<PAGE> 1
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT
TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THAT A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PRELIMINARY
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 6, 1995)
<TABLE>
<S> <C> <C>
LOGO 2,500,000 SHARES
CAPSTONE CAPITAL CORPORATION
COMMON STOCK
</TABLE>
------------------
Capstone Capital Corporation (the "Company") is a self-managed real estate
investment trust ("REIT"), which owns, leases and invests in a diversified
portfolio of healthcare properties (the "Investments") located in 13 states.
Substantially all of the Investments are in the form of sale leaseback
arrangements and mortgage loans.
All of the shares (the "Shares") of the Common Stock, $.001 par value per
share (the "Common Stock"), offered hereby (the "Offering") are being sold by
the Company. The Common Stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "CCT." The last reported sale price of the Common Stock on the
NYSE on November 4, 1996 was $21.375.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at approximately
$300,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional Shares on the same terms and conditions as set forth
above solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively.
------------------
The Common Stock is being offered by the several Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that delivery of the Common Stock will be made at the
offices of Smith Barney Inc., 333 West 34th Street, New York, New York 10001 on
or about November , 1996.
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
COWEN & COMPANY
The date of this Prospectus Supplement is November , 1996.
<PAGE> 2
[TWO PIE CHARTS AND ONE BAR GRAPH. ONE PIE CHART SHOWS THE COMPANY'S
INVESTMENTS BY OPERATOR AS A PERCENTAGE. THE OTHER PIE CHART SHOWS THE COMPANY'S
INVESTMENTS BY FACILITY TYPE AS A PERCENTAGE. THE BAR GRAPH SHOWS THE DOLLARS
INVESTED BY THE COMPANY BY QUARTER SINCE INCEPTION ON JUNE 30, 1994. FOOTNOTE 1
REFERS TO THE INFORMATION IN THE PIE CHARTS. FOOTNOTE 2 REFERS TO THE
INFORMATION IN THE BAR GRAPH.]
(1) As of September 30, 1996, including commitments to invest not then funded of
approximately $29 million, of which $16.7 million is attributable to an
acute-care facility to be operated by MedCath, $2.0 million is attributable to
an ancillary hospital facility to be operated by Columbia/HCA and $10.3 million
is attributable to an assisted living facility, an integrated delivery facility
and an ambulatory surgery facility to be operated by three other operators.
(2) Actual dollars invested as of the periods indicated, excluding commitments
to invest not then funded.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed descriptions and financial information and
statements appearing elsewhere in this Prospectus Supplement, in the Prospectus
and in the documents incorporated herein and therein by reference. Except as
otherwise indicated herein, this Prospectus Supplement assumes no exercise of
the underwriters' over-allotment option. As used herein, unless the context
requires otherwise, the term "Company" includes Capstone Capital Corporation, a
Maryland corporation, and its subsidiaries.
THE COMPANY
The Company is a real estate investment trust which owns, leases and
invests in a diversified portfolio of healthcare properties. As of September 30,
1996, the Investments consisted of (i) 45 healthcare properties leased to 13
healthcare operators (the "Leased Properties") and (ii) seven mortgage loans on
healthcare properties (the "Mortgage Loans"). The Investments are located in 13
states primarily in the southeastern and western regions of the United States
and represent a variety of facility types in diverse healthcare industry
segments. The Investments, including commitments to invest that have been
partially funded, have grown from approximately $115 million at inception on
June 30, 1994 to approximately $348 million on September 30, 1996.
The Company intends to use the net proceeds of the Offering to reduce
outstanding borrowings under the Company's $150 million unsecured line of credit
(the "Bank Credit Facility") provided by a consortium of banks led by
NationsBank, N.A. (South) ("NationsBank"), which the Company has used primarily
to fund Investments. See "Use of Proceeds." The Company expects to reborrow
under the Bank Credit Facility to make additional investments.
Substantially all of the leases (the "Leases") for Leased Properties are
triple net leases which require the lessees to pay all operating expenses,
taxes, insurance and other costs. The Leases generally provide for increases in
rent commencing after the first year, have primary terms of 10 to 15 years with
options to extend the term at least 10 years and grant the lessees a right of
first refusal to acquire the Company's interest. Mortgage Loans generally have
initial maturities of between five and 15 years and bear interest at a rate
which increases annually at either a specified rate or a rate based on the
consumer price index. Approximately 91% of the Company's investments as of
September 30, 1996 are operated by public healthcare companies or their
subsidiaries, including HEALTHSOUTH Corporation ("HEALTHSOUTH"), Columbia/HCA
Healthcare Corporation ("Columbia/HCA"), MedPartners, Inc. ("MedPartners"),
Integrated Health Services, Inc. ("Integrated Health"), OrNda HealthCorp
("OrNda") and Quorum Health Group, Inc. ("Quorum").
The Company believes it is an important source of capital for the
healthcare industry and intends to continue investing in a high-quality
portfolio of properties managed by established operators of rehabilitation,
alternate-site care, long-term care and acute-care facilities. The Company
diversifies its portfolio by operator, geography, facility type and healthcare
industry segment. Management's investment criteria emphasize evaluation of the
(i) creditworthiness of a proposed lessee, borrower, guarantor, developer or,
under certain circumstances, sublessee of a healthcare facility, (ii)
competitive position of a proposed property, (iii) attractiveness of the
industry segment and (iv) strategic fit of a proposed property with the
Company's existing portfolio. The Company believes that there is significant
demand for REIT financing capital in the healthcare industry. In addition, the
Company believes that the substantial healthcare industry experience and
industry relationships of its management and directors will help the Company
identify, evaluate and complete additional investments.
The Company's primary objective is to provide current income for
distribution to stockholders. The Company commenced paying quarterly dividends
of $.425 per share for the quarter ended September 30, 1994, increased its
quarterly dividend to $.445 per share for the quarter ended June 30, 1995,
increased it to $.455 per share for the quarter ended June 30, 1996 and declared
a dividend of $.46 per share payable on November 15, 1996 for the quarter ended
September 30, 1996.
S-3
<PAGE> 4
The Investments as of September 30, 1996, are summarized in the following
tables by operator and by type of facility:
<TABLE>
<CAPTION>
INVESTMENTS
AS OF
NO. OF SEPTEMBER 30, PERCENTAGE OF
FACILITIES 1996(2) PORTFOLIO(2)
---------- ------------- -------------
<S> <C> <C> <C>
OPERATOR(1)
HEALTHSOUTH...................................... 15 $ 103,183,244 29.6%
Columbia/HCA..................................... 6 66,579,557 19.1
MedPartners...................................... 8 32,899,750 9.4
Integrated Health................................ 3 28,475,000 8.2
OrNda............................................ 2 28,323,221 8.1
MedCath.......................................... 1 17,800,000 5.1
Quorum........................................... 4 16,500,000 4.7
Ramsay........................................... 2 12,500,000 3.6
Horizon/CMS...................................... 1 10,500,000 3.0
Cogburn.......................................... 2 8,713,322 2.5
Remington Park................................... 1 7,428,967 2.2
Arcon............................................ 1 4,402,440 1.3
Vanguard Care.................................... 3 3,792,500 1.1
Healthkey/BJC Health System...................... 1 2,770,026 0.8
MPI.............................................. 1 2,333,000 0.7
SSM Health Systems............................... 1 2,100,000 0.6
-- ------------- -----
52 $ 348,301,027 100.0%
== ============= =====
FACILITY TYPE
Ancillary Hospital............................... 16 $ 136,327,132 39.1%
Inpatient Rehabilitation......................... 4 54,453,244 15.6
Physician Clinic................................. 10 37,769,776 10.8
Acute Care Hospital.............................. 2 25,723,221 7.4
Ambulatory Surgery............................... 5 22,895,425 6.6
Skilled Nursing.................................. 6 22,280,822 6.4
Sub-Acute Care................................... 2 18,700,000 5.4
Comprehensive Mental Health Hospital............. 2 12,500,000 3.6
Assisted Living.................................. 1 7,428,967 2.1
Outpatient Rehabilitation........................ 3 5,820,000 1.7
Integrated Delivery.............................. 1 4,402,440 1.3
-- ------------- -----
52 $ 348,301,027 100.0%
== ============= =====
</TABLE>
- ---------------
(1) Operators are lessees under Leases ("Lessees"), borrowers under Mortgage
Loans ("Borrowers"), guarantors of certain Leases and Mortgage Loans
("Guarantors") or primary sublessees of the healthcare facilities
("Sublessees").
(2) Based on the amount of the Company's investment, including commitments to
invest that have been partially funded. Excludes capitalized acquisition
costs and capitalized interest of approximately $2.4 million.
Ancillary hospital facilities, which are contiguous or adjacent to a
hospital, contain physician offices and provide a variety of medical services
such as diagnostic, outpatient surgery and rehabilitation services, selected
hospital support services and educational and research activities. Inpatient
rehabilitation facilities provide a full range of inpatient rehabilitation
services to patients experiencing significant physical disabilities due to
various conditions, such as head injury, spinal cord injury, stroke, certain
orthopedic problems and neuromuscular disease. Physician clinics provide a
variety of outpatient diagnostic and therapeutic healthcare services.
S-4
<PAGE> 5
Acute care hospitals provide a full range of inpatient, acute healthcare
services. Ambulatory surgery facilities provide various surgical procedures,
typically on an outpatient basis. Skilled nursing facilities generally provide
extended care and a variety of acute-care healthcare services to the elderly.
Sub-acute care facilities provide monitoring, specialized care and comprehensive
rehabilitative therapy required by sub-acute and medically complex patients.
Comprehensive mental health hospitals provide a full range of treatment for
psychiatric and chemical dependency disorders. Assisted living facilities
generally provide extended care and a variety of healthcare services to the
elderly in a more residential setting. Outpatient rehabilitation facilities
offer a comprehensive range of rehabilitative healthcare services, including
physical and occupational therapy, and focus predominantly on orthopedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries and various neurological/neuromuscular conditions. Integrated
delivery facilities provide a variety of medical services such as primary care,
laboratory and diagnostic services, outpatient surgery and emergency care.
THE OFFERING
Common Stock to be offered.......... 2,500,000 shares
Common Stock to be outstanding after
the Offering(1)..................... 13,423,731 shares
Use of Proceeds..................... To reduce outstanding borrowings under
the Bank Credit Facility incurred to
make Investments.
NYSE Common Stock Symbol............ CCT
- ---------------
(1) Does not include as of September 30, 1996, (a) 1,733,333 shares of Common
Stock reserved for issuance upon conversion of $27,950,000 aggregate
principal amount of the Company's 10 1/2% Convertible Subordinated
Debentures due 2002 (the "Debentures"), subject to adjustment in certain
events, (b) 645,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1994 Stock Incentive Plan or (c) 997,693 shares of Common
Stock reserved for issuance pursuant to the Company's Dividend Reinvestment
Plan.
S-5
<PAGE> 6
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $50.3 million, assuming a
public offering price of $21.375 and after deduction of underwriting discounts
and commissions and estimated Offering expenses payable by the Company
(approximately $57.9 million assuming the Underwriters' over-allotment option is
exercised in full). The Company intends to use the net proceeds to reduce the
outstanding balance under its Bank Credit Facility, which was $96.9 million as
of November 5, 1996.
Borrowings under the Bank Credit Facility bear interest at a rate chosen by
the Company from either the base rate of NationsBank or the Eurodollar rate plus
a percentage that varies from 1.00% to 1.625%. At November 5, 1996, the weighted
average interest rate under the Bank Credit Facility was 6.72%. The Company has
used borrowings under the Bank Credit Facility primarily for the acquisition of
or investment in the Investments. The Company expects to borrow under the Bank
Credit Facility in the future to make additional acquisitions and investments.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The Company's Common Stock is listed on the NYSE under the symbol "CCT." As
of November 1, 1996, there were 378 holders of record of the Common Stock. The
following table sets forth, for the fiscal periods indicated, the high and low
closing sales prices of the Common Stock on the NYSE and the dividend
distributions per share declared by the Company with respect to each applicable
quarter.
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW PER SHARE
---- --- -------------
<S> <C> <C> <C>
1994:
Third Quarter (plus June 30, 1994)................................ $18 $16 3/4 $.425
Fourth Quarter.................................................... 17 3/8 14 7/8 .425
1995:
First Quarter..................................................... 17 1/8 15 5/8 .425
Second Quarter.................................................... 18 15 3/8 .445
Third Quarter..................................................... 19 1/4 17 3/8 .445
Fourth Quarter.................................................... 19 1/4 18 1/8 .445
1996:
First Quarter..................................................... 21 1/2 18 7/8 .445
Second Quarter.................................................... 21 1/2 19 1/2 .455
Third Quarter..................................................... 21 1/4 19 3/4 .46
Fourth Quarter (through November 4, 1996)......................... 21 7/8 20 7/8 --
</TABLE>
The Company makes quarterly distributions to stockholders of approximately
85% to 95% of its cash available for distribution; however, the Company may
elect to pay more or less than such amount as determined by the Board of
Directors of the Company. In any event, the Company expects to make
distributions annually in excess of 95% of its REIT taxable income in order to
satisfy the annual distribution requirements of a REIT. See "Federal Income Tax
Considerations -- Taxation of the Company" in the Prospectus. Payment of
distributions, however, will be at the discretion of the Board of Directors at
all times and will depend upon various factors including the Company's financial
condition, earnings, anticipated investments and other relevant factors.
The Company has a dividend reinvestment plan under which stockholders of
record may invest all or a portion of their dividend distributions and up to an
additional $5,000 per quarter to purchase additional shares of Common Stock.
S-6
<PAGE> 7
CAPITALIZATION
The following sets forth the capitalization of the Company as of September
30, 1996, on an actual basis, and on an adjusted basis to give effect to the
sale of Common Stock offered hereby, assuming a public offering price of $21.375
and after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company and the use of the net proceeds
therefrom to reduce the outstanding balance under the Bank Credit Facility. See
"Use of Proceeds." The information set forth below should be read in conjunction
with the Company's historical consolidated financial statements and notes
thereto included in the documents incorporated herein by reference.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Indebtedness:
Bank credit facility............................................ $ 91,200,000 $ 40,867,969
Mortgage loan................................................... 23,257,354 23,257,354
10 1/2% Convertible Subordinated Debentures..................... 27,950,000 27,950,000
------------ ------------
Total Indebtedness...................................... $142,407,354 $ 92,075,323
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
none outstanding................................................ -- --
Common Stock, $.001 par value; 50,000,000 authorized; 10,923,731
shares issued and outstanding actual and 13,423,731 as
adjusted(1)..................................................... $ 10,924 $ 13,424
Additional paid-in capital........................................ 178,097,903 228,427,434
Loans to officers to finance stock purchases...................... (286,944) (286,944)
Retained earnings................................................. 794,386 794,386
------------ ------------
Total stockholders' equity.............................. $178,616,269 $228,948,300
------------ ------------
Total capitalization.................................... $321,023,623 $321,023,623
============ ============
</TABLE>
- ---------------
(1) Does not include as of September 30, 1996, (a) 1,733,333 shares of Common
Stock reserved for issuance upon conversion of $27,950,000 aggregate
principal amount of the Debentures, subject to adjustment in certain
events, (b) 645,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1994 Stock Incentive Plan or (c) 997,693 shares of Common
Stock reserved for issuance pursuant to the Company's Dividend Reinvestment
Plan.
S-7
<PAGE> 8
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below
for the fiscal years ended December 31, 1994, and December 31, 1995, has been
derived from the audited consolidated financial statements of the Company. The
selected historical consolidated financial information for the nine months ended
September 30, 1995 and September 30, 1996, has been derived from the unaudited
consolidated financial statements of the Company. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Company's consolidated
financial statements and the notes thereto incorporated by reference in the
Prospectus.
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 30, 1994 NINE MONTHS
(INCEPTION) TO ENDED SEPTEMBER 30,
DECEMBER 31, YEAR ENDED ---------------------------
1994(1) DECEMBER 31, 1995 1995 1996
------------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 8,240,162 $ 24,707,272 $ 17,551,008 $ 25,999,518
Expenses:
Interest........................ 1,438,860 8,786,913 6,178,296 6,601,716
Depreciation and amortization... 1,501,906 4,696,838 3,356,408 4,618,169
Other operating................. 536,662 1,515,130 1,108,944 1,321,435
------------ ------------ ------------ ------------
Total expenses.......... $ 3,477,428 $ 14,998,881 $ 10,643,648 $ 12,541,320
------------ ------------ ------------ ------------
Net income........................ $ 4,762,734 $ 9,708,391 $ 6,907,360 $ 13,458,198
============ ============ ============ ============
Net income per share.............. $ 0.80 $ 1.55 $ 1.15 $ 1.28
============ ============ ============ ============
OTHER DATA:
Funds from operations(2).......... $ 5,628,243 $ 12,523,303 $ 8,942,844 $ 16,114,316
Funds from operations per share
(primary)....................... $ 0.94 $ 2.00 $ 1.49 $ 1.53
(fully diluted)................. -- $ 1.91 $ 1.43 $ 1.48
Weighted average shares
outstanding
(primary)....................... 5,980,000 6,271,242 5,996,534 10,529,286
Weighted average shares
outstanding
(fully diluted)................. -- 8,596,663 8,165,308 12,819,826
Dividends declared................ $ 5,083,000 $ 12,518,896 $ 8,100,166 $ 14,557,956
Dividends declared per share...... $ 0.850 $ 1.76 $ 1.315 $ 1.360
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
------------ ------------ ------------- -------------
BALANCE SHEET DATA:
Real estate properties, net....... $ 151,328,041 $ 207,257,168 $207,217,827 $290,684,489
Mortgage notes receivable......... 13,224,230 24,988,753 16,358,213 21,491,573
Total assets...................... 166,363,670 240,624,883 231,533,537 326,019,489
Bank credit facility.............. 67,500,000 30,225,000 78,200,000 91,200,000
10 1/2% Convertible Subordinated
Debentures...................... -- 43,947,000 51,405,000 27,950,000
Total stockholders' equity........ $ 98,388,985 $ 163,746,655 $ 98,034,370 $178,616,269
</TABLE>
- ---------------
(1) The Company commenced operations on June 30, 1994.
(2) Funds from operations is computed as net income (computed in accordance with
generally accepted accounting principles), excluding rental income
recognized on a straight-line basis on those leases with scheduled rent
increases, plus depreciation and amortization. Management considers funds
from operations to be an informative measure of the performance of an
equity REIT and consistent with measures used by analysts to evaluate
equity REITs. Funds from operations does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles, is not necessarily indicative of cash available to fund cash
needs and should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity.
S-8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is an indefinite life REIT which was incorporated in Maryland
on March 31, 1994. The Company commenced operations on June 30, 1994, with the
receipt of proceeds from the sale of 5,800,000 shares of Common Stock.
Accordingly, the Company has a limited operating history. The Company was
organized to invest in a diversified portfolio of income-producing
healthcare-related real estate through acquisition of existing facilities,
provision of mortgage financing or funding of the development of facilities for
lease to healthcare operators. The Company believes that it is an important
source of capital for the healthcare industry and intends to continue investing
in a high quality portfolio of properties managed by established operators of
rehabilitation, alternate-site care, long-term care and acute-care facilities.
The Company diversifies its portfolio by operator, geography, facility type and
healthcare industry segment. The Company's primary objective is to provide
current income for distribution to stockholders.
The Company incurs operating and administrative expenses, principally
compensation expense for its officers and other employees, office rent and
occupancy costs and various expenses incurred in connection with acquiring
additional facilities or providing additional mortgage financing. The Company is
"self-administered" and managed by its executives and staff, and does not engage
a separate advisor for administrative or investment services, although the
Company does engage legal, accounting, tax and financial advisors from time to
time. The Company intends to continue to declare and pay quarterly dividends to
its stockholders in amounts not less than the amounts required to maintain REIT
status under the Code. The Company's ability to pay dividends will depend upon
its cash available for distribution.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared with nine months ended September
30, 1995
Net income for the nine months ended September 30, 1996 increased 95.6% to
$13.5 million compared to $6.9 million for the nine months ended September 30,
1995. Net income per share was $1.28 (primary) and $1.27 (diluted) at September
30, 1996 as compared to $1.15 (primary and diluted) at September 30, 1995.
Total revenues for the nine months ended September 30, 1996, increased
47.7% to $26.0 million, compared to the $17.6 million the Company reported for
the first nine months of 1995. The increase in revenues is primarily
attributable to additional rental and mortgage interest income from the
acquisition and financing of properties subsequent to September 30, 1995. In
addition, during the nine months ended September 30, 1996, the Company
recognized a gain of $193,672 from the sale of an ancillary hospital facility
located in Philadelphia, Pennsylvania.
Total expenses for the 1996 nine month period increased 17.9% to $12.5
million from $10.6 million for the first nine months of 1995. Interest expenses
increased $0.4 million or 6.5% to 6.6 million in the 1996 nine month period as
compared to $6.2 million in the 1995 nine month period. This increase is due
primarily to interest related to the Company's Mortgage Note Payable that was
entered into in June 1996. Depreciation and amortization increased $1.3 million
or 43.3% to $4.3 million for the nine month period ended September 30, 1996 from
$3.0 million for the same period in 1995. Depreciation expense increased as a
result of the acquisition of additional properties subsequent to September 30,
1995. General and administrative expenses for the nine months ended September
30, 1996 totaled $1.2 million, increasing 9.1% or $0.1 million over general and
administrative expenses of $1.1 million at September 30, 1995. The increase is
due primarily to additional administrative and professional services related to
the additional investments in properties made since September 30, 1995.
S-9
<PAGE> 10
Year ended December 31, 1995 compared to the period from June 30, 1994
(inception) through December 31, 1994
Revenues for the year ended December 31, 1995 totaled $24.7 million,
increasing $16.5 million over 1994 revenues of $8.2 million. The increase in
revenues is primarily attributable to the recognition of a full year of revenues
from investments made during the partial year of 1994 and the revenues from
additional investments made during 1995. Specifically, a full year of revenues
from 1994 investments added $11.1 million to revenues and revenues from
investments made in 1995 added an additional $5.4 million.
Interest expense for the year ended December 31, 1995 totaled $8.8 million,
increasing $7.4 million over 1994 interest expense of $1.4 million. The increase
in interest expense is attributable to an increase of $3.5 million in interest
expense related to a full year of interest expense on amounts borrowed under the
Bank Credit Facility during 1994 and the interest expense on amounts borrowed
under the Bank Credit Facility during 1995. Additionally, $3.9 million of the
increase in interest expense is due to interest expense related to the issuance
of $52 million of convertible debentures issued in March 1995.
Depreciation and amortization for the year ended December 31, 1995 totaled
$4.7 million, increasing $3.2 million over 1994 depreciation and amortization of
$1.5 million. $3.1 million of the increase in depreciation and amortization is
due primarily to a full year of depreciation on and amortization of investments
made in 1994 and the depreciation on and amortization of additional investments
made during 1995. Additionally, $0.2 million of the increase is due to
amortization of deferred financing costs related to the issuance of $52 million
of convertible debentures issued in March 1995.
General and administrative expenses for the year ended December 31, 1995
totaled $1.5 million, increasing $1.0 million over 1994 general and
administrative expenses of $0.5 million. The increase in general and
administrative expenses is due primarily to the recognition of a full year of
expenses and the additional compensation, administrative and professional
services related to the additional investments made during 1995.
For the foregoing reasons, net income for the year ended December 31, 1995
increased to $9.7 million compared to $4.8 million for the period from June 30,
1994 (inception) to December 31, 1994. Net income per share was $1.55 in the
1995 period as compared to $0.80 for the 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital in order to fund investments in healthcare
properties through sale/leaseback transactions or mortgage financing. To fund
these investments, the Company utilizes its cash flow from operations and a
combination of long-term and short-term capital including both equity and debt.
The Company's long-term capital includes equity securities and convertible
debentures. The Company's short-term capital is obtained through the use of its
Bank Credit Facility. The Company intends to fund future investments and working
capital needs through borrowings under the Bank Credit Facility, existing cash
and cash equivalents and cash flow from operations. Thereafter, the Company may
raise capital through issuance of additional long-term and short-term
indebtedness or the issuance of its securities in private or public
transactions. There can be no assurance that acceptable financing for
investments can be obtained.
On June 24, 1996, the Company completed an amendment and restatement of its
unsecured Bank Credit Facility, which provides for an increase to $150 million
from its previous principal amount of $100 million, an extension of the term to
June 24, 1999, from June 22, 1997, and an adjustment in the determination of the
interest rate. The Bank Credit Facility is agented by NationsBank and is
participated in by a consortium of seven other banks. At September 30, 1996, the
Company had drawn $91,200,000 against the Bank Credit Facility for the purchase
of real estate properties and the funding of Mortgage Loans.
Borrowings under the Bank Credit Facility bear interest at a rate chosen by
the Company from either NationsBank's base rate or the Eurodollar rate plus a
percentage ranging from 1.00% to 1.625% depending upon the Company's senior debt
to consolidated total capital ratio for the preceding fiscal quarter. In
addition, the Company pays a commitment fee of either .20% or .25% per annum on
the unused portion of funds
S-10
<PAGE> 11
available for borrowing under the Bank Credit Facility. The commitment fee
percentage is based on the Company's senior debt to total capital ratio.
The Bank Credit Facility contains certain representations, warranties and
financial and other covenants customary in such loan agreements.
The Company's current intention is to utilize the Bank Credit Facility on a
short-term basis to finance future acquisitions and investments. The Company is
currently evaluating various alternatives for additional equity and debt
financing with which to finance those acquisitions and investments on a
long-term basis.
The Bank Credit Facility will be available until June 24, 1999, and the
principal balance outstanding thereunder will mature on that date. The Company
intends to renew the Bank Credit Facility or to repay the outstanding balance
thereunder at maturity from the proceeds of a refinancing or from the sale of
debt or equity securities. There can be no assurance that the lenders will renew
the Bank Credit Facility on terms favorable to the Company or that the Company
will be able to refinance the outstanding balance thereunder at that time.
The Company believes that its existing cash resources together with net
proceeds from the Offering and the unused portion of the Bank Credit Facility
will be sufficient to meet the Company's anticipated acquisition, investment and
working capital needs through the second quarter of 1997. Thereafter, the
Company may raise capital to fund future expansions through the issuance of
long-term or short-term indebtedness or the issuance of its securities in
private or public transactions. There can be no assurance that acceptable
financing for acquisitions and investments can be obtained.
S-11
<PAGE> 12
BUSINESS
GENERAL
The Company owns, leases and invests in a diversified portfolio of
Investments. As of September 30, 1996, the Company's Investments consisted of
(i) 45 Leased Properties and (ii) seven Mortgage Loans. The Investments are
located in 13 states primarily in the southeastern and western regions of the
United States and represent a variety of facility types in diverse healthcare
industry segments. The Investments, including commitments to invest that have
been partially funded, have grown from approximately $115 million at inception
on June 30, 1994 to approximately $348 million on September 30, 1996.
The following table sets forth as of September 30, 1996, certain
information regarding the Investments:
<TABLE>
<CAPTION>
PROPERTY TOTAL PERCENTAGE OF
OPERATOR(1)/PROPERTY TYPE(2) INVESTMENTS(3) PORTFOLIO(3)
------------------------------------------------- -------- -------------- -------------
<S> <C> <C> <C>
HEALTHSOUTH
Altoona.......................................... IRF $ 17,090,611 4.9%
Great Lakes Rehab. Hospital...................... IRF 14,500,000 4.2
One-7000 Building................................ AHF 13,250,000 3.8
Mechanicsburg.................................... IRF 12,362,633 3.5
Richmond Medical Building II..................... AHF 10,000,000 2.9
Birmingham Medical Building II................... AHF 9,600,000 2.8
South County Medical Center...................... ASF 7,400,000 2.1
Birmingham Medical Building I.................... AHF 4,700,000 1.3
American Sports Medicine Institute............... AHF 3,200,000 0.9
Coral Gables..................................... ORF 2,300,000 0.7
Larkin Medical Building.......................... AHF 2,250,000 0.6
Richmond Medical Building I...................... AHF 2,100,000 0.6
Little Rock...................................... ORF 2,060,000 0.6
Virginia Beach................................... ORF 1,460,000 0.4
North Shore...................................... ASF 910,000 0.3
------------ -----
$ 103,183,244 29.6%
------------ -----
COLUMBIA/HCA
Sunrise Mountainview Medical Center.............. AHF $ 27,000,000 7.7%
Sarasota Medical Center.......................... AHF 14,694,132 4.2
Beaumont......................................... AHF 10,300,000 3.0
Bonita Bay Medical Center........................ ASF 7,997,412 2.3
Cape Coral Medical Center........................ ASF 5,548,013 1.6
Northlake........................................ ASF 1,040,000 0.3
------------ -----
$ 66,579,557 19.1%
------------ -----
MEDPARTNERS
Melbourne Medical Building....................... PC $ 9,300,000 2.7%
Par Place........................................ PC 6,500,000 1.9
Brookstone....................................... PC 6,025,000 1.7
McCollough Clinic................................ PC 6,000,000 1.7
Greenwood Medical Building....................... PC 1,700,000 0.5
Columbus OB/GYN.................................. PC 1,500,000 0.4
Indialantic Medical Building..................... PC 1,300,000 0.3
West Palm Beach Medical Building ................ PC 574,120 0.2
------------ -----
$ 32,899,750 9.4%
------------ -----
</TABLE>
S-12
<PAGE> 13
<TABLE>
<CAPTION>
PROPERTY TOTAL PERCENTAGE OF
OPERATOR(1)/PROPERTY TYPE(2) INVESTMENTS(3) PORTFOLIO(3)
------------------------------------------------- -------- -------------- -------------
<S> <C> <C> <C>
INTEGRATED HEALTH
Alexandria....................................... SAC $ 10,200,000 3.0%
Mountain View.................................... SNF 9,775,000 2.8
Gravois.......................................... SAC 8,500,000 2.4
------------ -----
$ 28,475,000 8.2%
------------ -----
ORNDA
Midway Medical Plaza............................. AHF $ 20,400,000 5.9%
Chapman(4)....................................... ACH 7,923,221 2.2
------------ -----
$ 28,323,221 8.1%
------------ -----
MEDCATH
Tuscon Heart Hospital............................ ACH $ 17,800,000 5.1%
------------ -----
$ 17,800,000 5.1%
------------ -----
QUORUM
Medical Building II.............................. AHF $ 5,810,320 1.7%
Desert Springs................................... AHF 4,700,000 1.3
Hamiter Building................................. AHF 4,382,520 1.2
Goodyear Clinic.................................. AHF 1,607,160 0.5
------------ -----
$ 16,500,000 4.7%
------------ -----
RAMSAY
Desert Vista Hospital............................ CMHH $ 8,550,000 2.5%
Mission Vista Hospital........................... CMHH 3,950,000 1.1
------------ -----
$ 12,500,000 3.6%
------------ -----
HORIZON/CMS
Southeast Texas Rehab. Hospital.................. IRF $ 10,500,000 3.0%
------------ -----
$ 10,500,000 3.0%
------------ -----
COGBURN
Ideal............................................ SNF $ 4,750,000 1.4%
Cogburn.......................................... SNF 3,963,322 1.1
------------ -----
$ 8,713,322 2.5%
------------ -----
REMINGTON PARK
Baytown.......................................... ALF $ 7,428,967 2.2%
------------ -----
$ 7,428,967 2.2%
------------ -----
ARCON
Destin........................................... IDF $ 4,402,440 1.3%
------------ -----
$ 4,402,440 1.3%
------------ -----
VANGUARD CARE
Silver Haven Care................................ SNF $ 2,536,819 0.7%
Valley View...................................... SNF 969,960 0.3
Richardson Manor................................. SNF 285,721 0.1
------------ -----
$ 3,792,500 1.1%
------------ -----
HEALTHKEY/BJC HEALTH SYSTEM
South County Medical Center II................... PC $ 2,770,026 0.8%
------------ -----
$ 2,770,026 0.8%
------------ -----
</TABLE>
S-13
<PAGE> 14
<TABLE>
<CAPTION>
PROPERTY TOTAL PERCENTAGE OF
OPERATOR(1)/PROPERTY TYPE(2) INVESTMENTS(3) PORTFOLIO(3)
------------------------------------------------- -------- ------------- -------------
<S> <C> <C> <C>
MPI
Southwest General Hospital....................... AHF $ 2,333,000 0.7%
------------ -----
2,333,000 0.7%
------------ -----
SSM HEALTH SYSTEMS, INC.
Clayton Big Bend................................. PC $ 2,100,000 0.6%
------------ -----
$ 2,100,000 0.6%
------------ -----
Total Investments................................ $ 348,301,027 100.0%
============ =====
</TABLE>
- ---------------
(1) Operators are Lessees, Borrowers, Guarantors or primary sublessees of the
healthcare facilities.
(2) IRF means inpatient rehabilitation facility, AHF means ancillary hospital
facility, ASF means ambulatory surgery facility, ORF means outpatient
rehabilitation facility, PC means physician clinic, SAC means subacute care
facility, SNF means skilled nursing facility, ACH means acute-care
hospital, CMHH means comprehensive mental health hospital, ALF means
assisted living facility, and IDF means integrated delivery facility.
(3) Based on the amount of the Company's investment, including commitments to
invest that have been partially funded. Excludes capitalized acquisition
costs and capitalized interest of approximately $2.4 million.
(4) Chapman General Hospital owns the property which is leased to a subsidiary
of OrNda. OrNda guarantees the leases to the Borrower and the leases are
assigned to the Company as additional collateral for the Mortgage Loan.
SELECTED LESSEES, BORROWERS, GUARANTORS AND OPERATORS
The following describes selected Lessees, Borrowers, Guarantors and
Operators. Nine of the 16 Operators of the Properties underlying the Company's
Investments are subject to the reporting requirements of the Commission and file
annual reports containing audited financial information, and quarterly reports
for the first three quarters of each fiscal year containing unaudited financial
information, with the Commission. With respect to such companies, the
information provided is derived for the limited purposes of this Prospectus
Supplement from filings made with the Commission.
While the Company has not established any definitive credit criteria, the
Company evaluates the creditworthiness of the Lessees, Borrowers, Guarantors and
Operators based upon a review of publicly available financial and other
information, as well as a due diligence review of the individual financial
statements and other non-financial information provided by the Lessees,
Borrowers, Guarantors and Operators, to the extent available, and other data
customarily reviewed when a company makes an acquisition or significant
investment. While the Company believes the information is provided in good faith
and has no reason to believe that any of such information is inaccurate in any
material respect, in most instances, the Company has not and cannot make an
independent investigation of such information.
HEALTHSOUTH. HEALTHSOUTH, headquartered in Birmingham, Alabama, is the
nation's largest provider of outpatient and rehabilitative healthcare services.
HEALTHSOUTH provides these services through its national network of outpatient
and inpatient rehabilitation facilities, outpatient surgery centers, medical
centers and other healthcare facilities. As of September 30, 1996, HEALTHSOUTH
had over 1,000 patient care locations in 48 states. HEALTHSOUTH's 1995 revenues
were approximately $2.0 billion.
S-14
<PAGE> 15
The following is a summary of certain financial information for
HEALTHSOUTH:
HEALTHSOUTH SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and marketable securities.................. $ 129,971 $ 156,321 $ 108,438
Working capital................................. 282,667 406,125 431,764
Total assets.................................... 2,230,093 2,931,495 3,084,755
Long-term debt.................................. 1,139,087 1,391,664 1,419,455
Stockholders' equity............................ 757,583 1,185,898 1,288,672
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income Statement Data:
Revenues.................................. $1,649,199 2,003,146 1,176,823
Expenses.................................. 1,464,526 1,791,257 994,734
Net Income................................ 88,083 92,521 97,406
</TABLE>
Columbia/HCA. Columbia/HCA, headquartered in Louisville, Kentucky,
provides a full range of inpatient and outpatient services and is one of the
leading hospital owners and management companies in the United States. Major
services provided by Columbia/HCA and its affiliated entities include acute
inpatient care, inpatient psychiatric care, outpatient diagnostic services,
outpatient surgery programs, outpatient psychiatric services, rehabilitation
services, skilled nursing care and home healthcare/infusion services. At
November 5, 1996, Columbia/HCA operated approximately 347 hospitals, 133
outpatient surgery centers, 560 home health agencies and extensive ancillary
service providers in 37 states, England and Switzerland. Columbia/HCA is
building comprehensive networks of healthcare services, including home health,
rehabilitation, and skilled nursing units, in local markets around the country.
MedPartners. MedPartners, with annualized revenues of approximately $4.5
billion, is the largest physician practice management company in the United
States. MedPartners develops, consolidates and manages integrated healthcare
delivery systems. Through its network of affiliated group and independent
practice association ("IPA") physicians, MedPartners provides primary and
specialty healthcare services to prepaid managed care enrollees and
fee-for-service patients. MedPartners also operates one of the largest
independent prescription benefit management programs in the United States and
provides disease management services and therapies for patients with certain
chronic conditions. As of June 30, 1996, MedPartners operated in 54 markets in
25 states through affiliations with approximately 7,400 physicians, including
approximately 2,470 in group practices, 4,180 through IPA relationships and 740
who were hospital-based, providing healthcare to approximately 1.5 million
prepaid enrollees.
Integrated Health. Integrated Health, formed in 1986, and headquartered in
Owings Mills, Maryland, is one of the nation's leading providers of subacute
healthcare services. Integrated Health's strategy is to use geriatric care
facilities as platforms to provide a wide variety of medical and rehabilitative
services more typically delivered in the acute care hospital setting. Integrated
Health's focus on providing subacute care is designed to address the fact that
cost containment measures implemented by private insurers and limitations on
government reimbursement of hospital costs have resulted in the discharge from
hospitals of many patients who continue to require subacute care. These patients
often cannot be effectively cared for in the home because of the complex
monitoring and specialized medical treatment required. Because geriatric care
facilities have lower capital and operating costs than acute care hospitals,
Integrated Health is able to offer these complex medical services at a
significantly lower cost than acute care hospitals. As of October 21, 1996,
Integrated Health operated over 1,000 post-acute service locations in 40 states
throughout the United States.
S-15
<PAGE> 16
On October 21, 1996, Integrated Health announced that it had entered into a
definitive merger agreement pursuant to which it will acquire Coram Healthcare
Corp, which is the largest provider of home infusion services with annualized
1996 revenues of $532 million and 112 locations in 43 states.
OrNda. OrNda, headquartered in Nashville, Tennessee, is a leading provider
of healthcare services principally through the operation of 50 hospitals located
in urban and suburban communities located in 15 states. The company has a
significant presence in the metropolitan Los Angeles area, south Florida and the
greater Phoenix area. OrNda's 1996 fiscal year revenues were approximately $2.1
billion.
On October 17, 1996, OrNda announced that it had agreed to be acquired by
Tenet Healthcare Corp. for approximately $3.22 billion in stock and assumed
debt. Tenet is the nation's second-largest hospital company. Upon completion of
the transaction, which is subject to shareholder and regulatory approvals, Tenet
will operate 126 hospitals located in 22 states and will have combined annual
revenues of approximately $8.5 billion.
S-16
<PAGE> 17
UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement, each of the Underwriters named below has severally agreed to
purchase, and the Company has agreed to sell to each Underwriter, the number of
Shares set forth opposite its name below at the public offering price less the
underwriting discounts and commissions set forth on the cover of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc..........................................................
PaineWebber Incorporated..................................................
J.C. Bradford & Co........................................................
Cowen & Company...........................................................
Total........................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all the
Shares offered hereby (other than those covered by the over-allotment option
described below) if any of such Shares are taken.
The Company has been advised by Smith Barney Inc., PaineWebber
Incorporated, J.C. Bradford & Co. and Cowen & Company (collectively, the
"Representatives") that the Underwriters propose to offer the Shares to the
public at the public offering price set forth on the cover of this Prospectus
and to certain dealers at such price, less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other dealers. After the
initial offering of the Shares to the public, the offering price and other
selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable not
later than 30 calendar days from the date of this Prospectus, to purchase up to
375,000 additional Shares at the same price per share as the Company receives
for the Shares that the Underwriters have agreed to purchase. To the extent that
the Underwriters exercise such option to purchase up to a total of 375,000
Shares, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of Shares to be
purchased by it shown in the above table bears to the total number of Shares
shown in the above table, and the Company will be obligated, pursuant to the
option, to sell such Shares to the Underwriters. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the Shares offered hereby. If purchased, the Underwriters will sell such
additional 375,000 Shares on the same terms as those on which the Shares are
being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The Company and each officer and director of the Company has agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock, or grant any option or warrants to purchase Common Stock, except, in the
case of the Company, pursuant to the grant or exercise of options under the
Stock Incentive Plan and shares of Common Stock issuable upon conversion of the
Debentures, for a period of 180 days from the date of this Prospectus
Supplement, without the prior written consent of Smith Barney Inc.
Smith Barney Inc., PaineWebber Incorporated, J.C. Bradford & Co. and Cowen
& Company have engaged and may in the future engage in investment banking
services for the Company.
S-17
<PAGE> 18
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Sirote & Permutt, P.C., Birmingham, Alabama, and for the Underwriters
by Dewey Ballentine, New York, New York. As to matters of Maryland law, Sirote &
Permutt, P.C. and Dewey Ballentine will rely upon an opinion of Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland.
S-18
<PAGE> 19
Inside Back Cover
[A map of the United States showing the locations of the Company's properties
in the various states with a number signifying the number of properties in that
state. The footnote (denoted by an asterisk) refers to the information in the
map.]
* As of September 30, 1996, including partially funded commitments to invest.
<PAGE> 20
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON STOCK BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.............. S-3
Use of Proceeds............................ S-6
Price Range of Common Stock and
Distributions............................ S-6
Capitalization............................. S-7
Selected Historical Consolidated
Financial Data........................... S-8
Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................ S-9
Business................................... S-12
Underwriting............................... S-17
Legal Matters.............................. S-18
PROSPECTUS
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
The Company................................ 3
Risk Factors............................... 3
Use of Proceeds............................ 8
Consolidated Ratios of Earnings to Fixed
Charges and Combined Fixed Charges
and Preferred Stock Dividend
Requirements............................. 8
Description of Debt Securities............. 8
Description of Capital Stock............... 16
Federal Income Tax Considerations.......... 21
Plan of Distribution....................... 30
Legal Matters.............................. 31
Experts.................................... 31
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,500,000 SHARES
LOGO
CAPSTONE CAPITAL
CORPORATION
COMMON STOCK
------------
PROSPECTUS SUPPLEMENT
, 1996
------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
COWEN & COMPANY
------------------------------------------------------
------------------------------------------------------
