<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 2000
Registration No. 333-________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
(Exact name of Registrant as specified in its charter)
Maryland 54-1681655
(State of Incorporation) (I.R.S. Employer
Identification No.)
2345 Crystal Drive
Crystal City, Arlington, Virginia 22202
(703) 920-8500
(Address, including zip code and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
Ernest A. Gerardi, Jr.
President and Chief Executive Officer
Charles E. Smith Residential Realty, Inc.
2345 Crystal Drive
Crystal City, Arlington, Virginia 22202
(703) 920-8500
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
J. Warren Gorrell, Jr., Esq.
Bruce W. Gilchrist, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
(202) 637-5600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after this Registration Statement becomes effective,
as determined by market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|.
------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
---------------------------- ----------------------- ------------------------- ------------------------- ------------------------
Proposed Maximum Proposed Maximum
Title of Shares Amount to be Aggregate Price Aggregate Amount of
to be Registered Registered Per Share (1) Offering Price (1) Registration Fee
---------------------------- ----------------------- ------------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share(2) 504,543 $39.844 $20,103,011.29 $5,307.19
---------------------------- ----------------------- ------------------------- ------------------------- ------------------------
</TABLE>
(1) stimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) based on the average of the high and low
reported sales prices on the New York Stock Exchange on June 13, 2000.
(2) Includes associated rights to purchase Series D Junior Participating
Preferred Stock.
------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 17, 2000
[GRAPHIC OMITTED]
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
504,543 SHARES OF COMMON STOCK
PROSPECTUS
The persons listed herein may offer and sell from time to time up
to 504,543 shares of our common stock under this prospectus. We refer
to these persons as the selling shareholders. Our registration of the
offered shares does not mean that any of the selling shareholders will
offer or sell any of the offered shares. We will receive no proceeds
of any sales of the offered shares by the selling shareholders.
The selling shareholders may sell the offered shares in public or
private transactions, on or off the New York Stock Exchange, at
prevailing prices or at privately negotiated prices. The selling
shareholders may sell the offered shares directly or through agents or
broker-dealers acting as principal or agent, or in a distribution by
underwriters.
Our common stock is listed on the New York Stock Exchange under
the trading symbol "SRW."
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 IN THIS
PROSPECTUS FOR FACTORS THAT ARE RELEVANT TO AN INVESTMENT IN THE
COMMON STOCK.
------------------------------
The information contained in this prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement relating to these securities has been declared
effective by the Securities and Exchange Commission. This prospectus
is neither an offer to sell nor a solicitation of an offer to buy
these securities in any state where the offer or sale is unlawful.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
JULY __, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PROSPECTUS SUMMARY................................................................. 1
Forward-Looking Information.................................................... 1
The Company.................................................................... 1
Recent Developments............................................................ 2
The Offered Shares............................................................. 2
Important Risks in Owning Our Common Stock..................................... 2
Tax Status of the Company...................................................... 2
RISK FACTORS....................................................................... 3
Some of Our Policies May Be Changed Without a Vote of Shareholders............. 3
Provisions of Our Charter Could Inhibit Changes of Control..................... 3
Our Ability to Issue Preferred Shares Could Inhibit Changes of Control......... 3
Maryland Law Limits Changes of Control......................................... 3
We Have Adopted a Shareholder Rights Plan Which Could Delay or Prevent
a Change of Control ......................................................... 4
We Have a Share Ownership Limit................................................ 4
The Large Number of Shares Available for Future Sale Could Adversely Affect the
Market Price of Our Common Stock ............................................ 4
Changes in Market Conditions Could Adversely Affect the Market Price of Our
Common Stock ................................................................ 4
Our Earnings and Cash Distributions Will Affect the Market Price of Our Common
Stock ....................................................................... 4
Market Interest Rates and Low Trading Volume May Have an Effect on the Value of
Our Common Stock ............................................................ 5
We Believe, but Cannot Guarantee, that We Qualify as a REIT.................... 5
Our Failure to Qualify as a REIT Would Have Serious Adverse Consequences....... 5
We May Need to Borrow Money to Qualify as a REIT............................... 6
We Are Subject To Some Taxes Even If We Qualify as a REIT...................... 6
Holders Will be Subject to the Operational Risks of Our Business............... 6
DESCRIPTION OF CAPITAL STOCK....................................................... 7
General Rights of Common Stock................................................. 7
Preferred Shares............................................................... 7
Classification and Removal of Board of Directors;
Other Provisions........................................................... 9
Special Statutory Requirements for Certain Transactions........................ 10
Restrictions on Transfer; Excess Stock......................................... 11
Transfer Agent and Registrar................................................... 13
REGISTRATION RIGHTS................................................................ 13
SELLING SHAREHOLDERS............................................................... 13
FEDERAL INCOME TAX CONSIDERATIONS.................................................. 15
General........................................................................ 15
Our Tax Treatment.............................................................. 15
Requirements for Qualification As a REIT....................................... 16
Tax Aspects of Our Investments in Smith L.P. and Property Service Businesses... 20
Taxation of Shareholders....................................................... 21
Other Tax Considerations....................................................... 26
PLAN OF DISTRIBUTION............................................................... 27
WHERE YOU CAN FIND MORE INFORMATION................................................ 28
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................... 28
EXPERTS............................................................................ 29
LEGAL MATTERS...................................................................... 29
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU. TO UNDERSTAND THIS COMMON STOCK OFFERING, YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND FEDERAL INCOME TAX
CONSIDERATIONS.
FORWARD-LOOKING INFORMATION
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. WHENEVER YOU SEE THE WORDS "BELIEVES," "ANTICIPATES," AND
"EXPECTS" AND SIMILAR WORDS INDICATING UNCERTAINTY, YOU SHOULD REMEMBER THAT THE
STATEMENTS ARE ASSUMPTIONS. THESE ASSUMPTIONS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL FINANCIAL RESULTS OR MANAGEMENT PLANS AND
OBJECTIVES TO DIFFER MATERIALLY FROM THOSE PROJECTED OR EXPRESSED IN THIS
PROSPECTUS. FOR EXAMPLE, SUCH DIFFERENCES MAY OCCUR BECAUSE OF CHANGES IN:
- NATIONAL AND REGIONAL ECONOMIC CONDITIONS (ESPECIALLY IN MULTIFAMILY
PROPERTY OCCUPANCIES AND RENTAL GROWTH IN THE WASHINGTON, D.C. METROPOLITAN
AREA);
- OUR ABILITY TO IDENTIFY AND SECURE ADDITIONAL PROPERTIES AND PROPERTY
LOCATIONS;
- THE EFFECT OF PREVAILING MARKET INTEREST RATES AND THE PRICING OF OUR
COMMON STOCK;
- THE ACCEPTANCE OF OUR FINANCING PLANS BY THE CAPITAL MARKETS; AND
- OTHER RISKS WHICH MAY HAVE BEEN OR WILL BE DISCUSSED IN THIS PROSPECTUS OR
IN OUR OTHER FILINGS WITH THE SEC.
WE RECOMMEND THAT YOU CONSIDER CAREFULLY THE RISKS OF SUCH ASSUMPTIONS BEFORE
MAKING ANY INVESTMENT IN OUR COMMON STOCK.
WE ARE NOT OBLIGATED TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS IN THIS PROSPECTUS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
THE COMPANY
As a self-managed equity REIT, we acquire, develop, manage and operate
multifamily properties primarily in the Washington, D.C., Chicago, Boston, and
southeastern Florida metropolitan areas. We are a fully integrated real estate
organization with in-house acquisition, development, financing, marketing,
property management and leasing expertise. Our primary strategy for growth is to
acquire, develop, own and manage high quality multifamily properties to generate
long-term income and increases in value.
We are the sole general partner of Smith L.P. As of June 30, 2000, we owned
approximately 66% of its outstanding common and preferred units. Smith L.P. and
its subsidiaries own all of our properties, property interests and business
assets.
As of June 30, 2000, we owned, through Smith L.P. and its subsidiaries, 53
operating multifamily apartment communities with a total of 25,336 units. 41 of
the properties were located in the Washington, D.C. metropolitan area, two in
the Boston metropolitan area, seven in the Chicago metropolitan area and three
in the southeast Florida area. We also had approximately 951 units under
construction and we owned substantially all of the economic interest in one
property under construction totaling 226 units. In addition, we had partial
interests in three operating multifamily properties totaling 1,267 apartment
units and one property under construction totaling 630 apartment units. Besides
our residential properties, we own one retail center in the Washington, D.C.
metropolitan area with approximately 205,000 square feet of retail space.
Our principal executive offices are located at 2345 Crystal Drive,
Arlington, Virginia 22202, and our telephone number is (703) 920-8500.
<PAGE>
THE OFFERED SHARES
This prospectus relates to 504,543 shares of our common stock that may be
sold by the selling shareholders.
IMPORTANT RISKS IN OWNING OUR COMMON STOCK
Before you decide to invest in our common stock, you should read the "Risk
Factors" section, which begins on page 3 of this prospectus.
TAX STATUS OF THE COMPANY
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code. We believe that we qualify for taxation as a REIT and
generally will not be subject to federal income tax on net income that we
distribute to our shareholders. We currently are required, among other things,
to distribute at least 95% of our net taxable income, excluding any net capital
gain. For our taxable years beginning after December 31, 2000, this requirement
will be relaxed but we still will be required to distribute 90% of this amount.
Even if we qualify to be taxed as a REIT, we are subject to certain federal,
state and local taxes on our income and property and to federal income and
excise tax on the income we do not distribute. In addition, the operating
companies in which we own 99% non-voting interests are subject to federal, state
and local income taxes. See "Federal Income Tax Considerations" for a more
detailed explanation.
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS.
SOME OF OUR POLICIES MAY BE CHANGED WITHOUT A VOTE OF SHAREHOLDERS. Our
Board of Directors establishes many of our major policies, including those
relating to investment, financing, growth, acquisitions, development, debt
capitalization and distributions. Although the Board of Directors currently has
no intention to amend or revise these and other policies, it may do so from time
to time without a vote of our shareholders. In order to change our policy of
seeking to maintain our REIT qualification status, however, we must have the
approval of our shareholders. Changes in our policies may not fully serve the
interests of all shareholders.
PROVISIONS OF OUR CHARTER COULD INHIBIT CHANGES OF CONTROL. There are
provisions of our charter that may delay or otherwise limit the ability of
outside parties to acquire control of us or engage in some other transaction.
These charter provisions include three-year staggered terms for directors, the
authority of the Board of Directors to classify capital stock into one or more
series having special preferences without shareholder approval, and a 9.8% share
ownership limit. See "-- We Have a Share Ownership Limit" below. These
limitations could prevent us from entering into a change of control transaction
or other transaction that could be in the best interests of our shareholders.
In addition, we cannot merge, consolidate or engage in any combination with
another person or sell all or substantially all of our assets unless the
transaction includes a merger of, or a sale of assets by, Smith L.P., which may
require approval of the holders of a majority of the units. We currently hold
approximately 66% of the common and preferred units in Smith L.P. This voting
requirement might limit the possibility for acquisition or change in control,
even if a change in control were in our shareholders' interest. In this regard,
the holders of units might incur different, and more adverse, tax consequences
as a result of an acquisition or change in control that could motivate them to
oppose a transaction that is in the shareholders' interest.
OUR ABILITY TO ISSUE PREFERRED SHARES COULD INHIBIT CHANGES OF CONTROL. Our
charter authorizes the Board of Directors to issue preferred shares and to
establish the preferences and rights of any preferred shares issued, including
the right to vote and the right to convert them into shares of common stock.
This power to issue preferred shares could have the effect of delaying or
preventing a change in control even if a change in control were in our
shareholders' interest. As of June 30, 2000, we had outstanding six series of
preferred shares. The preferred shares outstanding rank senior to the common
stock with respect to dividend rights and distributions upon liquidation,
dissolution and winding up. We are subject to the risks normally associated with
preferred equity financing, including the risk that our cash flow will be
insufficient to meet the required payments on the shares.
MARYLAND LAW LIMITS CHANGES OF CONTROL. Provisions of Maryland corporate
law prohibit "business combinations," including issuances of equity securities,
between a Maryland corporation and any person who owns 10% or more of the voting
power of the corporation's shares of capital stock, or an "interested
stockholder," unless the transaction is approved by 80% of the corporation's
outstanding voting shares. In addition, an interested stockholder may not engage
in a business combination for five years following the date he became an
interested stockholder. Except as described below, we are subject to these
provisions. As a result, a change in control or other transaction that may
provide our shareholders with a premium or which might otherwise be in their
best interests may be prevented or delayed.
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<PAGE>
Our charter, as is permitted by Maryland corporate law, exempts any
business combination involving Messrs. Smith and Kogod and persons affiliated or
acting in concert with them. Consequently, Messrs. Smith and Kogod and their
affiliates are permitted to enter into business combinations with us without the
supermajority shareholder approval otherwise required by Maryland law.
WE HAVE ADOPTED A SHAREHOLDER RIGHTS PLAN WHICH COULD DELAY OR PREVENT A
CHANGE OF CONTROL. Our rights plan provides, among other things, that if a
person or group attempts to acquire 15% or more of our common stock on terms not
approved by our Board of Directors, shareholders will be entitled to purchase
shares of our stock, subject to our charter's ownership limit. These purchase
rights would cause substantial dilution to a person or group that acquires or
attempts to acquire 15% or more of our common stock in this manner and, as a
result, could delay or prevent a change in control or other transaction that
could provide our shareholders with a premium over the then-prevailing market
price of their shares or which might otherwise be in their best interests.
WE HAVE A SHARE OWNERSHIP LIMIT. Primarily to assist us in maintaining our
REIT qualification, our charter limits ownership of the issued and outstanding
shares of capital stock by any single shareholder to 9.8% of our outstanding
capital stock. The attribution provisions of the federal tax laws that are used
in applying the ownership limit are complex. They may cause a shareholder to be
considered to own the stock of a number of related shareholders. The ownership
limit could inhibit changes of control.
THE LARGE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK. As of June 30, 2000, we had outstanding
approximately 21.3 million shares of common stock tradable without restriction
and had reserved for resale 15.4 million additional shares of common stock for
possible issuance upon redemption of units and 6.8 million shares for possible
issuance upon conversion of outstanding preferred stock. In addition, we have
reserved a number of shares available for possible issuance under our employee
benefit plans filed with the SEC. We may issue additional shares of common stock
and securities convertible into shares of common stock in the future. We cannot
predict the effect that future sales of shares of common stock, or the
perception that such sales could occur, will have on the market prices of our
shares.
CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
COMMON STOCK. As with other publicly traded securities, the value of our common
stock depends on various market conditions, which may change from time to time.
Among the market conditions that may affect the value of our common stock are:
- the extent of institutional investor interest in us;
- the reputation of REITs and residential REITs generally;
- the attractiveness of our equity securities in comparison to other
equity securities, including equity securities issued by other real
estate companies; and
- our financial condition and performance.
OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
COMMON STOCK. We believe that the market value of a REIT's equity securities is
based primarily upon the market's perception of the REIT's growth potential and
its current and potential future cash distributions, and is secondarily based
upon the real estate market value of the underlying assets. For that reason, our
shares may trade at prices that are higher or lower than the net asset value per
share. To the extent we retain operating cash flow for investment purposes,
working capital reserves or other purposes, these retained funds, while
increasing the value of our underlying assets, may not correspondingly increase
the market price of our shares. In addition, we are subject to the risk that
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<PAGE>
our cash flow will be insufficient to meet the required payments on our
preferred shares. Our failure to meet the market's expectations with regard to
future earnings and cash distributions would likely adversely affect the market
price of our shares.
MARKET INTEREST RATES AND LOW TRADING VOLUME MAY HAVE AN EFFECT ON THE
VALUE OF OUR COMMON STOCK. One of the factors that investors consider important
in deciding whether to buy or sell shares of a REIT is the distribution rate on
those shares, as a percentage of the price of the shares, relative to market
interest rates. If market interest rates increase, prospective purchasers of our
shares may expect a higher annual distribution rate. Higher interest rates would
not, however, result in more funds for us to distribute and, in fact, would
likely increase our borrowing costs and potentially decrease funds available for
distribution. This could cause the market price of our common stock to go down.
In addition, although our common stock is listed on the New York Stock Exchange,
the daily trading volume of our shares may be lower than the trading volume for
certain other industries. As a result, our investors who desire to liquidate
substantial holdings may find that they are unable to dispose of their shares in
the market without causing a substantial decline in the market value of the
shares.
WE BELIEVE, BUT CANNOT GUARANTEE, THAT WE QUALIFY AS A REIT. We believe we
qualify as a REIT and generally will not be subject to federal income tax on net
income that we distribute to our shareholders. However, our qualification as a
REIT involves the application of technical and complex tax rules. For instance,
if we own a company's securities, we cannot qualify as a REIT unless the value
of those securities does not exceed 5% of the total value of our assets. We
believe that we meet this requirement, but this belief is based on our analysis
of the value of each of the corporations that conduct our property service
businesses and on our conclusion that each of these corporations will be
respected as a separate corporation. Also, to qualify as a REIT, we cannot own
more than 10% of a company's voting securities. We also believe that we meet
this requirement, but this belief is based on our conclusion that the shares of
stock that we own in each of the property service businesses are not voting
securities. We cannot guarantee that the IRS will agree with us on these points.
Furthermore, for our taxable years beginning after December 31, 2000, we will be
precluded from owning more than 10% of the value of a company's securities
unless the company elects to be a taxable REIT subsidiary. The securities of the
property service businesses might be excepted from this rule. If they are not,
however, then these corporations would have to make the taxable REIT subsidiary
election because we hold more than 10% of the value of the securities of each of
them. At least two of our subsidiaries will make the taxable REIT subsidiary
election because they will not be excepted from the 10% value test, but we have
not yet made a determination as to the others.
Moreover, our ability to qualify as a REIT may depend on facts and
circumstances that may not be within our control. Even a technical or
inadvertent mistake could jeopardize our REIT status. Furthermore, it is
possible that new tax laws or new interpretations of existing tax laws will
affect both our ability to qualify as a REIT and the tax consequences of REIT
qualification. For example, the asset tests described above will be modified for
our taxable years beginning after December 31, 2000. We believe we will satisfy
the modified tests but we will need to change the tax status of one or more of
our subsidiaries to do so. For all of these reasons, we cannot guarantee that we
currently qualify or will be able to remain qualified as a REIT.
OUR FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE CONSEQUENCES.
If we fail to qualify as a REIT, we will be subject to federal income tax at
regular corporate rates. This additional tax would significantly reduce the cash
we would have available to distribute to our shareholders and could reduce
significantly the value of our common stock. In addition, if we fail to qualify
as a REIT, we may be disqualified from electing to be treated as a REIT for the
next four taxable years.
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<PAGE>
WE MAY NEED TO BORROW MONEY TO QUALIFY AS A REIT. To obtain the favorable
tax treatment associated with REITs, we currently are required each year to
distribute to our shareholders at least 95% of our net taxable income, excluding
net capital gain. For our taxable years beginning after December 31, 2000, this
requirement will be relaxed but we still will be required to distribute 90% of
our net taxable income, excluding net capital gain. Differences in timing
between when we receive income and when we have to pay expenses could require us
to borrow money to meet this requirement. The impact of large expenses also
could have this effect. We might need to borrow money even if we believe that
market conditions are not favorable for borrowing.
WE ARE SUBJECT TO SOME TAXES EVEN IF WE QUALIFY AS A REIT. Even if we
qualify as a REIT, we are subject to some federal, state and local taxes on our
income and property. For example, we pay tax on certain types of income that we
do not distribute. Also, our income derived from properties located in the
District of Columbia is subject to local tax and our net income from some
prohibited transactions will be subject to a 100% tax. In addition, we derive
income from the property service businesses, whose income is subject to federal,
state and local income tax. It should be noted that the property service
businesses currently take steps to limit their tax liability. If any one of
these corporations is required to elect to be treated as a taxable REIT
subsidiary, its ability to limit its tax liability will be reduced.
HOLDERS WILL BE SUBJECT TO THE OPERATIONAL RISKS OF OUR BUSINESS. An
investment in our common stock will be subject to the various operational risks
of our business. These risks include the following:
- Our performance and ability to make distributions to our shareholders
are subject to risks associated with the real estate industry. In
particular --
- We are dependent on the Washington, D.C. metropolitan area
market.
- We may be unable to renew leases or relet space as leases expire.
- New acquisitions may fail to perform as expected.
- Because real estate investments are illiquid and we are subject
to other restrictions, we may not be able to sell properties when
appropriate.
- Our properties may be subject to federal, state or local
regulations that could adversely affect distributions to our
shareholders.
- Environmental problems are possible and can be costly.
- Our properties in the District of Columbia are subject to special
tenants rights that may impede our sale of those properties.
- Some potential losses are not covered by insurance.
- Debt financing, financial covenants, the amount or percentage of our
debt and increases in interest rates could adversely affect our
economic performance for the following reasons, among others --
- Our charter does not limit the amount or percentage of debt that
we may incur and this amount or percentage of debt may limit our
ability to obtain additional financing.
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<PAGE>
- Our policy to limit debt may not ensure that we can incur and
continue to make expected distributions to shareholders.
- We may not be able to refinance our debt on favorable terms or
make large payments on debt when our debts become due.
- Rising interest rates could adversely affect our cash flow.
- Our reliance on the property service businesses, where we lack voting
control, may adversely affect our shareholders. These property
services businesses, which provide management, leasing, financing,
insurance, engineering and technical services, and tenant construction
and renovation services, are conducted by three operating companies in
which Smith L.P. has a 99% economic interest but does not own voting
stock.
- We are dependent on our key personnel with whom we do not have
employment agreements and for whom we do not have "key-person" life
insurance.
DESCRIPTION OF CAPITAL STOCK
As of June 30, 2000, our authorized capital stock was 145,000,000 shares.
Those shares consisted of: (a) 80,000,000 shares of common stock, (b) 45,000,000
shares of excess stock, (c) 8,123,095 shares of classified preferred stock, (d)
10,807,376 shares of undesignated preferred stock and (e) 1,069,529 shares which
are not classified. Our charter gives the Board of Directors the authority to
issue, without a shareholder vote, shares of capital stock in one or more series
and to determine the rights of each series, including preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. Such terms are fully
described in the articles supplementary to the charter adopted by the Board of
Directors.
The following description of the terms and provisions of our shares of
capital stock and certain other matters is not complete. The description is
qualified by the applicable provisions of Maryland law and our charter, which is
on file with the SEC as an exhibit to the registration statement of which this
prospectus is a part.
GENERAL RIGHTS OF COMMON STOCK
Each holder of common stock is entitled to one vote at shareholder meetings
for each share of common stock he owns. Neither our charter nor our bylaws
provide for cumulative voting for the election of directors. Subject to the
prior rights of any series of preferred stock that may be classified and issued,
holders of our common stock are entitled to receive, pro-rata, any dividends
declared by the Board of Directors out of legally available funds, and are also
entitled to share, pro-rata, in any other distributions to shareholders. We pay
quarterly dividends on our common stock and expect to continue to do so. We
depend upon distributions from Smith L.P. to fund our dividends to shareholders.
Holders of common stock do not have any preemptive rights or other rights
to subscribe for additional shares.
PREFERRED SHARES
As of June 30, 2000, we had six series of preferred stock outstanding. Each
series of outstanding preferred stock ranks senior to the common stock with
respect to dividend rights and
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<PAGE>
distributions upon our liquidation, dissolution and winding up. The following
are the principal terms of each series of outstanding preferred stock:
- SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK: There are
2,640,325 Series A Preferred Shares outstanding. The Series A
Preferred Shares have a liquidation preference of $27.08 per share.
Dividends on the Series A Preferred Shares are cumulative from the
date of original issue and are payable quarterly at the greater of the
rate declared on the common stock or an annual rate of $2.02 per
share. We cannot redeem the Series A Preferred Shares prior to May 15,
2003. On or after May 15, 2003, we, at our option, may redeem the
Series A Preferred Shares for cash at a price of $27.08 per share,
plus accrued and unpaid dividends. Under certain circumstances, we may
elect to redeem the Series A Preferred Shares with common stock at the
then market price of the common stock. A holder of Series A Preferred
Shares may convert the Series A Preferred Shares into shares of common
stock on a one-for-one basis, subject to certain limitations.
- SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK: There are 500 Series C
Preferred Shares outstanding. The Series C Preferred Shares have a
liquidation preference of $100,000 per share and an initial annual
dividend of $7,910 per share (7.91% of purchase price). If the
securities receive an investment grade rating, the dividend will
decrease to $7,660 per share. Dividends are cumulative and are payable
quarterly. We may redeem Series C Preferred Shares after February 1,
2028, at the liquidation preference plus accrued dividends.
- SERIES E CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK: There are
684,931 Series E Preferred Shares outstanding. The Series E Preferred
Shares have a liquidation preference of $36.50 per share. Dividends on
the Series E Preferred Shares are cumulative from the date of original
issue (July 13, 1999) and are payable quarterly at the greater of the
rate declared on the common stock or an annual rate of $2.82875 per
share for the first year (beginning from the original issue date up to
and including the first anniversary of the original issue date),
$3.01125 for the second year after the original issue date and $3.1025
for the third year after the original issue date. We cannot redeem the
Series E Preferred Shares prior to July 13, 2002. On or after July 13,
2002, we, at our option, may redeem the Series E Preferred Shares for
cash at a price of $36.50 per share, plus accrued and unpaid
dividends. Under certain circumstances, the Company may elect to make
such redemption with common stock at the then market price of the
common stock. A holder of Series E Preferred Shares may convert the
Series E Preferred Shares into shares of common stock on a one-for-one
basis, subject to certain limitations.
- SERIES F CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK: There are
666,667 Series F Preferred Shares outstanding. The Series F Preferred
Shares have a liquidation preference of $37.50 per share. Dividends on
the Series F Preferred Shares are cumulative from the date of original
issue (October 1, 1999) and are payable quarterly at the greater of
the rate declared on the common stock or an annual rate of $2.90625
per share for the first year (beginning from the original issue date
up to and including the first anniversary of the original issue date),
$3.09375 for the second year after the original issue date and $3.1875
for the third year after the original issue date. We cannot redeem the
Series F Preferred Shares prior to October 1, 2004. On or after
October 1, 2004, we, at our option, may redeem the Series F Preferred
Shares for cash at a price of $37.50 per share, plus accrued and
unpaid dividends. Under certain circumstances, the Company may elect
to make such redemption with common stock at the then market price of
the common stock. A holder of Series F Preferred Shares may convert
the Series
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F Preferred Shares into shares of common stock on a one-for-one basis,
subject to certain limitations.
- SERIES G CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK: There are
641,026 Series G Preferred Shares outstanding. The Series G Preferred
Shares have a liquidation preference of $39.00 per share. Dividends on
the Series G Preferred Shares are cumulative from the date of original
issue (November 5, 1999) and are payable quarterly at the greater of
the rate declared on the common stock or an annual rate of $3.0225 per
share for the first year (beginning from the original issue date up to
and including the first anniversary of the original issue date),
$3.2175 for the second year after the original issue date and $3.315
for the third year after the original issue date. We cannot redeem the
Series G Preferred Shares prior to November 5, 2005. On or after
November 5, 2005, we, at our option, may redeem the Series G Preferred
Shares for cash at a price of $39.00 per share, plus accrued and
unpaid dividends. Under certain circumstances, the Company may elect
to make such redemption with common stock at the then market price of
the common stock. A holder of Series G Preferred Shares may convert
the Series G Preferred Shares into shares of common stock on a
one-for-one basis, subject to certain limitations.
- SERIES H CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK: There are
2,200,000 Series H Preferred Shares outstanding. The Series H
Preferred Shares have a liquidation preference of $25.00 per share.
Dividends on the Series H Preferred Shares are cumulative from the
date of original issue (September 13, 1999) and are payable quarterly
at the greater of the rate declared on the common stock or an annual
rate of $2.03125 per share. We cannot redeem the Series H Preferred
Shares prior to September 13, 2004. On or after September 13, 2004,
we, at our option, may redeem the Series H Preferred Shares for cash
at a price of $25.00 per share, plus accrued and unpaid dividends.
Under certain circumstances, the Company may elect to make such
redemption with common stock at the then market price of the common
stock. A holder of Series H Preferred Shares may convert the Series H
Preferred Shares into shares of common stock at a conversion rate of
approximately 0.65 shares of common stock per Series H Preferred
Share, subject to certain limitations.
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS; OTHER PROVISIONS
Our charter divides the Board of Directors into three classes, with each
class to consist of an equal number of the directors or to the nearest extent
possible. The terms of office of one class of directors (2 directors) will
expire at the 2001 annual meeting of shareholders; the term of the second class
of directors (2 directors) will expire at the 2002 annual meeting of
shareholders; and the term of the third class of directors (3 directors) will
expire at the 2003 annual meeting of shareholders. At each annual meeting of
shareholders, the class of directors to be elected at such meeting will be
elected for a three year term, and the directors in the other two classes will
continue in office. Because holders of common stock have no right to cumulative
voting for the election of directors, at each annual meeting of shareholders,
the holders of a majority of the shares of common stock will be able to elect
all of the successors of the class of directors whose term expires at that
meeting.
Our charter also provides that, except for any directors who may be elected
by holders of a class or series of capital stock other than common stock,
directors may be removed only for cause and only by the affirmative vote of
shareholders holding at least 80% of all the votes entitled to be cast for the
election of directors. Vacancies on the Board of Directors may be filled by the
affirmative vote of the remaining directors and, in the case of a vacancy
resulting from the removal of a director, by the shareholders by a majority of
the votes entitled to be cast for the election of directors. A vote of
shareholders holding at least 80% of all the votes entitled to be cast thereon
is required to amend,
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alter, change, repeal or adopt any provisions inconsistent with the foregoing
classified board and director removal provisions. Under our charter, the power
to amend our bylaws is vested exclusively in the Board of Directors, and the
shareholders will not have any power to adopt, alter or repeal the bylaws absent
amendment to our charter. These provisions may make it more difficult and time
consuming to change majority control of our Board of Directors and, thus, reduce
our vulnerability to an unsolicited proposal for a takeover or the removal of
incumbent management.
Because the Board of Directors has the power to establish the preferences
and rights of additional series of capital stock without further shareholder
vote, the Board of Directors may give the holders of any series of capital stock
preferences, powers and rights, voting or otherwise, senior to those of holders
of common stock. The issuance of any such senior capital stock could have the
effect of delaying or preventing a change in control of the Company.
SPECIAL STATUTORY REQUIREMENTS FOR CERTAIN TRANSACTIONS
BUSINESS COMBINATION STATUTE. The MGCL establishes special requirements
with respect to "business combinations" between Maryland corporations and
"Interested Shareholders" unless exemptions are applicable. Among other things,
the law prohibits for a period of five years a merger and other specified or
similar transactions between a Company and an Interested Shareholder and
requires a supermajority vote for such transactions after the end of the
five-year period.
"Interested Shareholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of the Maryland
corporation. "Business Combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to Interested Shareholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an Interested Shareholder
or its affiliates for a period of five years after the date on which the
shareholder first became an Interested Shareholder. Thereafter, the transaction
may not be consummated unless recommended by the board of directors and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding shares of voting stock and 66-2/3% of the votes entitled
to be cast by all holders of outstanding shares of voting stock 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 shares of voting stock and 66-2/3% of
the votes entitled to be cast by holders of outstanding shares of voting stock
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.
As permitted by Maryland law, we have exempted from the Maryland business
corporation statute any Business Combination with Messrs. Smith or Kogod, and
all persons, firms and corporations affiliated with, or acting in concert or as
a group with, either of them, as well as any Business Combination that involves
the redemption of Units for shares of common stock.
CONTROL SHARE ACQUISITION STATUTE. Maryland law imposes limitations on the
voting rights in a "control share acquisition." The Maryland statute defines a
"control share acquisition" at the 20%, 33-1/3% and 50% acquisition levels, and
requires a 2/3 shareholder vote (excluding shares owned by the acquiring person
and certain members of management) to accord voting rights to stock acquired in
a control share acquisition. The statute also requires Maryland corporations to
hold a special meeting at the request of an actual or proposed control share
acquirer generally within 50 days after a request is made with the submission of
an "acquiring person statement," but only if the
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acquiring person (a) posts a bond for the cost of a meeting and (b) submits a
definitive financing agreement to the extent that financing is not provided by
the acquiring person. In addition, unless the charter or by-laws provide
otherwise, the statute gives the Maryland corporation, within certain time
limitations, various redemption rights if there is a shareholder vote on the
issue and the grant of voting rights is not approved, or if an acquiring person
statement is not delivered to the target within 10 days following a control
share acquisition. Moreover, unless the charter or by-laws provide otherwise,
the statute provides that if, before a control share acquisition occurs, voting
rights are accorded to control shares that result in the acquiring person having
majority voting power, then minority shareholders have appraisal rights. An
acquisition of shares may be exempted from the control share statute, provided
that a charter or bylaw provision is adopted for such purpose prior to the
control share acquisition. Our charter provides that any acquisition of our
shares of capital stock that is not prohibited by the terms of the restrictions
on transfer described below under "--Restrictions on Transfer; Excess Stock" is
exempted from the provisions of the control share acquisition statute.
RESTRICTIONS ON TRANSFER; EXCESS STOCK
OWNERSHIP LIMITS. Our charter restricts the number of shares of capital
stock that individual shareholders may own. For us to qualify as a REIT under
the Code, no more than 50% in value of our outstanding shares of capital stock
may be owned, directly or constructively under the applicable attribution rules
of the Code, by five or fewer individuals (which is defined in the Code to
include certain entities) during the last half of a taxable year. In addition,
the capital stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year or during a proportionate part of a shorter
taxable year (together with the restriction referred to in the preceding
sentence, the "Existing Holder Limit"). Our charter restricts certain
acquisitions of capital stock, including common stock, in order to comply with
these requirements. These restrictions are also intended to inhibit changes of
control of the Company.
Subject to certain exceptions specified in our charter, no holder may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.8% (the "Ownership Limit") in number or value of the issued and
outstanding shares of common stock. The Board of Directors in its discretion may
waive the Ownership Limit or the Existing Holder Limit with respect to a holder
that is an entity (but not an individual) if such holder's ownership will not
then or in the future jeopardize our status as a REIT.
Messrs. Smith and Kogod, members of their families and entities that they
control are subject to the Ownership Limit, and they also are subject to certain
additional special ownership limitations. Messrs. Smith and Kogod, members of
their families and entities that they control are prohibited from acquiring
additional shares of common stock (or rights to acquire shares), if, as a result
of, and giving effect to, such acquisition, any tenant would be regarded as a
related party tenant for purposes of Section 856(b)(2)(B) of the Code (see
"Federal Income Tax Considerations -- Requirements for Qualification -- Gross
Income Tests") and we would be considered to receive more than 0.5% of our gross
annual revenue from Related Party Tenants.
Notwithstanding any of the foregoing ownership limits, no holder may own or
acquire, either directly or constructively under the applicable attribution
rules of the Code, any shares of any class of our stock if such ownership or
acquisition (1) would cause more than 50% in value our outstanding stock to be
owned, either directly or constructively under the applicable attribution rules
of the Code, by five or fewer individuals (as defined in the Code to include
certain tax-exempt entities, other than, in general, qualified domestic pension
funds), (2) would result in our stock being beneficially owned by less than 100
persons (determined without reference to any rules of attribution), or (3) would
otherwise result in our failing to qualify as a REIT.
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If any shareholder purports to transfer shares to a person and either the
transfer would result in our failing to qualify as a REIT, or such transfer
would cause the transferee to hold shares in excess of the Ownership Limit or
Existing Holder Limit, the purported transfer will be null and void. In that
event, the intended transferee will acquire no rights or economic interest in
the shares, and the shareholder will be deemed to have transferred the shares of
common stock to us in exchange for shares of Excess Stock, which will be deemed
to be held by us as trustee of a trust for the exclusive benefit of the person
or persons to whom the shares can be transferred without violating the ownership
limit. In addition, if any person owns, either directly or constructively under
the applicable attribution rules of the Code, shares of capital stock in excess
of the applicable Ownership Limit, such person will be deemed to have exchanged
the shares of capital stock that cause the Ownership Limit to be exceeded for an
equal number of shares of Excess Stock, which will be deemed to be held by us as
trustee of a trust for the exclusive benefit of the person or persons to whom
the share can be transferred without violating the Ownership Limit.
A person who holds or transfers shares such that shares of capital stock
shall have been deemed to be exchanged for Excess Stock will not be entitled to
vote the Excess Stock and will not be entitled to receive any dividends or
distributions (any dividend or distribution paid on shares of capital stock
prior to our discovery that such shares have been exchanged for Excess Stock
shall be repaid to us upon demand, and any dividend or distribution declared but
unpaid shall be rescinded). Such person shall have the right to designate a
transferee of such Excess Stock so long as consideration received for
designating such transferee does not exceed a price that is equal to the lesser
of (1) in the case of a deemed exchange for Excess Stock resulting from a
transfer, the price paid for the shares in such transfer or, in the case of a
deemed exchange for Excess Stock resulting from some other event, the fair
market value, on the date of the deemed exchange, of the shares deemed
exchanged, and (2) the fair market value of the shares for which such Excess
Stock will be deemed to be exchanged on the date of the designation of the
transferee. For these purposes, fair market value on a given date is determined
by reference to the average closing price for the five preceding days. The
shares of Excess Stock so transferred will automatically be deemed to be
exchanged for shares of capital stock. We may purchase Excess Stock for the
lesser of the price paid or the average closing price for the five days
immediately preceding such purchase. We may elect to redeem the Excess Stock for
Units.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decisions, statute, rule or regulation, then the intended
transferee of any Excess Stock may be deemed, at our option, to have acted as an
agent on our behalf in acquiring such Excess Stock and to hold such Excess Stock
on our behalf.
All certificates representing shares of common stock will bear a legend
referring to the restrictions described above.
Every owner (or deemed owner) of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) in number or value of the issued
and outstanding shares of capital stock, including common stock, must file a
written notice with us containing the information specified in our charter no
later than January 31 of each year. In addition, each shareholder shall be
required upon demand to disclose to us in writing such information as we may
request in order to determine the effect of such shareholder's direct, indirect
and constructive ownership of such shares on our REIT status.
The foregoing ownership limitations also may have the effect of preventing
or hindering any attempt to acquire control of us without the consent of our
Board of Directors.
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TRANSFER AGENT AND REGISTRAR
The Transfer Agent, Registrar and Dividend Disbursing Agent for the shares
of common stock is First Union National Bank of North Carolina.
REGISTRATION RIGHTS
We are a party to a registration rights agreement with each of John D.
Mooney and Richard J. Mooney, John C. Illingworth, Michael F. Mamayek and
Ronald J. Lemke, and Charles P. Reagan relating to the shares of common stock
being registered hereunder. Once the SEC declares that the registration
statement (of which this prospectus is a part) is effective, we are required
under each registration rights agreement to use our reasonable efforts to keep
this registration statement continuously effective until the date on which all
of the shares of common stock issued to the selling shareholders have been sold
under this registration statement or Rule 144 of the Securities Act or can be
sold freely without restriction. The benefits of each registration rights
agreement lapse with respect to any shares that have been sold pursuant to the
agreements or otherwise transferred without legal restriction on further
transfer.
Each registration rights agreement requires that we pay all registration
expenses relating to the common stock covered by this registration statement
(other than underwriting discounts, selling commissions, fees and disbursements
of counsel of the selling shareholders, and stock transfer taxes, if any). We
also have agreed to indemnify each holder of common stock covered by each
registration rights agreement, the trustees, directors, officers and employees
of each holder and any person who controls any holder and each underwriter, its
partners, officers, directors, employees and controlling persons, if any,
against certain losses, claims, damages and expenses arising under the
securities laws. In addition, each holder of common stock covered by each
registration rights agreement has agreed to indemnify us and the other selling
holders of such common stock, each of our respective trustees, directors and
officers (including each officer who signs the registration statement on our
behalf), and any person who controls us or any other selling holder against
certain other losses, claims, damages and expenses arising under the securities
laws with respect to written information furnished to us by such holder for use
in this registration statement or any prospectus included herein.
SELLING SHAREHOLDERS
We have issued an aggregate of 504,543 shares of common stock to Charles P.
Reagan, John C. Illingworth Grantor Trust u/a/d/ June 9, 2000, Michael F.
Mamayek Grantor Trust u/a/d/ June 9, 2000, Ronald J. Lemke Grantor Trust u/a/d/
June 9, 2000 and and/or their subsequent transferees or beneficiaries, John D.
Mooney and Richard J. Mooney. The selling shareholders may resell the offered
shares covered by this prospectus as provided under the Plan of Distribution
section of this prospectus or as described in an applicable prospectus
supplement.
The following table provides the name of each selling shareholder, the
number of offered shares of common stock owned by such selling shareholder
before any offering to which this prospectus relates and the number of offered
shares that may be offered by such selling shareholder. As used in this
prospectus, the term "selling shareholder" also includes permitted transferees,
assignees, donees, distributees, pledgees and/or successors in interest, and
subsequent transferees, assignees, donees, distributees, pledgees and successors
in interest (as permitted under the merger agreement) of any person identified
as a selling shareholder. Because the selling shareholders may sell all or some
of their offered shares, no estimate can be made of the number of offered shares
that will be sold by the selling shareholders or that will be owned by the
selling shareholders upon completion of the offering. There is no assurance that
the selling shareholders will sell any of the offered shares. The offered shares
represent 2.37% of the number of shares of common stock outstanding as of June
30, 2000.
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<TABLE>
<CAPTION>
NUMBER OF
SHARES OFFERED
NAME HEREBY
<S> <C>
John D. Mooney........................................................105,634
Richard J. Mooney.....................................................105,634
John C. Illingworth Grantor Trust u/a/d/ June 9, 2000..................38,931
Michael F. Mamayek Grantor Trust u/a/d/ June 9, 2000...................34,707
Ronald J. Lemke Grantor Trust u/a/d/ June 9, 2000......................19,637
Charles P. Reagan.....................................................200,000
-------
Total.................................................................504,543
</TABLE>
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations to a prospective holder of our common stock. The following
discussion is for general information only, is not exhaustive of all possible
tax considerations, and is not intended to be and should not be construed as tax
advice. For example, it does not include a detailed discussion of any state,
local or foreign tax considerations. Nor does it discuss all of the aspects of
federal income taxation that may be relevant to a prospective shareholder in
light of its particular circumstances or to certain types of shareholders who
are subject to special treatment under the federal income tax laws. For example,
the discussion does not discuss all of the aspects of federal income taxation
that may be relevant to insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations, and persons who are not
citizens or residents of the United States.
The information in this section is based on the Internal Revenue Code,
current, temporary and proposed regulations, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the IRS, and court decisions. The reference to IRS interpretations and practices
includes IRS practices and policies as endorsed in private letter rulings, which
are not binding on the IRS except with respect to the taxpayer that receives the
ruling. In each case, these sources are relied upon as they exist on the date of
this prospectus. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly change
current law or adversely affect existing interpretations of existing law. Any
change of this kind could apply retroactively to transactions preceding the date
of the change. Except as described below in "--Requirements for Qualification As
a REIT--Gross Income Tests," we have not received any rulings from the IRS
concerning our tax treatment. Therefore, no assurance can be provided that the
statements made in the following discussion, which do not bind the IRS or the
courts, will not be challenged by the IRS or will be sustained by a court if so
challenged.
EACH PROSPECTIVE HOLDER OF COMMON STOCK IS URGED TO CONSULT WITH ITS OWN
TAX ADVISOR TO DETERMINE THE IMPACT OF ITS PERSONAL TAX SITUATION ON THE
ANTICIPATED TAX CONSEQUENCES OF THE OWNERSHIP AND SALE OF COMMON STOCK. THIS
INCLUDES THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE
OWNERSHIP AND SALE OF COMMON STOCK, AND THE POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
OUR TAX TREATMENT
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code commencing with our taxable year ending December 31, 1994.
We believe that our company is organized and has operated in conformity with the
requirements for qualification and taxation as a REIT under the Internal Revenue
Code and we intend to continue to operate as a REIT. We cannot ensure, however,
that we have operated in a manner so as to qualify as a REIT or that we will
continue to operate as a REIT in the future. Our qualification and taxation as a
REIT depend upon our ability to meet on a continuing basis the various
qualification tests imposed under the Internal Revenue Code. These tests must be
met on a continuing basis through actual annual operating results, distribution
levels and diversity of stock ownership. While we intend to operate so that we
qualify as a REIT, given the highly complex nature of the rules governing REITs,
the ongoing importance of factual determinations, and the possibility of future
changes in our circumstances, we cannot ensure that the actual results of our
operations for any taxable year have satisfied or will satisfy the REIT
requirements. Further, the anticipated income tax treatment described herein may
be changed, perhaps retroactively, by legislative, administrative or judicial
action at any time. See "Requirements for Qualification as a REIT--Failure to
Qualify."
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The following is a general description of the Internal Revenue Code
provisions that govern the federal income tax treatment of a REIT and its
shareholders. These provisions are highly technical and complex. This
description is qualified in its entirety by the applicable Internal Revenue Code
provisions, regulations, and administrative and judicial interpretations
thereof, all of which are subject to change prospectively or retroactively.
In any year in which we qualify for taxation as a REIT, we generally will
not be subject to federal corporate income taxes on net income that we
distribute currently to shareholders. This treatment substantially eliminates
the "double taxation" at the corporate and shareholder levels that generally
results from investment in a corporation. However, we will be subject to federal
income tax on any income that we do not distribute. In addition, in some
circumstances, we will be subject to federal income tax on some types of income
even though that income is distributed. Moreover, our property service business
subsidiaries do not qualify as REITs and are subject to federal corporate income
tax on their net income.
REQUIREMENTS FOR QUALIFICATION AS A REIT.
ORGANIZATIONAL REQUIREMENTS. The Internal Revenue Code defines a REIT 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 Sections 856
through 859 of the Internal Revenue Code;
4. that is neither a financial institution nor an insurance company
subject to certain provisions of the Internal Revenue Code;
5. the beneficial ownership of which is held by 100 or more persons;
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, by
five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities); and
7. that meets other tests, as described below, regarding the nature of
its income and assets.
The Internal Revenue 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. We believe that we
currently satisfy requirements (1) through (6). In addition, our charter
includes restrictions regarding the transfer of our shares that are intended to
assist us in continuing to satisfy the share ownership requirements described in
(5) and (6) above. Moreover, if we comply with regulatory rules pursuant to
which we are required to send annual letters to holders of common stock
requesting information regarding the actual ownership of the common stock, and
we do not know, or exercising reasonable diligence would not have known, whether
we failed to meet requirement (6) above, we will be treated as having met the
requirement.
GROSS INCOME TESTS. In order to maintain qualification as a REIT, we must
satisfy two gross income requirements, which are applied on an annual basis.
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 or from some
types of temporary investments. Investments relating to real property or
mortgages on real property include "rents from real property" and, in some
circumstances, interest. Second, at
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least 95% of our gross income, excluding gross income from prohibited
transactions, for each taxable year must be derived from sources that qualify
for purposes of the 75% test, and from dividends, interest and gain from the
sale or disposition of stock or securities, or from any combination of the
foregoing.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT described above only if several
conditions are met. These conditions relate to the identity of the tenant, the
computation of the rent payable, and the nature of the property leased. We
believe that the portion of the rents that we receive that fails to qualify as
"rents from real property" has not caused, and will not in the future cause, us
to fail to comply with the 75% and 95% gross income tests. Our belief with
respect to this matter, however, is based upon the advice of counsel with
respect to certain technical issues regarding the determination of "rents from
real property" that are not definitively answered under federal tax law. We
cannot ensure that the IRS will agree with these conclusions.
In addition, for rents received to qualify as "rents from real property,"
we generally must not operate or manage the property or furnish or render
services to tenants. There are two exceptions to this rule. First, we can engage
in these activities through an "independent contractor" from whom we derive no
revenue. Second, for taxable years beginning after December 31, 2000, we will be
able to engage in these activities through a "taxable REIT subsidiary." A
taxable REIT subsidiary is a corporation other than a REIT in which a REIT
directly or indirectly holds stock and that has made a joint election with the
REIT to be treated as a taxable REIT subsidiary. For a further discussion of
taxable REIT subsidiaries, see "--Asset Tests" below. In addition, the rule
restricting us from operating or managing properties or furnishing or rendering
services to tenants does not apply to the extent that the services we render are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant."
These services are referred to as permissible services.
Smith L.P. and the property service businesses provide certain services
with respect to our properties. The property service businesses are not
independent contractors. We have received rulings from the IRS that the
provision of some of the services provided by Smith L.P. and the property
service businesses will not cause the rents received with respect to the
properties to fail to qualify as "rents from real property." In addition, for
our taxable years beginning after December 31, 2000, if one or more of our
property service businesses elects to be treated as taxable REIT subsidiary,
they will be permitted to provide services to our tenants that we currently must
provide through an independent contractor. At least two of the property service
businesses will make the taxable REIT subsidiary election, but a final decision
has not been made regarding which additional, if any, property service
businesses will elect to be treated as taxable REIT subsidiaries.
We also have received rulings from the IRS to the effect that certain
revenues will qualify as "rents from real property." These revenues include the
following:
1. rents from corporate apartments,
2. revenues from laundry equipment,
3. certain parking revenues, and
4. certain revenues related to the provision of telephone and cable
television services.
Based upon our experience in the multifamily and retail property rental
markets in which our properties are located, we believe that all services
provided to tenants by us, whether through Smith L.P. or through the property
service businesses, should be considered permissible services, although there
can be no assurance that the IRS will not contend otherwise. In this regard, if
Smith L.P. contemplates providing services in the future that reasonably might
be expected not to meet the
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"usual or customary" standard, we will arrange to have such services provided by
an independent contractor from which we receive no income or, for taxable years
beginning after December 31, 2000, a taxable REIT subsidiary.
Even if we provide services that are not permissible services, rents
received generally will qualify as rents from real property so long as the
amount received for the "impermissible services" does not exceed a de minimis
amount. Specifically, so long as the amount received by us for all of the
impermissible services rendered at a specific property does not exceed one
percent of all of the amounts we receive, directly or indirectly, from that
property, then we can provide such services. The amount that we will be deemed
to have received for performing "impermissible services" will be the greater of
the actual amount received or 150% of the direct cost to us of providing those
services.
Smith L.P. may receive fees for the performance of property management and
other services with respect to properties in which Smith L.P. has a partial
interest. Only the portion of the management fee that corresponds to Smith
L.P.'s interest in such properties will qualify as "rents from real property."
The balance will not qualify. Smith L.P. also may receive certain other types of
non-qualifying income. This income includes, for example, certain expense
reimbursements, and dividends and interest from the property service businesses,
which qualify under the 95% gross income test but not under the 75% gross income
test. We believe, however, that the aggregate amount of these fees and other
non-qualifying income in any taxable year will not cause us to exceed the limits
on non-qualifying income under the 75% and 95% gross income tests.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for the year if we
are entitled to relief under the Internal Revenue Code. We cannot state,
however, whether in all circumstances we would be entitled to this relief. Even
if this relief applied, a 100% tax would be imposed with respect to the "excess
net income" attributable to the failure to satisfy the 75% and 95% gross income
tests.
ASSET TESTS. In order to maintain qualification as a REIT, we are currently
subject to certain tests relating to the composition of our assets. As described
below, as a result of the Work Incentives Improvement Act, for our taxable years
commencing after December 31, 2000, the third test listed below will be
modified, and we also will become subject to a new asset test. Currently, at the
close of each quarter of our taxable year, we must satisfy the following tests
relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by
"real estate assets," cash, cash items, and government securities.
2. Not more than 25% of our total assets may be represented by
securities, other than those in the 75% asset class.
3. Of the investments included in the 25% asset class, the value of any
one issuer's securities we own 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.
Smith L.P. owns 100% of the nonvoting stock of each of the property service
businesses. In addition, Smith L.P. holds notes from each of the property
service businesses. By virtue of our ownership of units, we are considered to
own our proportionate share of the assets of Smith L.P., including the
securities of each of the property service businesses. We believe that our share
of the aggregate value of the securities of the property service businesses
together with all other assets that do not qualify for purposes of the 75% test
does not exceed 25% of the total value of our assets. We cannot ensure, however,
that the IRS will not contend that our share of the aggregate value of these
assets exceeds the 25% value limitation. In addition, we believe that the value
of our share of the securities of each of the property service businesses
individually does not exceed 5% of the total value
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of our assets. We cannot ensure, however, that the IRS will not contend either
that the value of the securities of one or more of the property service
businesses exceeds the 5% value limitation, or that all or some of the property
service businesses shall be viewed as a single corporation for purposes of the
5% value limitation and that the value of the securities of that corporation
exceeds the 5% value limitation.
Smith L.P. does not own more than 10% of the outstanding voting securities
of any of the property service businesses. Accordingly, we believe that we meet
the 10% voting securities test. We cannot ensure, however, that the IRS will not
contend that the nonvoting stock of one or more of the property service
businesses should be considered "voting securities" for purposes of the 10%
voting securities test.
The 25% value test must be satisfied on the last day of each calendar
quarter in which we acquire any securities in the 25% asset class. The 5% value
test must be satisfied with respect to a property service business on the last
day of each calendar quarter in which we acquire securities of that business.
Accordingly, each time a unitholder exercises its right to redeem units and our
interest in Smith L.P. increases, the requirement will have to be met. Although
we plan to take steps to ensure that we satisfy the 25% and 5% value tests for
any quarter with respect to which retesting is to occur, we cannot ensure that
these steps always will be successful or will not require a reduction in Smith
L.P.'s overall interest in the property service businesses.
As a result of the Work Incentives Improvement Act, for taxable years
beginning after December 31, 2000, the 5% value test and the 10% voting security
test will be modified in two respects. First, the 10% voting securities test
will be expanded so that we also will be prohibited from owning more than 10% of
the value of the outstanding securities of any one issuer. Second, an exception
to these tests will be created so that we will be permitted to own securities of
a subsidiary that exceed the 5% value test and the new 10% vote or value test if
the subsidiary elects to be a taxable REIT subsidiary. We currently own more
than 10% of the total value of the outstanding securities of each property
service business. The expanded 10% vote or value test, however, will not apply
to a property service business unless it engages in a substantial new line of
business or acquires any substantial asset or we acquire any securities in the
property service business after July 12, 1999. At least two of the property
service businesses will make the taxable REIT subsidiary election, but a final
decision has not been made regarding which of the other property service
businesses, if any, will elect to be treated as taxable REIT subsidiaries.
Pursuant to a new asset test, for taxable years beginning after December 31,
2000, not more than 20% of the value of our total assets will be permitted to be
represented by securities of taxable REIT subsidiaries.
ANNUAL DISTRIBUTION REQUIREMENTS. To qualify as a REIT, we generally must
distribute dividends to our shareholders in an amount at least equal to --
1. the sum of (a) 95% (90% for taxable years beginning after December 31,
2000) of our REIT taxable income, computed without regard to the
dividends paid deduction and our net capital gain, and (b) 95% (90%
for taxable years beginning after December 31, 2000) of our net income
after tax, if any, from foreclosure property, MINUS
2. the sum of certain items of noncash income.
Distributions must be made either during the taxable year to which they relate
or, if specific procedures are followed, during the subsequent taxable year. We
will be subject to tax on amounts not distributed at regular capital gains and
ordinary income rates.
In addition, if we fail to distribute during each calendar year at least
the sum of 85% of our ordinary income, 95% of our capital gain net income and
100% of our undistributed income from prior years, we will be subject to a 4%
nondeductible excise tax on the excess of this required amount
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over the sum of the amounts we actually distribute and amounts retained with
respect to which we pay federal income tax.
We believe that we have made, and intend to continue to make, timely
distributions sufficient to satisfy the annual distribution requirements. It is
possible, however, that we, from time to time, may not have sufficient cash or
other liquid assets to meet these requirements. In that event, we may cause
Smith L.P. to arrange for short-term, or possibly long-term, borrowing to permit
the payments of required dividends.
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and the relief provisions do not apply, we will be subject to tax,
including any applicable alternative minimum tax, on our taxable income at
regular corporate rates. Unless we are entitled to relief under specific
statutory provisions, we also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
We cannot state whether in all circumstances we would be entitled to this
statutory relief.
TAX ASPECTS OF OUR INVESTMENTS IN SMITH L.P. AND THE PROPERTY SERVICE
BUSINESSES.
GENERAL. All of our investments are through Smith L.P. Smith L.P. holds
substantially all the real estate properties through some of the subsidiary
partnerships. This structure may involve special tax considerations. These tax
considerations include the following:
1. the allocations of income and expense items of Smith L.P. and those
subsidiary partnerships, which could affect the computation of our
taxable income;
2. the status of Smith L.P. and each applicable subsidiary partnership as
a partnership (as opposed to an association taxable as a corporation)
for income tax purposes; and
3. the taking of actions by Smith L.P. or any of the subsidiary
partnerships that could adversely affect our qualification as a REIT.
We believe that Smith L.P. and each of the subsidiary partnerships will be
treated for tax purposes as partnerships (and not as associations taxable as
corporations). If, however, Smith L.P. or any of the subsidiary partnerships
were treated as an association taxable as a corporation, we would fail to
qualify as a REIT.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Smith L.P. was formed by
way of contributions of appreciated property, including several apartment
properties, at the time of its formation. In addition, it has acquired a number
of properties by contribution since that time. 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. This
difference is referred to as a "book-tax difference."
Smith L.P.'s partnership agreement requires that all allocations of
partnership income, gain and loss be made in a manner consistent with Section
704(c) of the Internal Revenue Code and the applicable regulations. Therefore,
allocations will tend to eliminate the book-tax differences with respect to the
contributed properties over the life of Smith L.P. However, the allocation rules
of Section 704(c) of the Internal Revenue Code may not always entirely eliminate
the book-tax difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Consequently, the carryover basis of contributed
properties in the hands of Smith L.P. could cause us to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to us if no property had a book-tax difference. Similarly, the
carryover basis of contributed properties in the hands of Smith L.P. could cause
us to be allocated taxable gain in the event of a sale
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of contributed properties in excess of the economic or book income allocated to
us as a result of such sale.
PROPERTY SERVICE BUSINESSES. A significant portion of the amounts used by
Smith L.P. to fund distributions to partners, which in turn are used by us to
fund distributions to holders of common stock, comes from the property service
businesses, through payments on notes issued by the property service businesses
and dividends on nonvoting stock of the property service businesses held by
Smith L.P. The property service businesses do not qualify as REITs and therefore
pay federal, state and local income taxes on their net income at normal
corporate rates. To the extent that they do so, the cash available for
distribution to shareholders is reduced accordingly.
The property service businesses attempt to limit the amount of those taxes.
We cannot ensure, however, whether or the extent to which measures taken to
limit taxes will be successful. Even if those measures are successful, future
increases in the income of the property service businesses inevitably will be
subject to income tax. Moreover, as described above in "--Requirements for
Qualification As a REIT--Gross Income Tests" and "--Asset Tests," two or more of
the property service businesses will elect to be treated as a taxable REIT
subsidiary for years commencing after December 31, 2000. The property service
businesses that make this election will be restrained in their ability to limit
their tax liability for two reasons. First, taxable REIT subsidiaries will be
limited significantly in their ability to deduct interest payments made to an
affiliated REIT. Accordingly, if a property service business elects to be
treated as a taxable REIT subsidiary, it will be limited significantly in its
ability to deduct interest payments on notes issued to Smith L.P. Second, if a
taxable REIT subsidiary pays an amount to a REIT that exceeds the amount that
would be paid in an arm's length transaction, the REIT generally will be subject
to an excise tax equal to 100% of the excess. This rule generally will apply to
amounts paid to Smith L.P. by the property service businesses that elect to be
treated as taxable REIT subsidiaries.
Our ownership of the securities of the property service businesses
currently is subject to certain asset tests. Although, these tests will change
for our taxable years beginning after December 31, 2000, they will continue to
restrict the ability of the property service businesses to increase the size of
their respective businesses unless the value of the assets of Smith L.P.
increase at a commensurate rate. In addition, Smith L.P. currently is prohibited
from exercising control over any of the property service businesses. For our
taxable years beginning after December 31, 2000, Smith L.P. will continue to be
prohibited from exercising control over each property service business that does
not elect to be treated as taxable REIT subsidiary. For a more detailed
discussion of the ownership limitations relating to our ownership of the
property service businesses, see "--Requirements for Qualification As a
REIT--Asset Tests," above.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As used herein, the term "U.S.
shareholder" means a holder of common stock who for United States federal income
tax purposes is --
1. a citizen or resident of the United States,
2. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any political subdivision of
the United States,
3. an estate or trust the income of which is subject to United States
federal income taxation regardless of its source, or
4. a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons
who have the authority to control all substantial decisions of the
trust.
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As long as we qualify as a REIT, distributions made to our taxable U.S.
shareholders out of current or accumulated earnings and profits, which are not
designated as capital gain dividends, will be taken into account by them as
ordinary income. Corporate shareholders will not be eligible for the dividends
received deduction with respect to these dividends. For purposes of determining
whether the distributions on shares of common stock are out of current or
accumulated earnings and profits, our earnings and profits will be allocated
first to shares of preferred stock and second to shares of common stock. We
cannot ensure that we will have sufficient earnings and profits to cover any
distributions on preferred stock or common stock.
To the extent they do not exceed our actual net capital gain for the
taxable year, distributions that are designated as capital gain dividends will
be taxed to taxable non-corporate U.S. shareholders as gains from the sale or
exchange of a capital asset held for more than one year. This tax treatment
applies regardless of the period non-corporate shareholders have held their
stock. Non-corporate U.S. shareholders include individuals, estates, and trusts.
On November 10, 1997, the IRS issued Notice 97-64, which provides generally that
we may classify portions of our designated capital gain dividend in the
following categories:
1. a 20% gain distribution, which would be taxable to taxable
non-corporate U.S. shareholders at a maximum rate of 20%,
2. an unrecaptured Section 1250 gain distribution, which would be taxable
to taxable non-corporate U.S. shareholders at a maximum rate of 25%,
or
3. a 28% gain distribution which would be taxable to taxable
non-corporate U.S. shareholders at a maximum rate of 28%.
In light of the IRS Restructuring and Reform Act of 1998, which eliminates
the 18-month holding period that was required to be met to take advantage of the
lowest capital gain tax rates, the IRS is expected to issue clarifying guidance
regarding the designation of REIT capital gain dividends. Notice 97-64 provides
that a REIT must determine the maximum amounts that it may designate as 20% and
25% capital gain dividends by performing the computation required by the
Internal Revenue Code as if the REIT were an individual whose ordinary income
were subject to a marginal tax rate of at least 28%. Notice 97-64 further
provides that designations made by the REIT only will be effective to the extent
that they comply with Revenue Ruling 89-81, which requires that distributions
made to different classes of shares be composed proportionately of dividends of
a particular type.
To the extent that they do not exceed our actual net capital gain for the
taxable year, distributions made by us that are properly designated as capital
gain dividends will be taxable to taxable corporate U.S. shareholders as
long-term capital gain. This tax treatment applies regardless of the period
corporate shareholders have held their stock. Those corporate U.S. shareholders,
however, may be required to treat up to 20% of certain capital gain dividends as
ordinary income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a taxable U.S. shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's common stock, but rather will
reduce the adjusted basis of such common stock. To the extent that distributions
exceed the adjusted basis of a taxable U.S. shareholder's common stock, they
will be included in income as capital gains, assuming the common stock is a
capital asset in the hands of the shareholder.
In general, a taxable U.S. shareholder will realize gain or loss on the
disposition of common stock equal to the difference between the amount of cash
and the fair market value of any property received on such disposition and the
U.S. shareholder's adjusted basis of such common stock. This gain or loss will
be capital gain or loss if the common stock has been held as a capital asset. In
the case of a taxable U.S. shareholder that is a corporation, such capital gain
or loss will be long-term
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capital gain or loss if such common stock has been held for more than one year.
Generally, in the case of a taxable non-corporate U.S. shareholder, such capital
gain or loss will be taxed for dispositions occurring after December 31, 1997,
at a maximum rate of 20%, and for dispositions occurring after December 31,
2000, at a maximum rate of 18% if the common stock is acquired after December
31, 2000 and held for more than five years. The Taxpayer Relief Act of 1997
allows the IRS to issue regulations relating to how the act's new capital gain
rates will apply to sales of capital assets by "pass-through entities," which
include REITs such as us, and to sales of interests in "pass-through entities."
The IRS has proposed regulations under this authority, but as proposed, the
regulations do not apply to the taxation of gain and loss realized on the
disposition of common stock. However, the proposed regulations could be revised
to apply to the disposition of common stock, and additional regulations that
would apply to the disposition of common stock could be promulgated.
Shareholders are urged to consult with their own tax advisors with respect to
the rules contained in the Taxpayer Relief Act.
Loss upon a sale or exchange of common stock by a taxable U.S. shareholder
who has held the common stock for six months or less, after applying certain
holding period rules, will be treated as long-term capital loss to the extent
the distributions from us are required to be treated by the shareholder as
long-term capital gain. For a taxable non-corporate U.S. shareholder, the
long-term capital loss will be apportioned among the applicable long-term
capital gain groups to the extent that distributions received by such U.S.
shareholder were previously so treated.
We may elect to require the holders of common stock to include our
undistributed net capital gains in their income. If we make this election, the
holders of common stock will include in their income as long-term capital gains
their proportionate share of such undistributed capital gains. They will be
deemed to have paid their proportionate share of the tax paid by us on the
undistributed capital gains and receive in return a credit or refund for this
amount. A holder of common stock will increase the basis in its common stock by
the difference between the amount of capital gain included in its income and the
amount of the tax it is deemed to have paid. Our earnings and profits will be
adjusted appropriately.
Under certain circumstances, U.S. shareholders may be subject to backup
withholding at the rate of 31% with respect to dividends paid.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. We do not expect that our
distributions to a shareholder that is a tax-exempt entity will constitute
"unrelated business taxable income" ("UBTI"), provided that the tax-exempt
entity has not financed the acquisition of its common stock with "acquisition
indebtedness" within the meaning of the Internal Revenue Code, and the common
stock is not otherwise used in an unrelated trade or business of the tax-exempt
entity. For a tax-exempt shareholder that is a social club, voluntary employee
benefit association, supplemental unemployment benefit trust, or qualified group
legal services plan exempt from federal income taxation under Internal Revenue
Code Sections 501 (c)(7), (c)(9), (c)(17) or (c)(20), respectively, income from
an investment in us will constitute UBTI unless the organization is able to
properly deduct amounts set aside or placed in reserve so as to offset the
income generated by its investment in us. The prospective shareholder should
consult its own tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act
of 1993 provides that, effective for taxable years beginning in 1994, a portion
of the dividends paid by a "pension held REIT" shall be treated as UBTI as to
any trust which is described in Section 401(a) of the Internal Revenue Code, is
tax exempt under Section 501(a) of the Internal Revenue Code and holds more than
10%, by value, of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Internal Revenue Code are referred to below
as "qualified trusts." A REIT is a "pension held REIT" if it meets the following
two tests:
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1. it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Internal Revenue Code, added by the 1993 Act,
provides that stock owned by qualified trusts shall be treated, for
purposes of determining whether the REIT is closely held, as owned by
the beneficiaries of the trust rather than by the trust itself; and
2. either at least one such qualified trust holds more than 25% by value,
of the interests in the REIT, or one or more such qualified trusts,
each of which owns more than 10%, by value, of the interests in the
REIT, hold in the aggregate more than 50%, by value, of the interests
in the REIT.
The percentage of any REIT dividend treated as UBTI is equal to the ratio
of the UBTI earned by the REIT, treating the REIT as if it were a qualified
trust and therefore subject to tax on UBTI, to the total gross income of the
REIT. A DE MINIMIS exception applies where the percentage is less than 5% for
any year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to qualified trusts. Based on the current estimated ownership of our
common and preferred stock and as a result of certain limitations on transfer
and ownership of common and preferred stock contained in the our charter, we
believe that we should not be classified as a "pension held REIT."
TAXATION OF FOREIGN SHAREHOLDERS. In the following paragraphs, nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders will be referred to collectively as foreign shareholders. The rules
governing U.S. federal income taxation of foreign shareholders are complex. No
attempt will be made in the following paragraphs to provide more than a limited
description of these rules. Prospective foreign shareholders should consult with
their own tax advisors to determine the impact of U.S. federal, state and local
income tax laws with regard to an investment in common stock, including any
reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of U.S. real property interests or are not designated by us as capital gain
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. These
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
that tax rate. Distributions in excess of our current and accumulated earnings
and profits will not be taxable (but may be subject to withholding tax as
described below) to a foreign shareholder to the extent that they do not exceed
the adjusted basis of the shareholder's common stock, but rather will reduce the
adjusted basis of such common stock. To the extent that such distributions
exceed the adjusted basis of a foreign shareholder's common stock, they will
give rise to tax liability if the foreign shareholder otherwise would be subject
to tax on any gain from the sale or disposition of his common stock as described
below. Under these circumstances, we may be required to withhold 10% of any
distribution in excess of our current and accumulated earnings and profits.
However, the foreign shareholder may seek a refund of such amounts from the IRS
if it subsequently determined that the distribution was, in fact, in excess of
our current or accumulated earnings and profits, and the amount withheld
exceeded our foreign shareholder's United States tax liability, if any.
Distributions to a foreign shareholder that are designated by us as a
capital gain dividend, other than those arising from the disposition of a U.S.
real property interest, generally should not be subject to U.S. federal income
taxation unless the investment in the common stock is effectively connected with
a U.S. trade or business or the foreign shareholder is a nonresident alien
individual who is present in the U.S. for 183 days or more during the taxable
year and has a tax home in the US. We will be required to withhold and remit to
the IRS 35% of any distributions to foreign shareholders that are designated as
capital gain dividends, or, if greater, 35% of a distribution that
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could have been designated as a capital gain dividend. Amounts withheld on
distributions to foreign shareholders are creditable against the foreign
shareholder's FIRPTA tax liability.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a foreign shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA"), at the normal capital
gain rates applicable to U.S. shareholders, subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals. This tax treatment will apply whether or not the
distributions are designated as a capital gain dividend. Also, distributions
subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a
corporate foreign shareholder not entitled to treaty relief or exemption.
Although the law is not clear on the matter, it appears that amounts we
designate as undistributed capital gains in respect of shares of common stock
generally should be treated with respect to foreign shareholders in the same
manner as actual distributions by us of capital gain dividends. Under that
approach, foreign shareholders would be able to offset as a credit against the
resulting United States federal income tax liability their proportionate share
of the tax we paid on such undistributed capital gains. Also under that
approach, foreign shareholders would be able to receive from the IRS a refund to
the extent their proportionate share of the tax we paid exceeded their actual
United States federal income tax liability.
Gain recognized by a foreign shareholder upon a sale of common stock
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT." Generally, a "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock was
held directly or indirectly by foreign persons. We believe that we currently are
a "domestically controlled REIT," and, therefore, the sale of common stock
generally will not be subject to taxation under FIRPTA. If gain on the sale of
common stock were to be subject to tax under FIRPTA, foreign shareholders would
be subject to the same treatment as U.S. shareholders with respect to this gain,
subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
generally is a withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish certain information under the United States
information reporting requirements. Backup withholding tax and information
reporting will generally not apply to distributions paid to foreign shareholders
outside the United States that are treated as --
1. dividends subject to the 30% (or lower treaty rate) withholding tax
discussed above,
2. capital gains dividends, or
3. distributions attributable to gain from our sale or exchange of United
States real property interests.
As a general matter, backup withholding and information reporting will not
apply to a payment of the proceeds of a sale of common stock by or through a
foreign office of a foreign broker. Information reporting (but not backup
withholding) will apply, however, to a payment of the proceeds of a sale of
common stock by a foreign office of a broker that --
1. is a United States person,
2. derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or
3. is a "controlled foreign corporation," generally, a foreign
corporation controlled by United States shareholders, for United
States tax purposes, unless the broker has
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<PAGE>
documentary evidence in its records that the holder is a foreign
shareholder and certain other conditions are met, or the shareholder
otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of
a sale of common stock is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a foreign shareholder, or otherwise establishes an exemption. A
foreign shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The IRS has recently finalized regulations regarding the withholding and
information reporting rules discussed above. In general, these regulations do
not alter the substantive withholding and information reporting requirements but
unify certification procedures and forms and clarify and modify reliance
standards. These regulations generally will be effective for payments made after
December 31, 2000, subject to certain transition rules. Valid withholding
certificates that are held on December 31, 1999, will remain valid until the
earlier of December 31, 2000 or the date of expiration of the certificate under
rules currently in effect (unless otherwise invalidated due to changes in the
circumstances of the person whose name is on such certificate). A foreign
shareholder should consult its own advisor regarding the effect of these
regulations.
OTHER TAX CONSIDERATIONS
STATE AND LOCAL TAXES; DISTRICT OF COLUMBIA UNINCORPORATED BUSINESS TAX.
Our company and our shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they
transact business or reside. Our state and local tax treatment and that of our
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
common stock.
In this regard, the District of Columbia imposes an unincorporated business
income tax, at an effective rate of 9.975% on the "District of Columbia taxable
income" of partnerships doing business in the District of Columbia. Because some
of our properties are located in the District of Columbia, the partnership
owning these properties will be subject to this tax. In effect, our share of the
"District of Columbia taxable income" attributable to properties located in the
District of Columbia will be subject to this tax. Smith L.P. and its subsidiary
partnerships will attempt to reduce the amount of income that is considered
"District of Columbia taxable income." However, it is likely that some portion
of the income attributable to properties located in the District of Columbia
will be subject to the District of Columbia tax. To the extent Smith L.P. or a
subsidiary partnership is required to pay this tax, the cash available for
distribution to us and, therefore, to our shareholders as dividends will be
reduced. Moreover, our shareholder will not receive a credit against its own
state income tax liability for its share of any District of Columbia
unincorporated business income tax paid by Smith L.P. or a subsidiary
partnership. This tax would not apply if we were to own and operate our assets
directly, rather than through Smith L.P. However, our ability to eliminate Smith
L.P. and thus own its assets directly is severely limited.
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<PAGE>
PLAN OF DISTRIBUTION
Any of the selling shareholders may from time to time, in one or more
transactions, sell all or a portion of the offered shares on the New York Stock
Exchange, in the over-the-counter market, on any other national securities
exchange on which the common stock is listed or traded, in negotiated
transactions, in underwritten transactions or otherwise, at prices then
prevailing or related to the then current market price or at negotiated prices.
The offering price of the offered shares from time to time will be determined by
the selling shareholders and, at the time of such determination, may be higher
or lower than the market price of the common stock on the New York Stock
Exchange. In connection with an underwritten offering, underwriters or agents
may receive compensation in the form of discounts, concessions or commissions
from a selling shareholder or from purchasers of the offered shares for whom
they may act as agents, and underwriters may sell the offered shares 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. The offered shares may be
sold directly or through broker-dealers acting as principal or agent, or
pursuant to a distribution by one or more underwriters on a firm commitment or
best-efforts basis. The methods by which the offered shares may be sold include:
- a block trade in which a broker-dealer will attempt to sell the
offered shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- an exchange distribution in accordance with the rules of the New York
Stock Exchange;
- privately negotiated transactions; and
- underwritten transactions.
The selling shareholders and any underwriters, dealers or agents
participating in the distribution of the offered shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the offered shares by the selling shareholders and any commissions
received by an such broker-dealers may be deemed to be underwriting commissions
under the Securities Act.
When a selling shareholder elects to make a particular offer of the offered
shares, this prospectus and a prospectus supplement, if required, will be
distributed which will identify any underwriters, dealers or agents and any
discounts, commissions and other terms constituting compensation from such
selling shareholder and any other required information.
In order to comply with the securities laws of certain states, if
applicable, the offered shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the offered shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
We have agreed to pay all costs and expenses incurred in connection with
the registration under the Securities Act of the offered shares, including,
without limitation, all registration and filing fees, printing expenses and fees
and disbursements of our counsel and accountants. The selling shareholders will
pay any brokerage fees and commissions, fees and disbursements of legal counsel
for the selling shareholders and stock transfer and other taxes attributable to
the sale of the
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<PAGE>
offered shares. Under agreements that may be entered into by us, underwriters,
dealers and agents who participate in the distribution of the offered shares,
and their respective directors, trustees, officers, partners, agents, employees
and affiliates, may be entitled to indemnification by us against specified
liabilities, including liabilities, losses, claims, damages and expenses and any
actions or proceedings arising under the securities laws in connection with this
offering, or to contribution with respect to payments which such underwriters,
dealers or agents may be required to make in respect thereof. We also have
agreed to indemnify each of the selling shareholders and each person who
controls (within the meaning of the Securities Act) such selling shareholder,
and their respective directors, trustees, officers, partners, agents, employees
and affiliates, against specified losses, claims, damages, liabilities and
expenses and any actions or proceedings arising under the securities laws in
connection with this offering. Each of the selling shareholders has agreed to
indemnify us, each person who controls us (within the meaning of the Securities
Act), underwriters, dealers and agents, and each of our and their directors,
trustees, officers, partners, agents, employees and affiliates, against
specified losses, claims, damages, liabilities and expenses arising and any
actions or proceedings under the securities laws in connection with this
offering with respect to written information furnished to us by such selling
shareholder; provided, however, that the indemnification obligation is several,
not joint, as to each selling shareholder.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus does not contain all of the information included in the
registration statement. We have omitted parts of the registration statement in
accordance with the rules and regulations of the SEC. For further information,
we refer you to the registration statement on Form S-3, including its exhibits.
Statements contained in this prospectus about the provisions or contents of any
agreement or other document are not necessarily complete. If SEC rules and
regulations require that such agreement or document be filed as an exhibit to
the registration statement, please see such agreement or document for a complete
description of these matters. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of each
document.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy materials that we have filed
with the SEC, including the registration statement, at the following SEC public
reference rooms:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
450 Fifth Street. N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms.
Our SEC filings can also be read at the following address:
New York Stock Exchange
20 Broad Street
New York, New York 10005
</TABLE>
Our SEC filings are also available to the public on the SEC's Web Site at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The
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<PAGE>
information incorporated by reference is considered to be part of this
prospectus, and later information filed with the SEC will update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
1. Registration Statement on Form 8-A filed on August 16, 1994
registering our common stock under Section 12(b) of the Exchange Act.
2. Registration Statement on Form 8-A filed on December 9, 1998
registering our rights under Section 12(b) of the Exchange Act.
3. Annual Report on Form 10-K for the year ended December 31, 1999.
4. Quarterly Report on Form 10-Q for the period ending March 31, 2000.
You may request a copy of these filings (other than exhibits and schedules
to such filings, unless such exhibits or schedules are specifically incorporated
by reference into this prospectus), at no cost, by writing or calling us at the
following address:
Charles E. Smith Residential Realty, Inc.
2345 Crystal Drive
Arlington, Virginia 22202
Attention: Mr. Gregory Samay, Vice President and
Treasurer, (703) 769-1000
You should rely on the information incorporated by reference or provided in
this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of the common stock in any state where
the offer is not permitted.
EXPERTS
Our financial statements for the fiscal year ended December 31, 1999 and
the related schedule incorporated by reference in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report dated February 7,
2000 with respect thereto, and are incorporated by reference in reliance upon
the authority of said firm as experts in giving said report.
LEGAL MATTERS
In connection with this prospectus, Hogan & Hartson L.L.P., Washington,
D.C. has provided its opinion as to the validity of the issuance of the common
stock offered by this prospectus and the discussion of tax matters in this
prospectus.
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<PAGE>
YOU SHOULD RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS
PROSPECTUS. WE HAVE AUTHORIZED NO ONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT MAKING AN OFFER OF THE COMMON STOCK IN ANY STATE WHERE THE OFFER IS
NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
PROSPECTUS SUMMARY............................... 1
RISK FACTORS..................................... 3
DESCRIPTION OF CAPITAL STOCK..................... 7
REGISTRATION RIGHTS.............................. 13
SELLING SHAREHOLDERS............................. 13
FEDERAL INCOME TAX CONSIDERATIONS................ 15
PLAN OF DISTRIBUTION............................. 27
WHERE YOU CAN FIND MORE INFORMATION.............. 28
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.. 28
EXPERTS.......................................... 29
LEGAL MATTERS.................................... 29
</TABLE>
[GRAPHIC OMITTED]
504,543 SHARES
CHARLES E. SMITH
RESIDENTIAL REALTY, INC.
COMMON STOCK
PROSPECTUS
JULY __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth those expenses for distribution to be
incurred in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee.................................... $5,307
Printing and Duplicating Expenses................... 1,000
Legal Fees and Expenses............................. 30,000
Accounting Fees and Expenses........................ 10,000
Blue Sky Fees and Expenses.......................... 5,000
Miscellaneous....................................... 1,000
--------
Total............................................... $52,307
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are and will be indemnified under Maryland law,
our charter, and our partnership agreement of Smith L.P. against certain
liabilities. Our charter requires us to indemnify our directors and officers to
the fullest extent permitted from time to time by the laws of Maryland. Our
charter also provides that, to the fullest extent permitted under Maryland law,
our directors and officers will not be liable to us and our shareholders for
money damages.
Section 2-418 of the Maryland General Corporation Law generally permits
indemnification of any director made a party to any proceedings by reason of
service as a director unless it is established that (i) the act or omission of
such person was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty; or
(ii) such person actually received an improper personal benefit in money
property or services; or (iii) in the case of any criminal proceeding, such
person had reasonable cause to believe that the act or omission was unlawful.
The indemnity may include judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director in connection with the
proceeding; but, if the proceeding is one by or in the right of the corporation,
indemnification is not permitted with respect to any proceeding in which the
director has been adjudged to be liable to the corporation, or if the proceeding
is one charging improper personal benefit to the director, whether or not
involving action in the director's official capacity, indemnification of the
director is not permitted if the director was adjudged to be liable on the basis
that personal benefit was improperly received. The termination of any proceeding
by conviction or upon a plea of nolo contendere or its equivalent, or any entry
of an order of probation prior to judgment, creates a rebuttable presumption
that the director did not meet the requisite standard of conduct required for
permitted indemnification. The termination of any proceeding by judgment, order
or settlement, however, does not create a presumption that the director failed
to meet the requisite standard of conduct for permitted indemnification.
The partnership agreement also provides for indemnification of us, or any
of our directors or officers, in our capacity as general partner of Smith L.P.,
from and against all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees), fines, settlements and other amounts incurred
in connection with any actions relating to the operations of Smith L.P. as set
forth in the partnership agreement.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
3.1(a) Our Amended and Restated Articles of Incorporation
3.2(b) Articles Supplementary relating to Series A
Cumulative Convertible Redeemable Preferred Stock
3.3(c) Articles Supplementary relating to Series B
Cumulative Convertible Redeemable Preferred Stock
3.4(c) Certificate of Correction relating to Series B Cumulative
Convertible Redeemable Preferred Stock
3.5(d) Articles Supplementary relating to Series C Cumulative Redeemable
Preferred Stock
3.6(e) Certificate of Correction relating to Series C
Cumulative Redeemable Preferred Stock
3.7(f) Articles Supplementary relating to Series D Junior Participating
Preferred Stock
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.8(g) Articles Supplementary relating to Series E, F and G
Cumulative Convertible Redeemable Preferred Stock
3.9(h) Articles Supplementary relating to Series H
Cumulative Convertible Redeemable Preferred Stock
3.10(i) Our Amended and Restated Bylaws
4.1(j) First Amended and Restated Agreement of Limited Partnership of
Smith L.P., as amended
4.2(j) Certificate of Limited Partnership of Smith L.P.
4.3(k) Rights Agreement
5.1 Opinion of Hogan & Hartson L.L.P. regarding legality of the
Common Stock
8.1 Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
23.3 Consent of Arthur Andersen LLP
24 Power of Attorney (included on signature page (II-4))
-----
</TABLE>
a Incorporated by reference to Exhibit 3.1 to our registration statement on
Form S-11 (File No. 33-75288).
b Incorporated by reference to Exhibit 3.1 to our quarterly report on Form
10-Q for the quarter ended June 30, 1997 (File No. 1-13174).
c Incorporated by reference to Exhibit 4.1 to our current report on Form 8-K
dated October 3, 1997 (File No. 1-13174).
d Incorporated by reference to Exhibit 3.5 to our registration statement on
Form S-3 (File No. 333-17053).
e Incorporated by reference to Exhibit 3.6 to our registration statement on
Form S-3 (File No. 333-17053).
f Incorporated by reference to Exhibit 99.1 to our current report on Form 8-K
dated December 2, 1998 (File No. 1-13174).
g Incorporated by reference to Exhibits 99.1, 99.2 and 99.3, respectively, to
our quarterly report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 1-13174).
h Incorporated by reference to Exhibit 99.1 to our quarterly report on Form
10-Q for the quarter ended September 30, 1999 (File No. 1-13174).
i Incorporated by reference to Exhibit 3.2 to our registration statement on
Form S-3 (File No. 33-93986).
j Incorporated by reference to the same titled and numbered exhibit to our
Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
1-13174).
k Incorporated by reference to Exhibit 99.1 to our current report on Form 8-K
dated December 2, 1998 (File No. 1-13174).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in this registration statement;
II-2
<PAGE>
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the Securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Securities offered herein, and the offering of such Securities
at that time shall be deemed to be the initial BONA FIDE offering thereof. The
undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance under Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 of this
registration statement, or otherwise (other than insurance), the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the 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, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Arlington, Commonwealth of Virginia, on July 17,
2000.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ ERNEST A. GERARDI, JR.
------------------------------------------
Name: Ernest A. Gerardi, Jr.
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Ernest A. Gerardi, Jr. and Robert D.
Zimet, or either one of them, as true and lawful attorney-in-fact, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all instruments for him and in his name in the
capacities indicated below, which said attorney-in-fact may deem necessary or
advisable to enable said co-registrant to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this registration statement, or any
registration statement for this offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Exchange Act of 1933, including
specifically, but without limitation, any and all amendments (including
post-effective amendments) hereto and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and each hereby ratifies and confirms all that said
attorney-in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ ROBERT H. SMITH Chairman of the Board and Director July 17, 2000
------------------------------------
Robert H. Smith
/s/ ERNEST A. GERARDI, JR. President, Chief Executive Officer, July 17, 2000
------------------------------------ and Director
Ernest A. Gerardi, Jr.
/s/ WESLEY D. MINAMI Executive Vice President and Chief Financial July 17, 2000
------------------------------------ Officer
Wesley D. Minami
/s/ STEVEN E. GULLEY Controller and Chief Accounting Officer July 17, 2000
------------------------------------
Steven E. Gulley
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ CHARLES B. GILL Director July 17, 2000
------------------------------------
Charles B. Gill
/s/ ROGER J. KILEY, JR. Director July 17, 2000
------------------------------------
Roger J. Kiley, Jr.
/s/ ROBERT P. KOGOD Director July 17, 2000
------------------------------------
Robert P. Kogod
/s/ R. MICHAEL MCCULLOUGH Director July 17, 2000
------------------------------------
R. Michael McCullough
/s/ KAREN HASTIE WILLIAMS Director July 17, 2000
------------------------------------
Karen Hastie Williams
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
<S> <C> <C>
3.1(a) Our Amended and Restated Articles of Incorporation.............................
3.2(b) Articles Supplementary relating to Series A Cumulative
Convertible Redeemable Preferred Stock.........................................
3.3(c) Articles Supplementary relating to Series B Cumulative
Convertible Redeemable Preferred Stock.........................................
3.4(c) Certificate of Correction relating to Series B Cumulative
Convertible Redeemable Preferred Stock.........................................
3.5(d) Articles Supplementary relating to Series C Cumulative
Redeemable Preferred Stock.....................................................
3.6(e) Certificate of Correction relating to Series C Cumulative
Redeemable Preferred Stock.....................................................
3.7(f) Articles Supplementary relating to Series D Junior
Participating Preferred Stock..................................................
3.8(g) Articles Supplementary relating to Series E, F and G
Cumulative Convertible Redeemable Preferred Stock..............................
3.9(h) Articles Supplementary relating to Series H
Cumulative Convertible Redeemable Preferred Stock..............................
3.10(i) Our Amended and Restated Bylaws................................................
4.1(j) First Amended and Restated Agreement of Limited Partnership of Smith L.P.,
as amended
4.2(j) Certificate of Limited Partnership of Smith L.P................................
4.3(k) Rights Agreement...............................................................
5.1 Opinion of Hogan & Hartson L.L.P. regarding legality of the
Common Stock...................................................................
8.1 Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters........................................................................
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)....................
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)....................
23.3 Consent of Arthur Andersen LLP.................................................
24 Power of Attorney (included on signature page (II-4))
</TABLE>
------------------
(a) Incorporated by reference to Exhibit 3.1 to our registration statement on
Form S-11 (File No. 33-75288).
(b) Incorporated by reference to Exhibit 3.1 to our quarterly report on Form
10-Q for the quarter ended June 30, 1997 (File No. 1-13174).
(c) Incorporated by reference to Exhibit 4.1 to our current report on Form 8-K
dated October 3, 1997 (File No. 1-13174).
(d) Incorporated by reference to Exhibit 3.5 to our registration statement on
Form S-3 (File No. 333-17053).
(e) Incorporated by reference to Exhibit 3.6 to our registration statement on
Form S-3 (File No. 333-17053).
(f) Incorporated by reference to Exhibit 99.1 to our current report on Form 8-K
dated December 2, 1998 (File No. 1-13174).
(g) Incorporated by reference to Exhibits 99.1, 99.2 and 99.3, respectively, to
our quarterly report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 1-13174).
(h) Incorporated by reference to Exhibit 99.1 to our quarterly report on Form
10-Q for the quarter ended September 30, 1999 (File No. 1-13174).
(i) Incorporated by reference to Exhibit 3.2 to our registration statement on
Form S-3 (File No. 33-93986).
(j) Incorporated by reference to the same titled and numbered exhibit to our
Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
1-13174).
(k) Incorporated by reference to Exhibit 99.1 to our current report on Form 8-K
dated December 2, 1998 (File No. 1-13174).
