
interest.
When we use the term "government obligations" we mean securities that are:
- direct obligations of the United States 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
- obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States or other 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 or such other government,
which, 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, (a) 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
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such debt security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of,
premium, 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:
- 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;
- the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities;
or
- 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
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currency that ceases to be used by its government of issuance shall be
made in United States dollars.
In the event that (a) we effect covenant defeasance with respect to any debt
securities; and (b) 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 (i) the fourth bullet point under "--Events of default, notice and waiver"
with respect to specified sections of an indenture or (ii) the seventh bullet
point 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.
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 Trust or any equity interest in Gables
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. We may issue global securities in either registered or bearer form
and in either temporary or permanent form. We will describe the specific terms
of the depositary arrangement with respect to a series of debt securities in the
applicable prospectus supplement relating to such series.
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DESCRIPTION OF PREFERRED SHARES
The following is a description of the material terms and provisions of our
preferred shares. It 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
Trust, not Gables Operating Partnership, will issue preferred shares. Therefore,
references to "the Company," "we" and "us" in this section refer to Gables Trust
and not Gables 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, and 20,000,000 preferred shares, par value $.01 per share. At
December 31, 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 our cumulative redeemable
preferred shares are as follows:
- 8.30% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
outstanding 4,600,000 Series A shares. Dividends 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 shares rank
as to rights to dividends and in liquidation on a parity with the Series B
shares and senior to the Series Z shares. We may redeem the Series A
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 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.
- 8.625% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES. We have reserved
2,000,000 Series B shares, none of which are currently outstanding, for
issuance upon exercise by the holders of Gables Operating Partnership's
2,000,000 Series B preferred units of their right to exchange Series B
preferred units for the Series B shares on a one-for-one basis. Holders
may exercise their exchange right in whole but not in part (a) at any time
on or after November 15, 2008, (b) at any time if full quarterly
distributions are not made for six quarters, or (c) upon the occurrence of
particular 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 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 shares rank as to rights
to dividends and in liquidation on a parity with the Series A shares and
senior to the Series Z shares. We may redeem the Series B preferred units
and the Series B 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. We may redeem the Series B
preferred units before November 15, 2003 if the holders elect to exchange
them for Series B shares. The Series B preferred units and the Series B
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.
- 5.00% SERIES Z CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
outstanding 180,000 Series Z shares. Dividends on the Series Z 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 shares at
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any time for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends. The Series Z shares are subject to mandatory
redemption on June 18, 2018 and are not subject to any sinking fund or
convertible into any other of our securities. With respect to dividends
and liquidation distributions, the Series Z shares currently rank junior
to all other designated preferred shares, including the Series A shares
and the Series B shares.
We did not have any other preferred shares 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 and our declaration of trust to fix for each series, subject to
the provisions of our declaration of trust regarding excess shares of beneficial
interest, 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:
- their title and stated value;
- the number of preferred shares offered, the liquidation preference per
share and the offering price;
- the applicable dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof;
- the date from which dividends on such preferred shares shall accumulate,
if applicable;
- any procedures for auction and remarketing;
- any provision for a sinking fund;
- any applicable provision for redemption;
- any securities exchange listing;
- the terms and conditions of convertibility into common shares, including
the conversion price or rate or manner of calculation thereof;
- any other specific terms, preferences, rights, limitations or
restrictions;
- a discussion of applicable federal income tax considerations;
- the relative ranking and preference as to dividend rights and rights upon
our liquidation, dissolution or the winding up of our affairs;
- 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.
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RANK
Unless otherwise specified in the prospectus supplement, the preferred
shares will, with respect to dividend rights and rights upon a liquidation,
dissolution or winding up our affairs, rank:
- 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 liquidation, dissolution or winding up our
affairs;
- 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
liquidation, dissolution or winding up of our affairs; and
- 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
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
set forth in the applicable prospectus supplement. Each such dividend will be
payable to holders of record as they appear on our share transfer books on such
record dates as 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, 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:
- 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
- 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 on preferred shares of any series and the shares of any other
series of preferred shares ranking on a parity as to dividends with such
preferred shares are not paid in full or an amount for such full payment is not
set apart, all dividends declared on such series must be declared pro rata.
Unless such preferred shares have a cumulative dividend, such accrued dividends
may not include any accumulation in respect of unpaid dividends for prior
dividend periods if such preferred shares do not
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have a cumulative dividend. No interest, or sum of money in lieu of interest,
will be payable in respect of any payments which may be in arrears.
Except as provided in the immediately preceding paragraph, unless:
- 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
- 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 shall be declared, 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.
Notwithstanding the preceding sentence, we may declare or set aside dividends in
common shares or other 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, in whole or
in part, 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 shares that will be
redeemed in each year commencing after a specified date at a specified
redemption price per share, together with an amount equal to all accrued and
unpaid dividends thereon to the date of redemption. Unless the shares have a
cumulative dividend, such accrued dividends will not include any accumulation in
respect of unpaid dividends for prior dividend periods. 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 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 will automatically and
mandatorily convert into the applicable shares of beneficial interest pursuant
to conversion provisions specified in the applicable prospectus supplement.
Notwithstanding the foregoing, we will not redeem any preferred shares of a
series unless we redeem all outstanding preferred shares of such series
simultaneously unless:
- if the series has a cumulative dividend, full cumulative dividends on all
shares of such series have been or contemporaneously are declared and paid
or declared and a sum sufficient for the
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payment thereof set apart for payment for all past dividend periods and
the then current dividend period or
- if the series 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.
The foregoing shall not prevent the purchase or acquisition of preferred shares
of a 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, we shall not acquire any preferred shares of a series unless
- if such series 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; or
- if such series 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.
However, we may purchase or acquire preferred shares of such series to
preserve our real estate investment trust status, pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding preferred
shares of such series or 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.
If fewer than all of the outstanding preferred shares of any series are to
be redeemed, we will determine the number of shares that 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 or by any
other equitable manner that we determine. Such determination will reflect
adjustments to avoid redemption of fractional shares.
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 to be
redeemed at the address shown on our stock transfer books. Each notice shall
state:
- the redemption date;
- the number of shares and series to be redeemed;
- the redemption price;
- the place or places where certificates 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 shares of any series are to be redeemed, the
specific number of shares to be redeemed from each such holder.
If notice of redemption has been given and we have set aside the funds
necessary for such redemption in trust for the benefit of the holders of any
shares so called for redemption, then from and after the redemption date,
dividends will cease to accrue on such shares, and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
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LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
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 our affairs, the holders of
each series of preferred shares will be entitled to receive out of assets
legally available for distribution to shareholders liquidating distributions in
the amount of the liquidation preference per share set forth in the applicable
prospectus supplement, plus any accrued and unpaid dividends thereon. Such
dividends will not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods. After full payment of their liquidating
distributions, holders 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 will share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be 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, will not be deemed to
constitute a liquidation, dissolution or winding up of our affairs.
VOTING RIGHTS
Holders of preferred shares will not have any voting rights, except as
described in the next paragraph, as otherwise from time to time required by law,
or as indicated in the applicable prospectus supplement.
Unless otherwise provided 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 with each of such series voting
separately as a class,
- authorize or create, or increase the authorized or issued amount of, any
class or series of shares of beneficial interest ranking senior 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
- 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,
so as to materially and adversely affect any right, preference, privilege
or voting power of such series of preferred shares or the holders thereof.
Notwithstanding the preceding paragraph with respect to the occurrence of any of
the events set forth in the second bullet point above, so long as the preferred
shares remain outstanding with the terms thereof materially unchanged, taking
into account that upon the occurrence of such 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
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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 will 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.
CONVERSION RIGHTS
The terms and conditions 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, rate or
manner of calculation thereof, the conversion period, provisions as to whether
conversion will be at our option or at the holders' option, the events requiring
an adjustment of the conversion price and provisions affecting conversion in the
event of the redemption.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code, not more than 50% in value of our outstanding shares of beneficial
interest may be owned, directly or indirectly, by five or fewer individuals
during the last half of a taxable year. To assist us in meeting this
requirement, we may take 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, the 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.
DESCRIPTION OF COMMON SHARES
The following is a description of the material terms and provisions of our
common shares. It 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 Trust, not Gables Operating Partnership,
will issue common shares. Therefore, references to "we" and "us" in this section
refer to Gables Trust and not Gables 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 December 31, 1998, 26,301,923
common shares were issued and outstanding. In addition, as of December 31, 1998,
6,448,391 units which are exchangeable for common shares on a one-for-one basis
were outstanding. All common shares, when issued, will be duly authorized, fully
paid and nonassessable. This means that the full price for the outstanding
common shares will have been
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paid at the time of issuance and that any holder of our common shares will not
later be required to pay us any additional money for such common shares.
DIVIDENDS
Subject to the preferential rights of any other shares of beneficial
interest or the provisions of our declaration of trust regarding excess shares,
holders of common shares may receive distributions out of assets that we can
legally use to pay distributions, when and if, they are authorized and declared
by our Board of Trustees. Each holder shares 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, holders of common shares will have the exclusive power to vote on all
matters presented to our shareholders, including the election of trustees,
except as otherwise provided by Maryland law or as provided with respect to any
other shares of beneficial interest. Holders of common shares 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 or exchange rights, except for
any appraisal rights provided by Maryland law.
Holders of common shares 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,
Gables Operating Partnership's partnership agreement requires that such actions
also be approved by partners holding 75% of the units of Gables Operating
Partnership.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code, no more than 50% in value of our outstanding shares of beneficial
interest may be owned, directly or indirectly, by five or fewer individuals
during the last half of a taxable year. To assist us in meeting this
requirement, we may take actions such as the automatic exchange of shares in
excess of this ownership restriction 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 35.
TRANSFER AGENT
The transfer agent and registrar for the common shares is BankBoston, N.A.,
Boston, Massachusetts.
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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 Trust, not Gables Operating
Partnership will issue warrants. Therefore, references to "we" and "us" in this
section refer to Gables Trust and not Gables 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 title of such warrants;
- the aggregate number of warrants offered and the aggregate number of
warrants outstanding as of the most practicable date;
- 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;
- in the event that there is no physical delivery of the warrants and
instead they and any transactions thereon are evidenced by a computerized
entry in the records of a depository company, information with respect to
the procedures of such computerized recording, if any;
- a discussion of applicable 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.
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LIMITS ON OWNERSHIP OF SHARES OF BENEFICIAL INTEREST
OWNERSHIP LIMIT
For us to qualify as a real estate investment trust under the Internal
Revenue 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 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 real estate
investment trust due to a concentration of ownership among our shareholders, our
declaration of trust provides that no holder may own, or be deemed to own by
virtue of the attribution provisions of the Internal Revenue Code, more than
9.8% of our shares of beneficial interest. Notwithstanding the preceding
sentence, the trustees at their option and in their discretion may approve such
ownership by selected persons. The Board of Trustees does not expect that it
would waive the 9.8% ownership limit in the absence of the ruling from the
Internal Revenue Service 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
real estate investment trust. 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 9.8% ownership limit or that would result
in our disqualification as a real estate investment trust, 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 Internal Revenue 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 real estate investment trust. 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 9.8% 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 9.8% 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 our discovery that shares of beneficial interest have been transferred
in violation of the provisions of our declaration of trust are required to 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 9.8%
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
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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 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 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
of the shares of beneficial interest on the date we exercise our option to
purchase. The market price will be determined in the manner set forth in our
declaration of trust. 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 on which the Board of Trustees
determines that a violative transfer has been made.
Every owner of more than 5% 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. Owners of 5% or less
of the issued and outstanding common shares may be required by the Internal
Revenue Code or regulations thereunder to file such notice. 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 Internal Revenue Code applicable to real estate investment
trusts, 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 Trust unless the Board of Trustees determines that maintenance
of real estate investment trust status is no longer in our best interests.
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IMPORTANT PROVISIONS OF MARYLAND LAW AND
OUR DECLARATION OF TRUST AND BYLAWS
The following is a summary of important provisions of Maryland law and our
declaration of trust and bylaws which affect us and you as a holder of
securities. 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 real estate
investment trust acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of beneficial interest owned by the
acquiror or by officers of trustees who are employees of the trust. "Control
shares" are voting shares of beneficial interest which, if aggregated with all
other such shares of beneficial interest previously acquired by the acquiror or
in respect of which the acquiror is able to exercise or direct the exercise of
voting power except solely by revocable proxy, would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (a) one-fifth or more but less than one-third, (b) one-third or
more but less than a majority, or (c) 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 applicable exceptions.
A person who has made or proposes to make a control share acquisition may
compel the board of trustees to call a special meeting of shareholders to be
held within 50 days of demand to consider
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voting rights for the shares, upon satisfaction of relevant conditions,
including an undertaking to pay expenses. If no request for a meeting is made,
the trust may itself present the question at any shareholders meeting.
If voting rights for control shares are not approved at the meeting or if
the acquiring person does not deliver an acquiring person statement as required
by the statute with respect to the control shares, then, subject to applicable
conditions and limitations, the trust may redeem any or all of the control
shares 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 particular 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 real estate investment trust formed in Maryland is
permitted to limit, by provision in its declaration of trust, the liability of
trustees and officers so that 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. Gables GP, Inc.'s articles of
incorporation contain similar provisions that are consistent with Texas law.
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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 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 person to be indemnified 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 such person if:
- it is established that (a) such person's act or omission was committed in
bad faith or was the result of active or deliberate dishonesty, (b) such
person actually received an improper personal benefit in money, property
or services or (c) in the case of a criminal proceeding, such person had
reasonable cause to believe that the Indemnitee's act or omission was
unlawful;
- the proceeding was initiated by such person;
- such person received payment for such expenses pursuant to insurance or
otherwise; or
- the proceeding arises under Section 16 of the Securities Exchange Act.
Pursuant to our bylaws, the person to be indemnified 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 Maryland General Corporation Law or to which the person to
be indemnified may be entitled. Gables GP, Inc.'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.
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FEDERAL INCOME TAX CONSIDERATIONS AND
CONSEQUENCES OF YOUR INVESTMENT
The following is a general summary of the material federal income tax
considerations and consequences associated with an investment in the securities.
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
or consequences 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 Internal
Revenue Code, such as insurance companies, financial institutions and
broker-dealers. The Internal Revenue Code provisions governing the federal
income tax treatment of real estate investment trusts are highly technical and
complex, and this summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof. The following
discussion is based on current law and on representations from us concerning our
compliance with the requirements for qualification as a real estate investment
trust.
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 Internal Revenue 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 Internal Revenue 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 Internal Revenue Code through actual operating
results, as discussed below. In rendering its opinion to Gables, 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 real estate
investment trust, 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 real estate investment trust provisions of the
Internal Revenue Code generally allow a real estate investment trust to deduct
dividends paid to its shareholders. This deduction for dividends paid to
shareholders substantially eliminates the federal "double taxation" on earnings
that usually results from investments in a corporation. "Double taxation" refers
to taxation once at the corporate level when earned and once again at the
shareholder level when distributed. Additionally, a real estate investment trust
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 real estate investment
trust 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 real estate investment trust.
Even if we qualify for taxation as a real estate investment trust, however,
we will be subject to federal income tax, as follows:
- First, we will be taxed at regular corporate rates on our undistributed
real estate investment trust taxable income, including undistributed net
capital gains.
- Second, we may be subject to the "alternative minimum tax."
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- 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. Foreclosure property is, in general, any real
property and any personal property incident to such real property acquired
through foreclosure or deed in lieu of foreclosure.
- Fourth, if we have net income from prohibited transactions, such income
will be subject to a 100% tax. Prohibited transactions are, in general,
sales or other dispositions of property other than foreclosure property
held primarily for sale to customers in the ordinary course of business.
- Fifth, if we should fail to satisfy either the 75% or 95% gross income
test but have nonetheless maintained our qualification as a real estate
investment trust because 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 (a)
85% of our ordinary income for such year, (b) 95% of our capital gain net
income for such year and (c) 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 in a
carryover-basis transaction and we subsequently recognize gain on the
disposition of such asset during the ten-year 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 Internal Revenue Service (the "Built-in Gain
Rules"). A C corporation is a corporation generally subject to full
corporate-level tax.
REQUIREMENTS FOR QUALIFICATION
We elected to be taxable as a real estate investment trust 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 real estate investment
trust as a corporation, trust or association:
(1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest,
(3) that would be taxable as a domestic corporation but for the real estate
investment trust requirements,
(4) that is neither a financial institution nor an insurance company subject to
applicable provisions of the Internal Revenue Code,
(5) the beneficial ownership of which is held by 100 or more persons, and
(6) 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
applicable attribution rules, by five or fewer individuals.
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In addition, other tests, described below, regarding the nature of its
income and assets also must be satisfied. The Code provides that conditions (1)
through (4), inclusive, must be met during the entire taxable year and that
condition (5) 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 (5) and (6) will not apply until after the first taxable year for
which an election is made to be taxed as a real estate investment trust. For
purposes of conditions (5) and (6), pension funds and particular other
tax-exempt entities are treated as individuals, subject to a "look-through"
exception in the case of condition (6).
Our declaration of trust currently includes restrictions regarding transfers
of common shares and preferred shares, which restrictions are intended, among
other things, to assist us in continuing to satisfy conditions (5) and (6)
above. In rendering its opinion that we are organized and operated in a manner
that has allowed us to qualify as a real estate investment trust, Goodwin,
Procter & Hoar LLP is relying on our representations that the ownership of our
common shares and preferred shares will satisfy conditions (5) and (6). There
can be no assurance, however, that the restrictions in our 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 real estate investment
trust unless its taxable year is the calendar year. We have a calendar year
taxable year.
If a real estate investment trust owns a "qualified real estate investment
trust subsidiary," the Internal Revenue Code provides that the qualified real
estate investment trust subsidiary is disregarded for federal income tax
purposes, and all assets, liabilities, and items of income, deduction and credit
of the qualified real estate investment trust subsidiary are treated as assets,
liabilities and such items of the real estate investment trust itself. A
"qualified real estate investment trust subsidiary" is a corporation all of the
shares of beneficial interest of which are held by the real estate investment
trust. Gables GP, Inc., the general partner of Gables Operating Partnership, and
other entities organized to serve as the general partner of special purpose
limited partnerships are "qualified real estate investment trust subsidiaries."
Thus, all of the assets, liabilities, and items of income, deduction and credit
of Gables GP, Inc. and the other "qualified real estate investment trust
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 and Consequences of Your Investment" section, refer to Gables
Trust and its qualified real estate investment trust subsidiaries.
In the case of a real estate investment trust that is a partner in a
partnership, regulations issued by the United States Treasury Department provide
that the real estate investment trust will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. A REIT's proportional
share of the assets of the partnership will be determined based on the REIT's
capital interest in the partnership. In addition, the character of the assets
and gross income of the partnership shall retain the same character in the hands
of the real estate investment trust for purposes of Section 856 of the Internal
Revenue Code, including satisfying the gross income tests and asset tests. Thus,
our proportionate share of the assets, liabilities and items of income of Gables
Operating Partnership and any other entity taxable as a partnership for federal
income tax purposes in which we hold an interest will be treated as our assets
and liabilities and our items of income for purposes of applying the
requirements described herein. The assets, liabilities and items of income of
Gables Operating Partnership include Gables Operating Partnership's share of the
assets and liabilities and items of income with respect to any partnership in
which it holds an interest.
INCOME TESTS. To maintain qualification as a real estate investment trust,
two gross income requirements must be satisfied annually.
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- First, at least 75% of our gross income, excluding gross income from
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 particular
circumstances, interest or from particular types of temporary investments.
- Second, at least 95% of our gross income 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. For purposes of this test, gross income
excludes gross income from prohibited transactions.
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 including gross income from prohibited
transactions for each such taxable year.
Rents received or deemed to be received by us will qualify as "rents from
real property" in satisfying the gross income requirements for a real estate
investment trust 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 Internal Revenue Code provides that rents received from a
related party tenant will not qualify as rents from real property in
satisfying the gross income tests. A tenant is a related party tenant if
the real estate investment trust, directly or indirectly, actually or
constructively owns 10% or more of such 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 real
estate investment trust 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 real estate
investment trust does not derive any income. For taxable years beginning
after August 5, 1997, a real estate investment trust may, however, provide
services with respect to its properties and the income will qualify as
"rents from real property" if (a) with respect to any given property,
amounts received from the provision of such services do not exceed 1% of
all amounts received by the real estate investment trust with respect to
such property (i.e., "De Minimis Services") and (b) 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 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
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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 Gables management companies (as defined below).
Generally the Gables 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 Gables management
company that provided the services. Gables 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
Gables 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.
Gables Operating Partnership also has received and may continue to receive
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
some of the apartment units leased to particular Gables 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 some of the notes of the Gables management companies held
by Gables Operating Partnership and dividends on Gables Operating Partnership's
stock in the Gables management companies will not qualify under the 75% gross
income test. We 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 real estate investment trust 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 real estate investment trust
for that year if we are eligible for relief under the Internal Revenue Code.
These relief provisions will be generally available if
- our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
- we attach a schedule of the sources of our income to our federal income
tax return; and
- 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 Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above in "Federal Income Tax Considerations and
Consequences of Your Investment-- 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 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 real estate
investment trust. See the discussion below on the consequences of failing to
qualify as a real estate investment trust in "Federal Income Tax Considerations
and Consequences of Your Investment--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.
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- 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, and we may not own more than 10% of any one issuer's
outstanding voting securities.
Gables Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of particular corporations (the "Gables management companies")
which do not qualify as "qualified real estate investment trust subsidiaries."
By virtue of our ownership of units of beneficial interest in Gables Operating
Partnership, we will be considered to own our pro rata share of such stock.
Neither we nor Gables Operating Partnership, however, owns more than 1% of the
voting securities of any Gables 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 Gables 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 Gables management companies owned by
Gables Operating Partnership relative to the estimated value of the other assets
owned by Gables Operating Partnership. We have not obtained any independent
appraisals to support this conclusion. There can be no assurance that the
Internal Revenue Service might not contend that the value of such securities of
a Gables management company held by our Company through Gables 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
Gables management companies, but also each time we increase our ownership of
such securities of the Gables management companies, including as a result of
increasing our interest in Gables 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 Gables management company.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a real estate investment trust for failure to satisfy the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. 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 real estate
investment trust, 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 (1) 95% of our "real estate investment trust taxable income,"
which is computed without regard to the dividends-paid deduction and our
capital gain, and (2) 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 particular 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. Capital gain dividends are not included
in the calculation to determine whether we satisfy the above-described
distribution requirement. In general, a capital gain dividend is a dividend
attributable to net capital gain recognized by us and properly designated as
such.
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Even if we satisfy the foregoing distribution requirements, to the extent
that we do not distribute all of our net capital gain or "real estate investment
trust 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 Internal Revenue
Service, to distribute at least 95% of the after tax Built-In Gain, 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,
Gables Operating Partnership's partnership agreement authorizes Gables GP, Inc.,
as general partner, to take such steps as may be necessary to cause Gables
Operating Partnership to distribute to its partners an amount sufficient to
permit us to meet these distribution requirements.
It is expected that our real estate investment trust taxable income has been
and will be less than our cash flow due to the allowance of depreciation and
other noncash charges in computing real estate investment trust 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 (a) the actual receipt of income and the actual
payment of deductible expenses and (b) 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 some 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 real
estate investment trust. In connection with the Initial Offering, we acquired
the assets of Wood Properties, Inc. 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 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 Internal Revenue Service, the
Internal Revenue Service 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
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event that 1994 distributions were insufficient to distribute any such earnings
and profits, and we were unable to utilize the "deficiency dividend" procedures
in the Treasury regulations, we would fail to qualify as a real estate
investment trust.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a real estate investment trust in any
taxable year and the relief provisions do not apply, we will be subject to tax
on our taxable income at regular corporate rates, including any applicable
alternative minimum tax. 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 limitations of the Internal Revenue 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 real estate investment trust 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 Internal Revenue Service could conclude that our failure to
satisfy the tests was not due to reasonable cause.
TAXATION OF UNITED STATES SHAREHOLDERS AND POTENTIAL TAX CONSEQUENCES OF THEIR
INVESTMENT IN THE SECURITIES
When we refer to a "United States Shareholder," we mean a holder of common
shares or preferred shares that is for federal income tax purposes
- an individual who is a citizen or resident of the United States,
- a corporation created or organized in or under the laws of the United
States, any state thereof or the District of Columbia, or
- 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 real estate
investment trust, amounts distributed to taxable United States Shareholders will
be taxed as follows.
DISTRIBUTIONS GENERALLY. Distributions other than capital gain dividends to
United States Shareholders 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 United States 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 United
States Shareholder's tax basis in the shares, and the distribution in excess of
a United States 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 "Federal Income Tax
Considerations and Consequences of Your Investment--Federal
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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
particular distributions that would otherwise result in a tax-free return of
capital as taxable dividends.
CAPITAL GAIN DIVIDENDS. Dividends to United States 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 particular capital gain dividends as ordinary income. Capital gain
dividends are not eligible for the dividends-received deduction for
corporations.
RETAINED CAPITAL GAINS. A real estate investment trust may elect to retain,
rather than distribute, its net long-term capital gains received during the
year. To the extent designated by the real estate investment trust in a notice
to its shareholders, the real estate investment trust will pay the income tax on
such gains and the real estate investment trust shareholders must include their
proportionate share of the undistributed long-term capital gains so designated
in income. Each real estate investment trust shareholder will be deemed to have
paid its share of the tax paid by the real estate investment trust, which will
be credited or refunded to the shareholder. The basis of each shareholder's real
estate investment trust shares will be increased by its proportionate amount of
the undistributed long-term capital gains, net of the tax paid by the real
estate investment trust, 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. However, 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" 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 particular real estate investment trusts may be required to treat a specified
percentage of such a REIT's distributions, including deemed distributions of
undistributed long-term capital gains, as "unrelated business taxable income".
This requirement will apply only if (a) the real estate investment trust 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 (b) the real estate investment trust is
"predominantly held" by qualified trusts. A real estate investment trust is
predominantly held by qualified trusts if either (a) a single qualified trust
holds more than 25% by value of the real estate
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investment trust interests or (b) one or more qualified trusts, each owning more
than 10% by value of the real estate investment trust interests, hold in the
aggregate more than 50% of the real estate investment trust interests. The
percentage of any real estate investment trust dividend, including deemed
distributions of undistributed long-term capital gains, treated as "unrelated
business taxable income" is equal to the ratio of (1) the "unrelated business
taxable income" earned by the real estate investment trust (treating the real
estate investment trust as if it were a qualified trust and therefore subject to
tax on "unrelated business taxable income") to (2) the total gross income, less
particular associated expenses, of the real estate investment trust. 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 Internal Revenue Code and exempt from tax
under section 501(a) of the Internal Revenue Code. Distributions by Gables
Operating Partnership to a tax-exempt holder of debt securities will generally
not constitute "unrelated business taxable income" unless the acquisition of
such debt securities is debt financed within the meaning of section 514(c) of
the Internal Revenue Code.
TAXATION OF HOLDERS OF DEBT SECURITIES AND POTENTIAL TAX CONSEQUENCES OF THEIR
INVESTMENT IN THE 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 Internal Revenue 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 Securities and Exchange Commission or of the Internal Revenue
Service. 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 particular 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.
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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 (a) the
amount of cash and the fair market value of property received and (b) 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. However, the amount of
cash and the fair market value received excludes cash or other property
attributable to the payment of accrued interest not previously included in
income, which amount will be taxable as ordinary income. Subject to the market
discount and amortizable bond premium rules above, any such gain or loss will
generally be 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 other specific 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 Internal Revenue Service. 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 Internal Revenue Service 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 GABLES OPERATING PARTNERSHIP ON REAL ESTATE
INVESTMENT TRUST QUALIFICATION. Substantially all of our investments are through
Gables Operating Partnership. Gables Operating Partnership may involve special
tax considerations. Such considerations include
- the allocations of income and expense items of Gables Operating
Partnership, which could affect the computation of our taxable income,
- the status of Gables Operating Partnership as a partnership as opposed to
an association taxable as a corporation for income tax purposes, and
- the taking of actions by Gables Operating Partnership that could adversely
affect our qualifications as a real estate investment trust.
In addition, Gables Operating Partnership owns 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 Gables Operating Partnership or any other partnership in which
Gables Operating Partnership has an interest were treated as an association
taxable as a corporation, we would fail to qualify as a real estate investment
trust for a number of reasons.
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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 Internal Revenue 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. Gables Operating Partnership was formed by way of
contributions of appreciated property, including some of the Communities or
interests therein. Consequently, Gables Operating Partnership's partnership
agreement requires tax allocations to be made in a manner consistent with
section 704(c) of the Internal Revenue Code. The Treasury regulations under
section 704(c) of the Internal Revenue 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
particular alternative methods. Gables 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 Gables
Operating Partnership could cause us (a) 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 (b) 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 Gables 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 real estate investment
trust distribution requirements, although we do not anticipate that this will
occur.
Interests in the Communities purchased by Gables Operating Partnership other
than in exchange for interests in Gables Operating Partnership simultaneously
with or subsequent to our admission to Gables Operating Partnership acquired an
initial tax basis equal to their fair market value. Thus, section 704(c) of the
Internal Revenue 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 Gables management
companies, through dividends on stock of the Gables management companies held by
Gables Operating Partnership and interest on the Contribution debt securities
held by Gables Operating Partnership. In general, the Gables management
companies conduct activities, such as property management for third parties,
that generate nonqualifying income for purposes of the real estate investment
trust income tests described above. The Gables management companies will not
qualify as real estate investment trusts 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 Gables management companies, but there can
be no assurance that this will be the case or that the Internal Revenue Service
will not challenge such deductions. Moreover, such deductions may not be
available for any additional Gables management companies, if any, established by
us. Any federal, state or local income taxes that the Gables 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 Gables
management company held by us and considerations of your investment cannot
exceed 5% of the value of our assets at a time
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when a holder of units in Gables Operating Partnership exercises his redemption
right or we otherwise are considered to acquire additional securities of a
Gables management company. See "Federal Income Tax Considerations and
Considerations of Your Investment--Requirements for qualification." This
limitation may restrict the ability of a Gables 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-UNITED STATES SHAREHOLDERS AND POTENTIAL TAX
CONSEQUENCES OF THEIR INVESTMENT IN THE SECURITIES
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
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-UNITED STATES 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-United States shareholders
that are not attributable to gain from sales or exchanges by us of United States
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-United States
shareholder's conduct of a United States trade or business, the non-United
States shareholder generally will be subject to federal income tax at graduated
rates, in the same manner as United States shareholders are taxed with respect
to such distributions and, in the case of a non-United States shareholder that
is a non-United States corporation, may also be subject to the 30% branch
profits tax. 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-United
States shareholder's shares of common shares or preferred shares, such
distributions will give rise to tax liability if the non-United States
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 real estate
investment trust, distributions that are attributable to gain from sales or
exchanges by us of United States real property interests will be taxed to a
non-United States shareholder under the provisions of the Foreign Investment in
Real Property Tax Act of 1980. Under the Real Property Tax Act, distributions
attributable to gain from sales of United States real property interests are
taxed to a non-United States shareholder as if such gain were effectively
connected with United States business. Non-United States shareholders thus would
be taxed at the normal capital gain rates applicable to United States
shareholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals.
Distributions subject to the Real Property Tax Act also may be subject to a 30%
branch profits tax in the hands of a non-United States 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-United States
shareholders, and remit to the Internal Revenue Service, (a) 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 (b) 30% of ordinary
dividends paid out of earnings and profits. In addition, if we
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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-United States shareholder exceeds the shareholder's United States tax
liability with respect to such distribution, the non-United States shareholder
may file for a refund of such excess from the Internal Revenue Service.
Furthermore, the United States Treasury Department has issued final Treasury
regulations governing information reporting and certification procedures
regarding withholding and backup withholding on certain amounts paid to
non-United States shareholders. These 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-UNITED STATES
SHAREHOLDER. Gain recognized by a non-United States shareholder upon a sale of
his common shares or preferred shares generally will not be taxed under the
Foreign Investment in Real Property Tax Act of 1980 if we are a "domestically
controlled real estate investment trust," defined generally as a real estate
investment trust 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-United
States persons. It is currently anticipated that we will be a "domestically
controlled real estate investment trust," and, therefore, sales of common shares
or preferred shares will not be subject to taxation under the Real Property Tax
Act. However, because the common shares and preferred shares will be traded
publicly, we may not continue to be a "domestically controlled real estate
investment trust." Furthermore, gain not subject to the Real Property Tax Act
will be taxable to a non-United States shareholder if (a) investment in the
common shares or preferred shares is effectively connected with the non-United
States shareholder's United States trade or business, in which case the
non-United States shareholder will be subject to the same treatment as United
States shareholders with respect to such gain, or (b) the non-United States
shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and 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
preferred shares were to be subject to taxation under the Real Property Tax Act,
the non-United States shareholder will be subject to the same treatment as
United States shareholders with respect to such gain. The non-United States
shareholder may, however, be 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-United States corporations. In addition, a purchaser of common shares or
preferred shares subject to taxation under the Real Property Tax Act would
generally be required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition by a non-United States shareholder. Any amount
withheld would be creditable against the non-United States shareholder's Foreign
Investment in Real Property Tax Act of 1980 tax liability. See "--Withholding
obligations from distributions to foreign shareholders" of this section for a
discussion of the 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.
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PLAN OF DISTRIBUTION
Gables Trust may sell preferred shares, common shares and warrants and
Gables 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. Any such
underwritten offering may be on a "best efforts" or a "firm commitment" basis.
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 the prices 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. The applicable prospectus supplement will,
where applicable:
- identify any such underwriter or agent,
- describe any compensation in the form of discounts, concessions,
commissions or otherwise received from us by each such underwriter or
agent and in the aggregate to all underwriters and agents,
- identify the amounts underwritten, and
- identify the nature of the underwriter's obligation to take the
securities.
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 New York Stock Exchange. Any common
shares sold pursuant to a prospectus supplement will be listed on the New York
Stock Exchange, 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
Securities and Exchange Commission 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 some 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.
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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 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 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 some 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
institutions to purchase the securities from us at the public offering price set
forth in such prospectus supplement pursuant to delayed delivery 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
particular institutions to purchase debt securities from Gables Operating
Partnership at the public offering price set forth in such prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on the
date or dates stated in such prospectus supplement. Each delayed delivery
contract will be for an amount no less than, and the aggregate principal amounts
of debt securities sold pursuant to delayed delivery 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 (a) 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 (b) if the debt securities are being sold to underwriters, Gables
Operating Partnership shall have sold to such underwriters the total principal
amount of the debt securities less the principal amount thereof covered by
Gables Operating Partnership Contracts. The
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underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
To comply with applicable state securities laws, the securities offered
hereby will be sold, if necessary, in such jurisdictions only through registered
or licensed brokers or dealers. In addition, securities may not be sold in some
states 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.
LEGAL MATTERS
Particular 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 this 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.
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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 Trust and Gables Operating Partnership... 9
Use of Proceeds................................. 11
Ratios of Earnings to Fixed Charges............. 11
Ratios of Earnings to Combined Fixed Charges and
Preferred Dividends........................... 11
Description of Debt Securities.................. 12
Description of Preferred Shares................. 26
Description of Common Shares.................... 32
Description of Warrants......................... 34
Limits on Ownership of Shares of Beneficial
Interest...................................... 35
Important Provisions of Maryland Law and Our
Declaration of Trust and Bylaws............... 37
Federal Income Tax Considerations and
Consequences of Your Investment............... 40
Plan of Distribution............................ 54
Legal Matters................................... 56
Experts......................................... 56
</TABLE>
$500,000,000
GABLES RESIDENTIAL TRUST
PREFERRED SHARES
COMMON SHARES
WARRANTS
$300,000,000
GABLES REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
---------------------
PROSPECTUS
---------------------
March , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Gables Trust and Gables 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
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---------
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Company's declaration of trust provides 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 particular 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 (1) the
Indemnitee's act or omission was committed in bad faith or was the result of
active or deliberate dishonesty, (2) the Indemnitee actually received an
improper personal benefit in money, property or services or (3) in the case of a
criminal proceeding, the Indemnitee had reasonable cause to believe that the
Indemnitee's act or omission was unlawful, (b) the proceeding was initiated by
the Indemnitee, (c) the Indemnitee received payment for such expenses pursuant
to insurance or otherwise or (d) the proceeding arises under Section 16 of the
Securities Exchange Act. 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 Maryland General
Corporation Law or to which the Indemnitee may be entitled. The bylaws of Gables
GP, Inc., a Texas corporation and wholly-owned subsidiary of the Company and the
general partner of Gables Operating Partnership, contain similar provisions that
are consistent with Texas law.
Each of the Company's officers and trustees has entered into an
indemnification agreement with the Company, Gables Operating Partnership and
Gables GP, Inc. The indemnification agreements require, among other matters,
that the Company, Gables Operating Partnership and Gables GP, Inc. indemnify the
Company's officers and trustees to the fullest extent permitted by law and
advance to the
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Company's officers and trustees all related expenses, subject to reimbursement
if it is subsequently determined that indemnification is not permitted. The
Company must also indemnify and advance all expenses incurred by Company's
officers and trustees seeking to enforce their rights under the indemnification
agreements and cover the Company's officers and trustees under the Company's
trustees' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by 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 Gables Trust (incorporated herein by reference to Gables
Trust's Registration Statement on Form S-11 (File No. 33-70570), as amended).
4.2 Articles Supplementary to Gables Trust'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 Gables Trust's Current
Report on Form 8-K dated July 24, 1997 (File No. 1-12590)).
4.3 Articles of Amendment to Gables Trust's Amended and Restated Declaration of Trust (incorporated herein by
reference to Gables Trust's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-12590)).
4.4 Articles Supplementary to Gables Trust'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 Gables Trust's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No. 1-12590)).
4.5 Articles Supplementary to Gables Trust'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 Gables
Trust's Current Report on Form 8-K dated November 12, 1998 (File No. 1-12590)).
4.6 Second Amended and Restated Bylaws of Gables Trust (incorporated herein by reference to Exhibit 3.1 to
Gables Trust's Registration Statement on Form 8-A/A-2 (File No. 1-12590)).
4.7 Fourth Amended and Restated Agreement of Limited Partnership of Gables Operating Partnership
(incorporated herein by reference to Exhibit 4.2 to Gables Trust'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 Gables Operating Partnership and First Union National Bank
(incorporated herein by reference to Exhibit 4.1 to Gables 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 Gables Operating Partnership and First Union
National Bank (incorporated herein by reference to Exhibit 4.2 to the Gables 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 Gables Operating Partnership and First
Union National Bank (incorporated herein by reference to Exhibit 4.2 to Gables Operating Partnership's
Report on Form 8-K dated October 5, 1998 (File No. 000-22683)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.11 Supplemental Indenture No. 3, dated October 5, 1998, between Gables Operating Partnership and First Union
National Bank (incorporated herein by reference to Exhibit 4.2 to Gables 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 Gables
Trust's and Gables 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 Gables Trust's and Gables 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 Gables Trust's and Gables Operating Partnership's Registration Statement on Form S-3
(File No. 333-30093)).
</TABLE>
- ------------------------
* Previously filed.
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 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;
(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
II-3
<PAGE>
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.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, PROVIDED, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information
necessary to ensure that all other information in the prospectus is at
least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on
Form S-3, a post-effective amendment need not be filed to include
financial statements and information required by Section 10(a)(3) of the
Act or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act that are incorporated by reference in the
Form S-3.
(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 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) 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.
(d) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report, to security holders that is incorporated
by reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act
of 1934; and, where interim financial information required to be presented
by Article 3 of Regulation S-X is not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial
information.
(e) 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
II-4
<PAGE>
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.
(f) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-5
<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 Pre-Effective
Amendment No. 2 to the Registration Statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia on this 10th day of March, 1999.
<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>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the 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>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board of
Trustees of the Company,
Chairman of the Board of
* Trustees of GGPI, Chief
- ------------------------------ Executive Officer of the March 10, 1999
Marcus E. Bromley Company and President of
GGPI (Principal
Executive Officer)
Chief Financial Officer of
/s/ MARVIN R. BANKS, JR. the Company and GGPI
- ------------------------------ (Principal Financial March 10, 1999
Marvin R. Banks, Jr. Officer and Principal
Accounting Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Chief
Operating Officer of the
* Company, Vice President
- ------------------------------ of GGPI, Trustee of the March 10, 1999
John T. Rippel Company and Director of
GGPI
*
- ------------------------------ Trustee of the Company and March 10, 1999
David M. Holland Director of GGPI
*
- ------------------------------ Trustee of the Company and March 10, 1999
Peter D. Linneman Director of GGPI
*
- ------------------------------ Trustee of the Company and March 10, 1999
Lauralee E. Martin Director of GGPI
*
- ------------------------------ Trustee of the Company and March 10, 1999
John W. Mcintyre Director of GGPI
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ MARVIN R. BANKS,
JR.
-------------------------
Marvin R. Banks, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
Exhibit 12.1
Gables Residential Trust
Ratio of earnings to fixed charges
Dollars in thousands
<TABLE>
<CAPTION>
Gables Residential Trust
GABLES RESIDENTIAL TRUST PREDECESSOR
Nine months
ended YEARS ENDED 12-31 1-26-94- 1-1-94- Year ended
9-30-98 1997 1996 1995 12-31-94 1-25-94 12-31-93
------------------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income before minority interest
and extraordinary items $ 23,768 $ 36,102 $ 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) 53,620 62,407 50,577 33,099 25,871 1,220 18,496
------------------------------------------------------ --------------------
Ratio (2 divided by 1) 1.49 1.97 1.83 1.40 1.83 0.89 1.22
------------------------------------------------------ --------------------
------------------------------------------------------ --------------------
Coverage deficiency (146)
</TABLE>
- 1 -
<PAGE>
Gables Residential Trust
Ratio of earnings to combined fixed charges and preferred dividends
Dollars in thousands
<TABLE>
<CAPTION>
Gables Residential Trust
GABLES RESIDENTIAL TRUST PREDECESSOR
Nine months
ended YEARS ENDED 12-31 1-26-94- 1-1-94- Year ended
9-30-98 1997 1996 1995 12-31-94 1-25-94 12-31-93
------------------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income before minority interest and
extraordinary items $ 23,768 $ 36,102 $ 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) 60,842 66,570 50,577 33,099 25,871 1,220 18,496
------------------------------------------------------ --------------------
Ratio (2 divided by 1) 1.40 1.86 1.83 1.40 1.83 0.89 1.22
------------------------------------------------------ --------------------
------------------------------------------------------ --------------------
Coverage deficiency (146)
</TABLE>
- 2 -
<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, our report
dated May 15, 1998 included in Gables Residential Trust's Current Report on
Form 8-K dated April 1, 1998, as amended, our report dated May 15, 1998
included in Gables Realty Limited Partnership's Current Report on Form 8-K
dated April 1, 1998, as amended, and to all references to our Firm included
in this registration statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 8, 1999
