<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
NO. 333-27067
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SECURITY CAPITAL ATLANTIC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
(404) 237-9292
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
JEFFREY A. KLOPF, SECRETARY
SECURITY CAPITAL ATLANTIC INCORPORATED
SIX PIEDMONT CENTER
ATLANTA, GEORGIA 30305
(404) 237-9292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
EDWARD J. SCHNEIDMAN
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
--------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this registration statement becomes
effective.
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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, par value $.01 per share.......... $51,763,371 $15,686
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Shareholder Purchase Rights..................... None None
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Preferred Share Purchase Rights................. None None
</TABLE>
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(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
(2) $15,626 was previously paid.
--------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN 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 THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS 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 JULY 3, 1997
[LOGO OF SECURITY CAPITAL ATLANTIC APPEARS HERE]
RIGHTS TO PURCHASE COMMON STOCK
SHARES OF COMMON STOCK
-----------
Security Capital Atlantic Incorporated ("ATLANTIC") is a highly focused real
estate operating company which engages in the development, acquisition,
operation and long-term ownership of multifamily communities in the
southeastern United States. ATLANTIC has elected to be taxed as a real estate
investment trust (a "REIT") for federal income tax purposes and pays regular
quarterly distributions to its shareholders. The last reported sale price of
ATLANTIC's shares of common stock, par value $.01 per share (the "Shares"),
which are listed under the symbol "SCA", on the New York Stock Exchange (the
"NYSE") on July 1, 1997 was $22 7/8. See "Price Range of ATLANTIC Shares and
Distributions".
This Prospectus relates to (a) rights (the "Rights") to
subscribe for and purchase Shares and (b) the Shares that are
issuable by ATLANTIC upon exercise of the Rights (the "Offering"). ATLANTIC is
issuing as a dividend, at no cost, to each holder of Shares of record as of the
close of business on , 1997 (the "Record Date"), one Right for
each Share held. Rights entitle the holder thereof to purchase one
Share at a subscription price equal to $ per Share (the "Subscription
Price"). The Subscription Price is equal to % of the average closing price of
the Shares on the NYSE over the five-day period prior to the Record Date. See
"The Merger Transaction--Description of the Merger". Rights will be evidenced
by transferable Rights certificates and will expire at 5:00 p.m., Eastern
Daylight Time, on , 1997, or such later date as ATLANTIC may
determine in its sole discretion (the "Expiration Date"). The Rights will be
traded on the NYSE under the symbol "SCA-RT"; however, no assurance can be
given that a public market will develop or be sustained for the Rights. See
"The Offering".
A holder of Shares on the Record Date who validly exercises all of such
shareholder's Rights may also oversubscribe (the "Oversubscription Privilege"),
at the Subscription Price, for additional Shares covered by this Prospectus
that have not been purchased through the exercise of Rights, which does not
include Shares underlying the Rights issued to Security Capital Group
Incorporated ("Security Capital") which will not be available for
oversubscriptions or for sales to third parties ("Unsubscribed Shares"). Only
holders of Shares on the Record Date will be entitled to the Oversubscription
Privilege. Shareholders of ATLANTIC who do not exercise all of their Rights
will own a smaller relative equity ownership and voting interest in ATLANTIC
after the Offering and the Merger transaction described below. Shareholders who
do not exercise their Rights may offer to sell them through a securities broker
prior to , 1997, although no assurance of a sale can be given.
There is no minimum number of Shares required to be sold as a condition to the
consummation of the Offering. Simultaneously with the offering of Shares to
Rights holders, Security Capital Markets Group Incorporated ("Capital Markets
Group"), an affiliate of ATLANTIC's REIT manager, will act as placement agent
to sell Unsubscribed Shares to third parties, on a best efforts basis, at the
Subscription Price. See "The Offering".
The closing of the Offering is conditioned upon the consummation of the
merger (the "Merger") of ATLANTIC's REIT manager, Security Capital (Atlantic)
Incorporated (the "REIT Manager" or "REIT Management"), and its property
manager, SCG Realty Services Atlantic Incorporated ("SCG Realty Services"),
into a newly formed subsidiary of ATLANTIC. The REIT Manager and SCG Realty
Services are owned by Security Capital, which owned 51.3% of the outstanding
Shares at June 27, 1997 (which could increase to approximately % after the
Offering and the Merger if no Shares are purchased in the Offering). See "The
Merger Transaction" and "The Offering--Condition to Closing". The Offering is
designed to allow ATLANTIC's shareholders (other than Security Capital) the
opportunity to maintain their relative ownership in ATLANTIC by purchasing
additional Shares at a price which is below the price at which Security Capital
is receiving Shares in the Merger. Security Capital has agreed that it will not
exercise its Rights to purchase additional Shares and that it will not sell its
Rights. See "The Offering--Principal Shareholder".
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SHARES.
The risk factors include:
. The value of ATLANTIC's assets is not based on third-party appraisals;
therefore, the price of the Shares may be greater than the fair market
value of ATLANTIC's portfolio.
. The ability of Security Capital, which owns 51.3% of the outstanding
Shares, to exercise significant influence over the business and policies
of ATLANTIC.
. Conflicts of interest between ATLANTIC and other affiliates of Security
Capital, and the ability of Security Capital to influence decisions
regarding agreements with affiliates.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) ATLANTIC(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share........................ $ None $
Total............................ $ None $
</TABLE>
- -----
(1) ATLANTIC has agreed to indemnify the placement agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "The Offering--Unsubscribed Shares and Third Party Sales".
(2) Before deducting estimated expenses of $ payable by ATLANTIC.
-----------
Funds paid by subscribers will be deposited in an escrow account with the
Subscription Agent and, if the Offering is terminated, will be refunded
promptly, together with a pro rata share of any net interest earned thereon.
Subscription proceeds in the escrow account may not be withdrawn by
subscribers. See "The Offering".
-----------
The date of this Prospectus is , 1997.
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
DIVERSIFIED TARGET MARKET
[MAP APPEARS HERE]
ATLANTIC OR ITS AFFILIATES MAY ENGAGE IN TRANSACTIONS WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE RIGHTS. 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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY......................................................... 3
RISK FACTORS............................................................... 20
Lack of Independent Valuation of Assets.................................. 20
Significant Influence of Principal Shareholder........................... 20
Conflicts of Interest.................................................... 20
Risk of Inability to Pay Future Distributions............................ 21
Borrowing Risks.......................................................... 21
Concentration of ATLANTIC's Communities in Atlanta....................... 22
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT..... 22
Impact of Merger on ATLANTIC's Financial Position........................ 22
Changes in ATLANTIC's Policies Without Shareholder Approval.............. 23
Limitations on Acquisition of Shares and Change in Control............... 23
Possible Adverse Consequence of Limits on Ownership of Shares............ 24
Effect on Share Price of Shares Available for Future Sale................ 24
Restrictions Associated With ATLANTIC's Tax-Exempt Bond Financings....... 24
Effect of Market Interest Rates on Share Prices.......................... 25
ATLANTIC's Real Estate Investment Risks.................................. 25
Regulatory Compliance Risks.............................................. 26
USE OF PROCEEDS............................................................ 28
CAPITALIZATION............................................................. 28
PRICE RANGE OF ATLANTIC SHARES AND DISTRIBUTIONS........................... 29
THE MERGER TRANSACTION..................................................... 31
Description of the Merger................................................ 31
Relationship with Security Capital After the Merger...................... 32
Interests of Certain Persons in the Merger............................... 34
Long-Term Incentive Plan................................................. 35
BUSINESS................................................................... 37
Highly Focused Business Strategy Grounded in Research.................... 37
ATLANTIC's Operating System.............................................. 39
Strategy for Cash Flow and Distribution Growth........................... 42
Employees................................................................ 45
Legal Proceedings........................................................ 45
Competition.............................................................. 45
Americans with Disabilities Act.......................................... 46
Environmental Matters.................................................... 46
Insurance Coverage....................................................... 46
REIT MANAGEMENT............................................................ 47
General.................................................................. 47
Directors and Officers of ATLANTIC and the REIT Manager.................. 49
Classification of Directors.............................................. 53
Committees of the Board.................................................. 53
Compensation of Directors................................................ 54
Outside Directors Plan................................................... 54
Liability Limitation and Indemnification................................. 55
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ATLANTIC'S COMMUNITIES.................................................... 56
Portfolio Composition................................................... 56
Geographic Distribution................................................. 57
Communities............................................................. 58
SELECTED FINANCIAL INFORMATION............................................ 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 66
Overview................................................................ 66
Results of Operations................................................... 69
Environmental Matters................................................... 75
Liquidity and Capital Resources......................................... 75
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 83
Investment Policies..................................................... 83
Financing Policies...................................................... 84
Conflict of Interest Policies........................................... 84
Policies Applicable to the REIT Manager and Officers and Directors of
ATLANTIC............................................................... 84
Policies With Respect to Other Activities............................... 85
CERTAIN RELATIONSHIPS AND TRANSACTIONS.................................... 86
REIT Management Agreement............................................... 86
Security Capital Investor Agreement..................................... 86
Shareholders' Agreement................................................. 86
Property Management Company............................................. 87
Homestead Transaction................................................... 87
Funding Commitment Agreement............................................ 87
Protection of Business Agreement........................................ 88
Homestead Investor Agreement............................................ 89
Development Agreement................................................... 89
Other Transactions With Affiliates...................................... 90
PRINCIPAL SHAREHOLDERS.................................................... 90
DESCRIPTION OF STOCK...................................................... 91
General................................................................. 91
Common Stock............................................................ 91
Preferred Stock......................................................... 92
Purchase Rights......................................................... 92
Restriction on Size of Holdings of Shares............................... 94
CERTAIN PROVISIONS OF MARYLAND LAW AND OF ATLANTIC'S CHARTER AND BYLAWS... 96
Classification of the Board............................................. 96
Director Liability Limitation and Indemnification....................... 96
Business Combinations................................................... 97
Control Share Acquisitions.............................................. 98
Advance Notice of Director Nominations and New Business................. 98
SHARES AVAILABLE FOR FUTURE SALE.......................................... 99
FEDERAL INCOME TAX CONSIDERATIONS......................................... 99
Taxation of ATLANTIC.................................................... 100
Taxation of Shareholders................................................ 104
Tax Effects of the Merger............................................... 106
Other Tax Considerations................................................ 109
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE OFFERING............................................................... 110
Rights................................................................... 110
Subscription Price....................................................... 110
Expiration Date.......................................................... 110
Oversubscription Privilege............................................... 110
Unsubscribed Shares and Third Party Sales................................ 110
Limitation on Subscriptions.............................................. 111
Condition to Closing..................................................... 111
Withdrawal............................................................... 111
Principal Shareholder.................................................... 111
Subscription Agent....................................................... 112
Fractional Shares........................................................ 112
Method of Exercising Rights and Oversubscription Privilege............... 112
Late Delivery of Payments and Rights Certificates........................ 113
Method of Transferring Rights............................................ 113
Validity of Subscriptions................................................ 114
Rights of Subscribers.................................................... 114
Subscription Proceeds.................................................... 114
Foreign Shareholders..................................................... 114
Delivery of Shares....................................................... 115
Certain Federal Income Tax Considerations Regarding the Offering......... 115
PREFERRED SHARE OFFERING................................................... 116
NOTE OFFERING.............................................................. 117
INDEPENDENT AUDITORS AND EXPERTS........................................... 117
VALIDITY OF SHARES......................................................... 117
ADDITIONAL INFORMATION..................................................... 117
GLOSSARY................................................................... 119
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
iii
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information contained in this Prospectus assumes the
sale of Shares at the Subscription Price and the application of the
proceeds therefrom. All references to communities under control refer to
developments in planning that were under control as of May 31, 1997. The term
"in planning" means that construction is anticipated to commence within 12
months. The term "under control" means that ATLANTIC has an exclusive right
(through contingent contract or letter of intent) during a contractually
agreed-upon time period to acquire land for future development of multifamily
communities, subject to removal of contingencies during the due diligence
process, but does not currently own the land. The term "total expected
investment cost" represents cost plus budgeted renovations (for operating
communities) or cost plus additional budgeted development expenditures (for
communities under construction and in planning). The term "funds from
operations" represents net earnings computed in accordance with generally
accepted accounting principles ("GAAP"), excluding gains (or losses) from real
estate transactions, provisions for possible losses, extraordinary items and
real estate depreciation. ATLANTIC believes that funds from operations is
helpful to the reader in understanding the performance of an equity REIT and
will enhance the reader's comprehension of ATLANTIC's results of operations and
cash flows presented in the financial statements and other data in this
document. Funds from operations should not be considered as an alternative to
net earnings or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Funds from Operations". Homestead
Village(R) is a registered trademark of Homestead Village Incorporated
("Homestead") and the term "Homestead Village" as used herein shall be deemed
to include a reference to such registered trademark. See "Glossary" for the
definitions of certain other terms used in this Prospectus.
SECURITY CAPITAL ATLANTIC INCORPORATED
ATLANTIC's objective is to be the preeminent real estate operating company
focusing on multifamily communities in its southeastern United States target
market. Through the REIT Manager and SCG Realty Services, ATLANTIC has access
to services which provide ATLANTIC with the same resources as a fully
integrated operating company. The REIT Manager and SCG Realty Services have
approximately 100 professionals and 450 property-level and support personnel
dedicated to implementing ATLANTIC's highly focused operating strategy. See
"The Merger Transaction" for a description of an agreement that ATLANTIC has
entered into with Security Capital, which owns the REIT Manager and SCG Realty
Services, to merge the REIT Manager and SCG Realty Services into a newly formed
subsidiary of ATLANTIC in exchange for Shares. ATLANTIC focuses on the
development, acquisition, operation and long-term ownership of multifamily
communities. At May 31, 1997, ATLANTIC's portfolio consisted of 25,664
multifamily units, including 6,303 units under construction or in planning, in
15 metropolitan areas and 50 submarkets in growth areas of the southeastern
United States. The total expected investment cost of ATLANTIC's 70 operating
communities, including budgeted renovations and budgeted development
expenditures, was approximately $982.9 million at May 31, 1997 and the total
budgeted development cost of ATLANTIC's 22 communities under construction or in
planning was approximately $401.2 million. Additionally, at May 31, 1997,
ATLANTIC had land in planning and under control for the development of 3,830
units with a total budgeted development cost of $249.2 million.
ATLANTIC seeks to achieve long-term sustainable growth in per Share cash flow
by maximizing the operating performance of its core portfolio through value-
added operating systems and concentrating its experienced team of professionals
on developing and acquiring industry-leading multifamily communities in
targeted submarkets exhibiting strong job growth and favorable demographic
trends. Since its inception in 1993,
3
<PAGE>
ATLANTIC has employed a research-driven investment approach, deploying its
capital in markets and submarkets that exhibit strong market fundamentals.
ATLANTIC believes that population and employment growth are the primary demand
generators for multifamily product.
ATLANTIC believes that its future growth will be driven by (i) its research-
based investment strategy which focuses on a primary target market exhibiting
strong demographic trends and job growth prospects; (ii) an experienced
management team which provides ATLANTIC with several senior officers with the
leadership, operational, investment and financial skills and experience to
oversee the operations of ATLANTIC; (iii) ongoing research and development
focused on identifying those submarkets and product types that will offer
continued opportunities for long-term cash flow growth; (iv) a development
strategy targeted at moderate income households which ATLANTIC believes
represent one of the largest and most underserved segments of the renter
population; (v) the acquisition and redevelopment of existing multifamily
communities in markets which are expected to experience favorable growth in
rents and income; (vi) a high-quality portfolio providing an internal source of
long-term cash flow growth; (vii) the substantial resources available to
ATLANTIC through its affiliation with Security Capital; and (viii) a
conservative balance sheet strategy that is expected to provide ATLANTIC with
the ability to raise funds through offerings of debt and equity and allow
ATLANTIC to take advantage of future investment opportunities.
ATLANTIC's executive offices are located at Six Piedmont Center, Atlanta,
Georgia 30305, and its telephone number is (404) 237-9292. ATLANTIC is a
Maryland corporation. Its predecessor was formed in October 1993 as a Delaware
corporation, and ATLANTIC was re-formed as a Maryland corporation in April
1994.
SUMMARY RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" PRIOR TO MAKING AN INVESTMENT DECISION REGARDING THE SHARES
OFFERED HEREBY. THESE RISKS INCLUDE:
. The value of ATLANTIC's assets is not based on third-party appraisals;
therefore, the price of the Shares may be greater than the fair market
value of ATLANTIC's portfolio.
. The ability of Security Capital to exercise significant influence over
the business and policies of ATLANTIC due to its ownership of 51.3% of
the outstanding Shares (which could increase to approximately % after
the Offering and the Merger if no Shares are purchased in the Offering),
its contractual right to nominate up to three Directors and its
contractual right to prior approval over certain matters, including
ATLANTIC's operating budget and substantial deviations therefrom.
. Conflicts of interest between ATLANTIC and other affiliates of Security
Capital, and the ability of Security Capital to influence decisions
regarding agreements with affiliates (which must be reviewed and approved
at least annually by ATLANTIC's independent Directors).
. ATLANTIC's ability to pay future distributions depends on a number of
factors, any change in which could affect ATLANTIC's ability to pay
future distributions.
. Risks related to existing and future debt financings of ATLANTIC, such as
the possible inability to refinance revolving credit and mortgage
indebtedness and possible increases in interest rates.
. Concentration of communities representing 34.7% of ATLANTIC's pro forma
revenues for the three-month period ended March 31, 1997 in the Atlanta,
Georgia metropolitan area, which thus may be affected by changes in the
economic conditions of that area.
. Taxation of ATLANTIC as a corporation if it fails to continue to qualify
as a REIT for federal income tax purposes, and ATLANTIC's liability for
certain federal, state and local taxes on its income and property.
4
<PAGE>
. The impact of the Merger on ATLANTIC's financial position, including the
possibility that the cost of providing REIT and property management
services internally will exceed the fees payable to the REIT Manager and
SCG Realty Services under the current agreements.
. Ability of ATLANTIC's Board of Directors (the "Board"), which is
comprised of a majority of independent Directors, to change certain
policies of ATLANTIC, including investment, financing and distribution
policies, without a vote of the shareholders, which could result in
policies that do not fully reflect the interests of all shareholders.
. Limitations on the shareholders' ability to change control of ATLANTIC
due to (i) restrictions on ownership of more than 9.8% of the number or
value of the outstanding shares of ATLANTIC's stock and possible
redemption of shares acquired or voidance of the transfer of shares
acquired in excess of 9.8% of the number or value of the outstanding
shares of ATLANTIC's stock; (ii) ATLANTIC's shareholder rights plan;
(iii) ATLANTIC's classified Board; (iv) the Board's ability to reclassify
unissued shares of ATLANTIC's stock; and (v) advance notice requirements
to nominate Directors or bring other business before annual or special
shareholders' meetings.
. Restrictions associated with tax-exempt bonds used to finance certain
communities which require that a certain percentage of units in those
communities be occupied by lower-income households.
. The possible effect on the market price of the Shares of the future sale
of a substantial number of Shares.
. Possible adverse effect of increases in market interest rates on Share
prices.
. Real estate investment considerations, such as (i) the effect of local
economic and other conditions on real estate values and the ability of
residents to make rental payments, along with the general illiquidity of
equity real estate investments, which may limit the ability of ATLANTIC
to change its asset base; (ii) the risks inherent in development
activities, including the risk that construction may not be completed on
schedule; (iii) competition in seeking residents for communities owned,
communities for acquisition and land for development; and (iv) risks
related to ATLANTIC's current investment in convertible mortgages and to
any future investments in mortgages.
. Potential liability of ATLANTIC for unanticipated or future environmental
liabilities and the potential expense of compliance with the Fair Housing
Amendments Act of 1988 (the "FHA") and the Americans with Disabilities
Act of 1990 (the "ADA").
SUMMARY RELATED PARTY TRANSACTIONS
As more fully described under "Certain Relationships and Transactions",
ATLANTIC has entered into the following transactions, in addition to the
transactions with affiliates described elsewhere under that caption and
throughout this Prospectus:
. REIT MANAGEMENT AGREEMENT. Pursuant to the REIT Management Agreement, the
REIT Manager provides various services to ATLANTIC, including strategic
and day-to-day management, research, investment analysis, acquisition and
due diligence, multifamily community development, asset management,
capital markets, asset disposition, legal and accounting services for a
fee, which was $3.0 million for the three-month period ended March 31,
1997 and was $10.4 million for the year ended December 31, 1996. The REIT
Management Agreement will be terminated upon closing of the Merger.
. SECURITY CAPITAL INVESTOR AGREEMENT. ATLANTIC and Security Capital are
parties to an Investor Agreement, which requires ATLANTIC to obtain
Security Capital's approval of certain matters, including ATLANTIC's
operating budget and substantial deviations therefrom, certain contracts
which contemplate annual payments in excess of $100,000 and acquisitions
or sales of assets in excess of $5.0 million. After the Merger, Security
Capital will continue to have contractual rights of prior approval and
consultation regarding certain matters, including ATLANTIC's operating
budget and substantial deviations therefrom, acquisitions or sales of
assets in excess of $25.0 million, issuances of securities for
5
<PAGE>
less than fair market value, adoption of employee benefit plans and
certain incurrences of additional indebtedness. In addition, Security
Capital has the contractual right (and after the Merger will continue to
have the contractual right) to nominate up to three Directors to the
Board, depending upon its level of ownership of Shares.
. PROPERTY MANAGEMENT COMPANY. SCG Realty Services provides property
management services for 91% of ATLANTIC's properties pursuant to
agreements which terminate September 30, 1997, subject to earlier
termination by ATLANTIC on 30 days' notice, for a fee which was $1.3
million for the three-month period ended March 31, 1997 and was $4.2
million for the year ended December 31, 1996. The property management
agreements will be terminated upon closing of the Merger.
. HOMESTEAD TRANSACTION. In May 1996, ATLANTIC, Security Capital Pacific
Trust ("PTR"), Security Capital and Homestead entered into a merger
agreement, pursuant to which each of ATLANTIC, PTR and Security Capital
sold, through a series of merger transactions, all of their respective
assets relating to Homestead Village properties to Homestead. ATLANTIC
made a cash payment of $16.6 million to Homestead on the closing date and
ATLANTIC and PTR entered into funding commitment agreements. The
Homestead transaction resulted in ATLANTIC owning 4,201,220 shares of
Homestead common stock and 2,818,517 warrants to purchase Homestead
common stock (which were subsequently distributed to shareholders).
Pursuant to ATLANTIC's funding commitment agreement, ATLANTIC agreed to
fund mortgage loans to Homestead of up to $111.1 million in exchange for
convertible mortgage notes of up to $98.0 million, of which $52.0 million
had been funded through June 27, 1997.
RECENT DEVELOPMENTS
ATLANTIC's developments in 1996 include:
. ATLANTIC generated earnings from operations of $33.0 million in 1996, an
increase of $13.4 million over 1995. In 1996, ATLANTIC's cash flow from
operating activities was $54.4 million as compared to $39.7 million in
1995. ATLANTIC's 34 communities that were fully operational throughout
1996 and 1995 realized an increase in adjusted net operating income of
4.88%. See "Business--Strategy for Cash Flow and Distribution Growth--
"Same Store' Growth". This strong net operating income growth from the
same store portfolio generated 30% of ATLANTIC's funds from operations
growth, and the positive impact of acquisitions completed in 1996
generated an additional 29% of funds from operations growth. The
remaining 41% of growth in funds from operations was produced by the
stabilization of new development communities. The contribution to funds
from operations growth from developments occurred even though ATLANTIC
had an average of $168.4 million of assets under development or in lease-
up during 1996. As these communities in lease-up begin to reach
stabilization in 1997 and subsequent years, they are expected to add
significantly to ATLANTIC's long-term performance. For a description of
how ATLANTIC calculates funds from operations and certain limitations in
the use of funds from operations as a performance measure, see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Funds from Operations".
. The development of moderate income multifamily communities continues to
be a major component of ATLANTIC's investment strategy. During 1996,
ATLANTIC commenced construction of 2,815 units at a total expected
investment cost of $164.4 million. Of that total, 51.8% were moderate
income communities. During 1996, three developed communities (one of
which was a moderate income community) representing a total expected
investment cost of $43.0 million achieved stabilization, adding 804 units
to ATLANTIC's stabilized portfolio.
. ATLANTIC continues to take advantage of attractive investment
opportunities throughout its southeastern target market. During 1996,
ATLANTIC acquired 13 communities consisting of 3,556 units, representing
a total expected investment cost of $171.7 million. ATLANTIC is currently
in negotiations
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for the acquisition of approximately $25.2 million of multifamily
communities; however, there can be no assurance that any of these
acquisitions will be completed.
. ATLANTIC is implementing a portfolio and asset optimization strategy
pursuant to which it may from time to time dispose of communities that
are no longer consistent with its long-term investment objectives and
redeploy the proceeds into strategic acquisitions and developments,
preferably through tax-deferred exchanges. During 1996, ATLANTIC
completed the disposition of four communities, realizing an aggregate
gain of $6.7 million on aggregate proceeds of $64.2 million.
. In May 1996, ATLANTIC closed a private placement of Shares that raised a
total of $249.3 million of net proceeds. The completion of this private
placement further enhanced the strength of ATLANTIC's balance sheet.
Proceeds from the private placement were used to fund investment
activities and repay borrowings under ATLANTIC's $350 million line of
credit.
. On October 17, 1996, ATLANTIC sold its Homestead Village properties to a
newly formed company, Homestead, and entered into a funding commitment
agreement to fund the development of certain of such properties in
exchange for Homestead common stock and warrants that ATLANTIC
subsequently distributed to its shareholders. On a fully funded and
converted basis, ATLANTIC will own 15.35% of Homestead's common stock
(assuming no further equity offerings by Homestead, conversion of all
convertible mortgage notes and exercise of all outstanding warrants) as a
result of its obligation to fund mortgage loans to Homestead of up to
$111.1 million in exchange for convertible mortgage notes of up to $98.0
million, which are expected to contribute significantly to ATLANTIC's
future growth. Homestead's common stock and warrants trade on the
American Stock Exchange (the "ASE") under the symbols "HSD" and "HSD.W",
respectively. See "Certain Relationships and Transactions--Homestead
Transaction" and "--Funding Commitment Agreement".
. ATLANTIC closed its initial public offering on October 18, 1996, raising
net proceeds of $110.0 million from the sale of 4,940,000 Shares at a
price of $24.00 per Share (before adjusting for the Homestead
Distribution described below).
. During 1996, ATLANTIC's Share price increased from $23.00 (based on the
offering price for a private offering conducted from November 1995 to May
1996) to $24.50 (based on the closing price on the NYSE on December 31,
1996). In addition, shareholders received total cash distributions of
$1.65 per Share in 1996 and a special distribution of 0.110875 shares of
Homestead common stock and warrants to purchase 0.074384 shares of
Homestead common stock per Share (the "Homestead Distribution"). The
securities distributed in the Homestead Distribution had a market value
of $2.67 per Share based on the closing prices of such securities on the
ASE on November 11, 1996, the day prior to the distribution date. See
"Price Range of ATLANTIC Shares and Distributions".
ATLANTIC's developments in the first quarter of 1997 include:
. ATLANTIC generated earnings from operations of $10.2 million in the
three-month period ended March 31, 1997, an increase of $3.5 million over
the same period in 1996. For the three-month period ended March 31, 1997,
ATLANTIC's cash flow from operating activities was $16.9 million as
compared to $12.3 million for the same period in 1996. ATLANTIC's 50
communities that were fully operational throughout the first quarter of
1997 and 1996 realized an increase in adjusted net operating income of
5.72%. See "Business--Strategy for Cash Flow and Distribution Growth--
"Same Store' Growth". This strong net operating income growth from the
same store portfolio generated 32% of ATLANTIC's funds from operations
growth, and the positive impact of acquisitions generated an additional
39%. The remaining 29% of growth in funds from operations was produced by
new development communities. The contribution to funds from operations
growth from developments occurred even though ATLANTIC had an average of
$229.6 million of assets under development or in lease-up during the
first quarter of 1997. As these communities in lease-up begin to reach
stabilization in 1997 and subsequent years, they are expected to add
significantly to ATLANTIC's long-term performance. For a description of
how
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ATLANTIC calculates funds from operations and certain limitations in the
use of funds from operations as a performance measure, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Funds from Operations".
. The development of moderate income multifamily communities continues to
be a major component of ATLANTIC's investment strategy. During the first
quarter of 1997, ATLANTIC commenced construction of 668 units at a total
expected investment cost of $42.9 million. Of that total, 50.4% were
moderate income communities. Also during the first quarter of 1997,
developed communities representing a total expected investment cost of
$20.8 million achieved stabilization, adding 408 units to ATLANTIC's
stabilized portfolio. During the first quarter of 1997 and the fourth
quarter of 1996, certain of ATLANTIC's primary target market cities
experienced a slowing in collections growth and a decrease in average
physical occupancy principally due to demand and supply imbalances and
ATLANTIC's average rental rate per unit decreased slightly due to the
continued development of moderate income communities. During this period,
ATLANTIC's moderate income communities outperformed ATLANTIC's product
types as a whole.
. ATLANTIC closed a second public offering on April 16, 1997, raising net
proceeds of $80.5 million from the sale of 4,000,000 Shares at $21.50 per
Share and closed on the overallotment option on May 14, 1997, raising
additional net proceeds of $1.5 million from the sale of 77,200 Shares at
$21.50 per Share. The proceeds from the offerings were used to repay
borrowings under ATLANTIC's $350 million unsecured line of credit. At
June 27, 1997, ATLANTIC had 41,968,780 Shares outstanding. ATLANTIC's
long-term debt as a percentage of total long-term undepreciated book
capitalization (the sum of long-term debt and shareholders' equity after
adding back accumulated depreciation) was 16.9% at March 31, 1997 on an
historical basis and 25.5% at March 31, 1997 on a pro forma basis as
adjusted to give effect to the Merger, ATLANTIC's April 1997 public
offering of Shares and the proposed Note Offering and Preferred Share
Offering (both as defined below) and the application of the proceeds
therefrom. As of June 27, 1997, $278.8 million of borrowings were
outstanding under the line of credit.
OPERATING CHARACTERISTICS
ATLANTIC believes that its future growth will be driven by the following
operating characteristics:
. STRONG PRIMARY TARGET MARKET. ATLANTIC believes the southeastern United
States is geographically and economically diverse and, therefore,
ATLANTIC has a strong primary target market in which to seek future
growth. Although 34.7% of ATLANTIC's pro forma revenues for the three-
month period ended March 31, 1997 were derived from the Atlanta, Georgia
metropolitan area, as ATLANTIC continues to develop and acquire new
communities outside of Atlanta, it expects the percentage of its revenues
derived from communities located in Atlanta to decline. ATLANTIC's
primary target market cities are Atlanta, Georgia; Birmingham, Alabama;
Charlotte, North Carolina; Jacksonville, Florida; Nashville, Tennessee;
Orlando, Florida; Raleigh, North Carolina; Richmond, Virginia; Southeast
Florida (which includes Ft. Lauderdale and West Palm Beach); Tampa,
Florida; and Washington, D.C. Based on forecasts published by Woods &
Poole Economics, Inc., the projected population growth in ATLANTIC's
primary target market cities is 34.5% for the years 1997 through 2016,
whereas the projected population growth of the United States as a whole
for the same period is 16.8%. For the same period, job growth is
projected to be 31.2% in ATLANTIC's primary target market cities,
compared to 20.8% for the United States as a whole. Depending on the
level of new construction starts by other multifamily developers,
ATLANTIC believes that the anticipated population and job growth in its
primary target market cities should contribute to ATLANTIC's objective of
long-term sustainable growth in cash flow. See "Business--Highly Focused
Business Strategy Grounded in Research" and "--ATLANTIC's Operating
System--Development of Moderate Income Communities".
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. EXPERIENCED MANAGEMENT TEAM. The REIT Manager and SCG Realty Services
provide ATLANTIC with both strategic and day-to-day management, including
research, investment analysis, acquisition and due diligence,
development, property management, capital markets, accounting and legal
services. Through the REIT Management Agreement and the property
management agreements, ATLANTIC has access to services which provide
ATLANTIC with the same resources as a fully integrated operating company.
ATLANTIC's four senior executives have an average of 24 years of industry
experience developing and managing multifamily communities, thus
providing ATLANTIC with several senior officers with the leadership,
operational, investment and financial skills and experience to oversee
the operations of ATLANTIC, although ATLANTIC's future operations will
depend, in part, on ATLANTIC's ability to continue to retain and attract
experienced personnel. See "The Merger Transaction".
. RESEARCH AND DEVELOPMENT. ATLANTIC is dedicated to ongoing research and
development. ATLANTIC utilizes Security Capital Real Estate Research
Group Incorporated ("Security Capital Real Estate Research"), an
affiliate of the REIT Manager, to conduct comprehensive evaluations of
its target market on a submarket-by-submarket basis to identify those
submarkets and product types that present better prospects for long-term
cash flow growth. These evaluations, combined with ATLANTIC's extensive
market experience in the southeastern United States, enable ATLANTIC to
identify submarkets that offer continued opportunities for long-term cash
flow growth. In addition to market research, considerable resources are
devoted to product research. The REIT Manager and SCG Realty Services
continually evaluate and refine ATLANTIC's multifamily communities to
incorporate technologies and designs that will enhance long-term
livability for its residents. ATLANTIC believes that its research-based
investment strategy differs from other multifamily REITs in that the REIT
Manager and SCG Realty Services and their respective affiliates have
dedicated personnel who conduct comprehensive proprietary evaluations of
ATLANTIC's target market on a submarket-by-submarket basis taking into
account 24 key variables that ATLANTIC has identified as having the
greatest impact on multifamily operating performance. A few of these
variables include market demand analysis, detailed supply evaluations of
each submarket and other economic and demographic data.
. DEVELOPMENT OF MODERATE INCOME COMMUNITIES. As of May 31, 1997,
ATLANTIC's portfolio consisted of seven upper middle income communities
with a total expected investment cost of $133.0 million, 37 middle income
communities with a total expected investment cost of $576.8 million and
48 moderate income communities with a total expected investment cost of
$674.3 million. ATLANTIC focuses primarily on moderate income communities
(targeted to residents earning 65% to 90% of a submarket's median
household income, who comprise one of the largest segments of the renter
population). In 1997, approximately 74.3% of development starts and
approximately 63.8% of ATLANTIC's total development activities are
expected to constitute moderate income communities, based on total
budgeted development cost. Based on ATLANTIC's review of information
filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), regarding other REITs in ATLANTIC's primary target
market and other publicly available data, ATLANTIC believes that few
other REITs in its primary target market currently focus on the moderate
income segment. Moreover, based on ATLANTIC's proprietary information
regarding available land parcels and construction starts in its primary
target market, ATLANTIC believes that less than 10% of the 1995 and 1996
multifamily starts in ATLANTIC's primary target market cities constituted
moderate income product. Consequently, ATLANTIC believes that the
moderate income segment is a significantly underserved market with
limited competition. In ATLANTIC's experience, moderate income residents
are typically longer-term residents because they often lack the financial
resources required to purchase single-family homes. As a result, resident
turnover is often lower in ATLANTIC's moderate income communities than in
its upper middle income or middle income communities. The total cost of
refurbishing and re-leasing a unit ranges from $700 to $1,500; therefore,
reducing resident turnover can have a material impact on an asset's
profitability. Due to market
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fundamentals and the operating characteristics of moderate income
communities, ATLANTIC believes that this product category offers better
prospects for long-term cash flow growth.
. OPPORTUNISTIC ACQUISITIONS. It is often advantageous for ATLANTIC to
acquire existing multifamily communities in markets that are expected to
experience favorable growth in rents and income. In many cases,
communities can be acquired and redeveloped at prices well below the cost
to build a comparable community in the same area. The REIT Manager
thoroughly analyzes and evaluates potential community acquisitions
throughout ATLANTIC's target market which, together with ATLANTIC's
access to capital, provides ATLANTIC with a competitive advantage in
acquiring multifamily assets. From its inception on October 26, 1993 to
May 31, 1997, ATLANTIC had completed acquisitions with a total expected
investment cost of $980.6 million.
. HIGH QUALITY PORTFOLIO. As noted above, adjusted net operating income on
a "same store" basis increased 5.72% from the first quarter of 1996 to
the first quarter of 1997 for the 50 communities that were fully
operational during both periods. As of May 31, 1997, ATLANTIC's operating
communities (excluding communities in lease-up) were 94.0% leased.
ATLANTIC believes that this strong performance reflects the quality of
its portfolio and strength of its primary target market. In addition, as
of May 31, 1997, ATLANTIC's portfolio of multifamily communities
consisted of 56.1% of stabilized operating communities, 14.9% of pre-
stabilized operating communities and 29.0% of communities under
development, based on total expected investment cost. See "Business--
ATLANTIC's Operating System--Acquired Communities". As the development
communities are completed and the pre-stabilized communities achieve
stabilization, they are expected to contribute significantly to
ATLANTIC's objective of long-term sustainable growth in cash flow.
. PORTFOLIO AND ASSET OPTIMIZATION. ATLANTIC develops and acquires
communities with a view to effective long-term ownership and operation.
REIT Management actively reviews ATLANTIC's asset base. These reviews
generate operating and capital plans and, with guidance from its
affiliate, Security Capital Real Estate Research, help ATLANTIC to
identify submarkets and product types that it believes will generate
above average long-term growth opportunities. Under its portfolio and
asset optimization program, ATLANTIC may from time to time dispose of
assets that no longer meet its long-term investment objectives and
redeploy the proceeds, preferably through tax-deferred exchanges, into
assets with better prospects for cash flow growth. ATLANTIC's portfolio
and asset optimization strategy is based on the premise that it has a
finite amount of investment capital and that this capital should be
deployed where it can produce maximum long-term sustainable cash flow
growth. Since inception, ATLANTIC disposed of eight operating communities
aggregating 2,140 units.
. RESOURCES AND EXPERIENCE OF PRINCIPAL SHAREHOLDER. Security Capital,
ATLANTIC's largest shareholder and the owner of the REIT Manager, owns
51.3% of ATLANTIC's outstanding Shares. ATLANTIC benefits from the
substantial resources available to it through its affiliation with
Security Capital, including capital markets, research, accounting and
legal services. See "The Merger Transaction". To provide for a wider
distribution of ownership and greater liquidity, Security Capital has
advised ATLANTIC that it intends, over time, to allow its ownership
interest in ATLANTIC to fall to between 40% and 50% as ATLANTIC conducts
equity offerings, which is consistent with its ownership interests in the
other operating companies in which Security Capital invests.
. CONSERVATIVE BALANCE SHEET STRATEGY. ATLANTIC has a conservative balance
sheet strategy. Long-term debt as a percentage of total long-term
undepreciated book capitalization was 16.9% at March 31, 1997 on an
historical basis and 25.5% at March 31, 1997 on a pro forma basis as
adjusted to give effect to the Merger, ATLANTIC's April 1997 public
offering of Shares and the proposed Note Offering and Preferred Share
Offering and the application of the proceeds therefrom. In the future,
ATLANTIC intends to access the public equity and debt markets and to
issue long-term, fixed-rate, fully amortizing unsecured corporate debt,
which will limit ATLANTIC's exposure to floating rate or balloon
financing. However,
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there can be no assurance that ATLANTIC will be able to complete such
offerings. To the extent ATLANTIC issues additional Shares to the public
in future offerings, the interests of ATLANTIC's current shareholders will
be diluted. ATLANTIC's $350 million unsecured line of credit enables
ATLANTIC to take advantage of investment opportunities in its target
market without investing significant funds in short-term investments
between securities offerings. As of June 27, 1997, $278.8 million of
borrowings were outstanding under the line of credit and such outstanding
borrowings are expected to be approximately $ million at the closing
of the Offering. This conservative balance sheet strategy is expected to
provide ATLANTIC with significant incremental debt capacity and allow
ATLANTIC to take advantage of future investment opportunities on a non-
dilutive basis, contributing to ATLANTIC's objective of long-term growth
in cash flow.
TAX STATUS OF ATLANTIC
ATLANTIC has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), effective for the taxable year ended December
31, 1994. As a REIT, ATLANTIC generally will not be taxed on income it
currently distributes to its shareholders so long as it distributes at least
95% of its taxable income currently. REITs are subject to a number of
organizational and operational requirements. Even if ATLANTIC continues to
qualify for taxation as a REIT, ATLANTIC will be subject to certain federal,
state and local taxes on its income and property. Based upon certain
representations of ATLANTIC with respect to the facts as set forth and
explained in "Federal Income Tax Considerations", in the opinion of Mayer,
Brown & Platt, counsel to ATLANTIC, ATLANTIC has been organized in conformity
with the requirements for qualification as a REIT beginning with its taxable
year ended December 31, 1994, and its proposed method of operation described in
this Prospectus and as represented by management will enable it to satisfy the
requirements for such qualification. See "Federal Income Tax Considerations",
"The Offering--Certain Federal Income Tax Considerations Regarding the
Offering" and "Risk Factors--Tax Liabilities as a Consequence of the Failure to
Qualify as a REIT" for a discussion of all material tax consequences of an
investment in the Shares of ATLANTIC.
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TERMS OF THE OFFERING
Securities Offered.................... Rights, exercisable for an
aggregate of Shares.
Subscription Right....................
One Right per Share issued as a
dividend to each holder of Shares on
the Record Date. Rights entitle the
holder to purchase one Share at the
Subscription Price. See "The Offering".
Oversubscription Privilege....... A holder of Shares on the Record Date
who validly exercises all of such
shareholder's Rights may also
oversubscribe, at the Subscription
Price, for Unsubscribed Shares. Only
holders of Shares on the Record Date
will be entitled to the
Oversubscription Privilege. See "The
Offering--Oversubscription Privilege".
Third Party Sales................ Simultaneously with the offering of
Shares to Rights holders, Capital
Markets Group will act as placement
agent to sell Unsubscribed Shares to
third parties on a best efforts basis,
at the Subscription Price. See "The
Offering--Unsubscribed Shares and Third
Party Sales".
Expiration Date.......................
, 1997 at 5:00 p.m.,
Eastern Daylight Time, or such later
date as ATLANTIC may determine in its
sole discretion. After such time, the
Rights will become void and have no
value.
Subscription Price.................... $ per Share.
Closing Price of the Shares on the
NYSE on March 24, 1997 (the day
prior to announcement of the
Offering and the Merger)........ $22 1/4 per Share.
Closing Price of the Shares on the
NYSE on , 1997............ $ per Share.
Transferability of Rights............. The Rights are transferable until their
expiration, subject to certain
limitations, and may be traded on the
NYSE only up to the close of the NYSE
on , 1997, the business
day preceding the Expiration Date. See
"The Offering--Method of Transferring
Rights".
Subscription and Escrow Agent......... The First National Bank of Boston
Corporate Reorganization
Mail Stop 45-02-53
150 Royall Street
Canton, Massachusetts 02021
Shares Outstanding Before the
Offering and the Merger.............. 41,968,780
Shares Outstanding After the Offering
and the Merger.......................
Use of Proceeds....................... The Offering is intended to provide
funds for the retirement of certain
revolving credit debt. See "Use of
Proceeds".
Condition to Closing.................. The closing of the Offering is
conditioned upon the consummation of
the Merger. See "The Merger
Transaction" and "The Offering--
Condition to Closing".
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THE MERGER TRANSACTION
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and SCG Realty Services for Shares, with the
result that ATLANTIC would become an internally managed REIT. On March 18,
1997, a special committee of independent Directors of the Board (the "Special
Committee") recommended that the Board approve the Merger subject to definitive
documentation. Following the meeting of the Special Committee, the full Board
approved the Merger Agreement and the Merger. On March 24, 1997, ATLANTIC and
Security Capital entered into a Merger and Issuance Agreement (the "Merger
Agreement"), which is subject to customary conditions, including the approval
of ATLANTIC's shareholders, pursuant to which Security Capital will cause the
REIT Manager and SCG Realty Services to be merged into a newly formed
subsidiary of ATLANTIC (the "Merger"). The employees of the REIT Manager and
SCG Realty Services will become employees of ATLANTIC as a result of the
Merger. In exchange for the transfer of those businesses, ATLANTIC will issue
to Security Capital Shares valued at approximately $54.6 million. See "The
Merger Transaction".
The number of Shares issuable to Security Capital in the Merger was based on
the average closing price of the Shares on the NYSE over the five-day period
prior to the record date for determining ATLANTIC's shareholders entitled to
vote at the meeting in connection with the Merger (which was the same as the
Record Date for the Rights dividend). The average closing price of the Shares
over the five-day period prior to the Record Date was $ per Share.
The Subscription Price for the Offering is equal to % of such average price.
The Offering is designed to allow ATLANTIC's shareholders (other than Security
Capital) the opportunity to maintain their relative ownership in ATLANTIC by
purchasing additional Shares at a price which is below the price at which
Security Capital is receiving Shares in the Merger. Security Capital has agreed
that it will not exercise its Rights to purchase additional Shares and that it
will not sell its Rights. See "The Offering--Principal Shareholder".
In addition to the Offering, as part of the Merger transaction, and in order
to induce holders of Shares to vote in favor of the Merger transaction, to
broaden Security Capital's shareholder base, to enable Security Capital to
raise additional equity capital at a relatively low cost through exercises of
warrants and to enable Security Capital to raise additional equity capital in
the long run by preserving and enhancing its goodwill with the shareholders of
ATLANTIC, Security Capital will issue warrants having an aggregate exercise
price of $46,926,322 pro rata to ATLANTIC's shareholders, other than Security
Capital (the "Warrant Issuance"), each to acquire one share of Security
Capital's Class B common stock, par value $.01 per share (the "Class B Stock"),
after the closing of the Merger and the Offering. See "The Merger Transaction".
Prospective investors are advised that ATLANTIC believes that a shareholder
receiving warrants pursuant to the Warrant Issuance should have ordinary
taxable income equal to the value of the warrants on the Warrant Issuance date,
whether or not the shareholders sell the warrants received in the Warrant
Issuance. See "Federal Income Tax Considerations--Tax Effects of the Merger".
The Board believes that the Merger will result in an enhancement to
shareholder value. Currently, ATLANTIC pays a fee to the REIT Manager based on
a fixed percentage of ATLANTIC's cash flow (as defined) which increases
proportionately as ATLANTIC adds assets. The Board believes that ATLANTIC has
reached a sufficient size to realize economies of scale by internalizing the
management function since ATLANTIC will have sufficient depth of management and
personnel such that additional assets can be acquired, developed and managed
without a significant increase in personnel or other costs. These economies of
scale should result in an increase in the level of growth in funds from
operations. The Board believes that the Merger will further benefit ATLANTIC's
long-term performance as follows:
. The Merger will position ATLANTIC to pursue possible acquisitions of
other REITs in a more effective manner.
. Investors and analysts will view an internally managed structure more
favorably since ATLANTIC's costs, after capitalization of qualifying
acquisition and development costs in accordance with GAAP, will
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be more comparable to other multifamily REITs. These acquisition and
development activities are currently provided by the REIT Manager and paid
for as part of the REIT Management fee, which fee is expensed by ATLANTIC.
Management believes that the increased comparability, in addition to the
opportunity for increased funds from operations growth due to the
economies of scale, as discussed above, will result in a higher multiple
on ATLANTIC's funds from operations and an enhancement to shareholder
value.
. As a consequence of the REIT Manager's and SCG Realty Services' personnel
becoming full-time employees of ATLANTIC, they will be able to more
closely relate the results of their efforts to ATLANTIC's performance.
. The Merger is expected to be viewed positively by the rating agencies,
which could have a positive impact on ATLANTIC's future debt cost.
The following are certain potential detriments of the Merger:
. Since the number of Shares issuable to Security Capital in the Merger is
fixed, the value of those Shares at the time the Merger is completed may
be greater than the value placed on the operations of the REIT Manager
and SCG Realty Services by the Board.
. The Warrant Issuance will be taxable to holders of Shares.
. The increased administrative costs of internalizing the management
function may be greater than anticipated, resulting in a decrease in
accretion to ATLANTIC's funds from operations.
. Although the Merger is expected to be immediately accretive to ATLANTIC's
funds from operations, the Merger may not result in a corresponding
increase in the price at which Shares trade on the NYSE.
The Merger transaction was initiated and structured by individuals who are
executive officers of Security Capital. Although no independent representatives
were retained to negotiate the terms of the Merger transaction on behalf of
ATLANTIC, the Board created the Special Committee, which retained independent
financial advisors and legal counsel. Two of the members of the Special
Committee, Ned S. Holmes and John M. Richman, own securities of Security
Capital. Additionally, certain officers and employees of the REIT Manager and
SCG Realty Services (including Constance B. Moore and James C. Potts, Co-
Chairmen of ATLANTIC) will receive certain benefits if the Merger is
consummated. See "Risk Factors--Conflicts of Interests" and "The Merger
Transaction--Interests of Certain Persons in the Merger".
For a more complete description of the Merger, see "The Merger Transaction".
For a discussion of certain tax consequences of the Merger and the related
transactions, see "Federal Income Tax Considerations--Tax Effects of the
Merger".
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PREFERRED SHARE OFFERING
ATLANTIC has proposed to offer approximately $50 million (which may be
increased or decreased subject to market conditions) (the "Preferred Share
Offering") of its shares of Series A Cumulative Redeemable Preferred Stock, par
value $.01 per share (the "Series A Preferred Shares"). Holders of the Series A
Preferred Shares will be entitled to receive cumulative preferential cash
distributions at the rate specified in the Articles Supplementary relating
thereto. The Series A Preferred Shares will be redeemable after a specified
date by ATLANTIC for cash at the redemption price specified in the Articles
Supplementary relating thereto, plus all accrued and unpaid distributions. In
addition, the Series A Preferred Shares will be redeemable by ATLANTIC in order
to preserve ATLANTIC's status as a REIT. Subject to certain exceptions, the
Holders of Series A Preferred Shares will have no voting rights. The Series A
Preferred Shares will not be convertible into or exchangeable for any other
property or securities of ATLANTIC. See "Preferred Share Offering".
NOTE OFFERING
ATLANTIC has proposed to offer approximately $150 million (which may be
increased or decreased subject to market conditions) (the "Note Offering") of
its unsecured senior debt securities (the "Notes"). The Notes will be direct,
senior unsecured obligations of ATLANTIC and will rank equally with all other
unsecured and unsubordinated indebtedness of ATLANTIC from time to time
outstanding. The Notes will bear interest at stated rates, payable semiannually
in arrears. Installments of equal principal amounts will be paid in each year
on the Notes beginning in a specified year, so that the Notes will amortize
beginning in such year. The Notes will be redeemable at any time at the option
of ATLANTIC, in whole or in part, at a redemption price equal to the sum of (i)
the principal amount of the Notes being redeemed plus accrued interest thereon
to the redemption date and (ii) the make-whole amount, if any. See "Note
Offering".
15
<PAGE>
ATLANTIC'S COMMUNITIES
The information in the following table is as of March 31, 1997, except total
expected investment which is as of May 31, 1997 (dollar amounts in thousands).
Additional information on ATLANTIC's communities is contained in Schedule III,
Real Estate and Depreciation, in ATLANTIC's financial statements.
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE ATLANTIC EXPECTED
LEASED(1) UNITS INVESTMENT(2) INVESTMENT(2)
---------- ------ ------------- -------------
<S> <C> <C> <C> <C>
COMMUNITIES OWNED AS OF
MARCH 31, 1997:
OPERATING COMMUNITIES:
MID-ATLANTIC:
Charlotte, North
Carolina............... 91.3% 1,144 $56,890 $ 58,206
Greenville, South
Carolina............... 96.2 234 11,092 11,126
Memphis, Tennessee...... 91.5 1,152 41,957 42,784
Nashville, Tennessee.... 93.3 740 34,378 34,598
Raleigh, North Carolina. 92.5 1,348 66,476 68,426
Richmond, Virginia...... 95.8 560 29,686 29,832
Washington, D.C......... 94.9 936 62,767 63,136
---- ------ ------- --------
Subtotals/Average--
Mid-Atlantic........ 93.0 6,114 303,246 308,108
---- ------ ------- --------
SOUTH ATLANTIC:
Atlanta, Georgia........ 93.9 6,165 334,013 336,813
Birmingham, Alabama..... 94.4 998 49,474 50,600
Ft. Lauderdale/W. Palm
Beach, Florida......... 95.8 2,036 97,823 99,110
Ft. Myers, Florida...... 95.7 397 13,885 14,063
Jacksonville, Florida... 94.6 522 28,464 30,095
Miami, Florida.......... 93.6 264 8,655 8,655
Orlando, Florida........ 95.0 886 41,285 41,889
Sarasota, Florida....... 93.5 432 24,206 24,426
Tampa, Florida.......... 97.3 1,427 55,294 56,284
---- ------ ------- --------
Subtotals/Average--
South Atlantic...... 94.7 13,127 653,099 661,935
---- ------ ------- --------
Subtotals/Average--
Operating
Communities....... 94.1 19,241 956,345 970,043
---- ------ ------- --------
COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North
Carolina............... N/A 286 10,762 17,495
Nashville, Tennessee.... N/A 452 13,696 23,848
Raleigh, North Carolina. N/A 612 32,492 34,727
Richmond, Virginia...... N/A 592 18,714 38,772
Washington, D.C......... N/A 948 67,259 69,240
---- ------ ------- --------
Subtotals--Mid-
Atlantic............ N/A 2,890 142,923 184,082
---- ------ ------- --------
SOUTH ATLANTIC:
Atlanta, Georgia........ N/A 628 23,190 41,840
Birmingham, Alabama..... N/A 372 14,981 21,644
Ft. Lauderdale/W. Palm
Beach, Florida......... N/A 452 15,329 31,455
Jacksonville, Florida... N/A 909 40,349 51,237
---- ------ ------- --------
Subtotals--South
Atlantic............ N/A 2,361 93,849 146,176
---- ------ ------- --------
Subtotals--
Communities Under
Construction...... N/A 5,251 236,772 330,258
---- ------ ------- --------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TOTAL
PERCENTAGE ATLANTIC EXPECTED
LEASED(1) UNITS INVESTMENT(2) INVESTMENT(2)
---------- ------ ------------- -------------
<S> <C> <C> <C> <C>
COMMUNITIES IN PLANNING AND
OWNED:
MID-ATLANTIC:
Charlotte, North Carolina...... N/A 212 $ 1,652 $ 12,066
Richmond, Virginia............. N/A 408 3,366 25,030
---- ------ ---------- ----------
Subtotals--Mid-Atlantic..... N/A 620 5,018 37,096
---- ------ ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia............... N/A 496 6,595 35,903
Jacksonville, Florida.......... N/A 200 1,416 10,500
---- ------ ---------- ----------
Subtotals--South Atlantic... N/A 696 8,011 46,403
---- ------ ---------- ----------
Subtotals--Communities In
Planning and Owned... ... N/A 1,316 13,029 83,499
---- ------ ---------- ----------
LAND HELD FOR FUTURE MULTIFAMILY
DEVELOPMENT ................... N/A -- 2,083 --
---- ------ ---------- ----------
Total Communities Owned
at March 31, 1997...... 94.1% 25,808 $1,208,229 $1,383,800
---- ------ ---------- ----------
COMMUNITY ACQUIRED FROM MARCH
31, 1997 TO MAY 31, 1997:
COMMUNITY IN PLANNING AND OWNED:
SOUTH ATLANTIC:
Orlando, Florida............... N/A 120 $ -- $ 8,936
---- ------ ---------- ----------
COMMUNITY DISPOSED OF FROM MARCH
31, 1997 TO MAY 31, 1997:
OPERATING COMMUNITY:
SOUTH ATLANTIC:
Miami, Florida................. N/A (264) $ (8,655) $ (8,655)
---- ------ ---------- ----------
Total Communities Owned
at May 31, 1997........ 94.1% 25,664 $1,199,574 $1,384,081
==== ====== ========== ==========
</TABLE>
Additionally, at May 31, 1997, ATLANTIC had land in planning and under
control for the development of 3,830 units with a total budgeted development
cost of $249.2 million. The term "in planning" means that construction is
anticipated to commence within 12 months. The term "under control" means that
ATLANTIC has an exclusive right (through contingent contract or letter of
intent) during a contractually agreed-upon time period to acquire land for
future development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own the
land. There can be no assurance that such land will be acquired. The unit and
total budgeted development cost information for these communities is based on
management's best estimates of the cost upon completion of these communities.
- --------
(1) Represents the percentage leased for fully operating communities.
(2) ATLANTIC investment represents cost through March 31, 1997. For operating
communities, total expected investment represents cost through May 31,
1997 plus budgeted renovations as of May 31, 1997. For communities under
construction and in planning, total expected investment represents cost
through May 31, 1997 plus additional budgeted development expenditures as
of May 31, 1997, which include the cost of land, fees, permits, payments
to contractors, architectural and engineering fees and interest and
property taxes to be capitalized during the construction period. The term
"in planning" means that construction is anticipated to commence within 12
months.
17
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro forma
basis for ATLANTIC (the "Pro Forma Financial Results") as of and for the three-
month period ended March 31, 1997 and the year ended December 31, 1996 and on
an historical basis for ATLANTIC (the "Historical Financial Results") as of and
for the three-month period ended March 31, 1997 and the years ended December
31, 1996, 1995 and 1994 and the period from inception (October 26, 1993)
through December 31, 1993. Such selected financial information is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included in this Prospectus. The Pro
Forma Financial Results are not necessarily indicative of what the actual
financial position and results of operations of ATLANTIC would have been as of
and for the periods indicated, nor do they purport to represent the financial
position and results of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA(1) HISTORICAL PRO FORMA(1) HISTORICAL
------------ ------------ ------------ ---------------------------------------
THREE-MONTH THREE-MONTH
PERIOD PERIOD PERIOD ENDED
ENDED ENDED YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, ---------------------------------------
1997 1997 1996 1996 1995 1994 1993(2)
------------ ------------ ------------ ---------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income.......... $ 39,715 $ 39,715 $ 148,361 $ 137,729 $ 103,634 $ 55,071 $ 156
Homestead Convertible
Mortgages interest
income................ 185 185 -- -- -- -- --
Property management
fees paid to
affiliate............. -- 1,280 -- 4,208 3,475 1,536 --
Property management
fees paid to third
parties............... 232 232 971 971 591 661 --
Interest expense....... 2,893 4,761 12,219 16,181 19,042 9,240 --
REIT management fee
paid to affiliate..... -- 3,029 -- 10,445 6,923 3,671 12
General and
administrative
expenses.............. 1,751 265 5,923 673 646 266 1
Net earnings before
extraordinary item.... 13,258 10,178 45,306 42,569 19,639 9,926 38
Extraordinary item--
loss on early
extinguishment of
debt.................. -- -- -- 3,940 -- -- --
Series A Preferred
Share dividends....... 1,125 -- 4,500 -- -- -- --
Net earnings
attributable to
Shares................ 12,133 10,178 40,806 38,629 19,639 9,926 38
Net earnings per Share
before extraordinary
item.................. 0.27 0.27 1.01 1.33 0.89 0.81 0.13
Net earnings
attributable to Shares
per Share............. 0.27 0.27 1.01 1.21 0.89 0.81 $ 0.13
Cash distributions
declared and paid..... 14,778 14,778 53,064 53,064 35,119 14,648 --
Cash distributions
declared and paid per
Share................. $ 0.39 $ 0.39 $ 1.65 $ 1.65 $ 1.60 $ 1.20 $ --
Weighted-average Shares
outstanding........... 44,241 37,892 40,246 32,028 21,944 12,227 286
<CAPTION>
PRO FORMA(3) HISTORICAL
------------ ----------------------------------------------------
DECEMBER 31,
MARCH 31, MARCH 31, ---------------------------------------
1997 1997 1996 1995 1994 1993
------------ ------------ ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate, at cost... $1,208,229 $1,208,229 $1,157,235 $ 888,928 $ 631,260 $ 31,005
Total assets........... 1,210,645 1,204,231 1,135,065 885,824 637,846 31,850
Line of credit(4)...... 21,020 295,250 228,000 190,000 153,000 --
Long-term debt......... 150,000 -- -- -- -- --
Mortgages payable...... 155,418 155,418 155,790 118,524 107,347 --
Total liabilities...... 367,043 489,511 436,423 328,886 271,216 178
Total shareholders'
equity................ $ 843,602 $ 714,720 $ 698,642 $ 556,938 $ 366,630 $ 31,672
Number of Shares
outstanding........... 44,241 37,892 37,892 27,763 18,567 1,582
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA(1) HISTORICAL PRO FORMA(1) HISTORICAL
------------ ----------- ------------ --------------------------------------------
THREE-MONTH THREE-MONTH
PERIOD PERIOD PERIOD ENDED
ENDED ENDED YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, ---------------------------------------
1997 1997 1996 1996 1995 1994 1993(2)
------------ ----------- ------------ -------- --------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to
Shares................ $12,133 $10,178 $ 40,806 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (Deduct):
Real estate
depreciation.......... 6,132 6,132 22,534 20,824 15,925 8,770 28
Amortization related to
Homestead Convertible
Mortgages............. (20) (20) -- -- -- -- --
Gain (loss) on
disposition of real
estate................ -- -- -- (6,732) -- -- --
Gain on sale of
Homestead Assets...... -- -- -- (2,839) -- -- --
Provision for possible
loss on investments... 200 200 2,500 2,500 -- -- --
Extraordinary item--
loss on early
extinguishment of
debt.................. -- -- -- 3,940 -- -- --
------- ------- -------- -------- --------- --------- -------
Funds from
operations(5)......... $18,445 $16,490 $ 65,840 $ 56,322 $ 35,564 $ 18,696 $ 66
Net cash provided
(used) by operating
activities............ 19,804 16,913 69,685 54,356 39,732 23,564 (492)
Net cash used by
investing activities.. (70,486) (69,354) (291,476) (287,418) (235,149) (390,077) (31,005)
Net cash provided by
financing activities.. $50,733 $52,055 $226,026 $230,907 $ 195,649 $ 372,638 $31,634
</TABLE>
- --------
(1) The pro forma condensed statements of earnings reflect: (i) the Merger,
(ii) the sale of the Homestead Village properties and subsequent
distribution of Homestead securities on November 12, 1996, (iii) the
acquisition and disposition of communities acquired or disposed of
subsequent to January 1, 1996 and related assumptions of mortgage debt and
(iv) the sale of Shares subsequent to January 1, 1996 (including the sale
of Shares on April 10, 1997) and the proposed Note Offering and Preferred
Share Offering and the related repayments on ATLANTIC's $350 million
unsecured line of credit as if all of these transactions had occurred on
January 1, 1996.
(2) For the period from inception (October 26, 1993) to December 31, 1993.
(3) The pro forma condensed balance sheet reflects: (i) the Merger, (ii) the
sale of Shares on April 10, 1997 and (iii) the proposed Note Offering and
Preferred Share Offering and the related repayments on ATLANTIC's $350
million unsecured line of credit as if all of these transactions had
occurred as of March 31, 1997.
(4) At June 27, 1997, ATLANTIC had $278.8 million of outstanding borrowings
under its $350 million unsecured line of credit and such outstanding
borrowings are expected to be approximately $ million at the closing
of the Offering.
(5) Funds from operations represents net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions, provisions
for possible losses, extraordinary items and real estate depreciation.
ATLANTIC believes that funds from operations is helpful to the reader in
understanding the performance of an equity REIT and will enhance the
reader's comprehension of ATLANTIC's results of operations and cash flows
presented in the financial statements and other data in this document.
Funds from operations should not be considered as an alternative to net
earnings or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. On
January 1, 1996, ATLANTIC adopted the National Association of Real Estate
Investments Trusts' ("NAREIT") revised definition of funds from operations.
Under this more conservative definition, loan cost amortization is not
added back to net earnings in determining funds from operations. For
comparability, funds from operations for the periods prior to January 1,
1996 give effect to the revised definition. The funds from operations
measure presented by ATLANTIC, while consistent with the NAREIT definition,
will not be comparable to similarly titled measures of other REITs which do
not compute funds from operations in a manner consistent with ATLANTIC.
Funds from operations is not intended to represent cash made available to
shareholders. Cash distributions paid to shareholders is presented in the
table above.
19
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
LACK OF INDEPENDENT VALUATION OF ASSETS
The value of ATLANTIC has not been determined on a community-by-community
basis because ATLANTIC is an ongoing business enterprise. Accordingly, no
appraisals, independent valuations or fairness opinions from a financial point
of view of the communities have been obtained in connection with the valuation
of ATLANTIC. Furthermore, the valuation of ATLANTIC is not based upon the
historical cost of assets or the current market value thereof. Therefore, the
price of the Shares may be greater than the fair market value of ATLANTIC's
portfolio.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
As of June 27, 1997, Security Capital beneficially owned approximately 51.3%
of the issued and outstanding Shares. As a result, Security Capital currently
controls approximately 51.3% of the vote on matters submitted for ATLANTIC
shareholder action, including the Merger. No other shareholder may hold more
than 9.8% of the shares of ATLANTIC. Security Capital has the contractual
right (and after the Merger will continue to have the contractual right) to
nominate up to three directors to the Board, depending upon its level of
ownership of Shares, as follows: (i) so long as Security Capital owns at least
10% but less than 25% of the outstanding Shares, it will be entitled to
nominate one person; and (ii) so long as Security Capital owns at least 25% of
the outstanding Shares, it will be entitled to nominate that number of persons
as shall bear approximately the same ratio to the total number of members of
the Board as the number of Shares beneficially owned by Security Capital bears
to the total number of outstanding Shares, provided that Security Capital
shall be entitled to designate no more than three persons so long as the Board
consists of no more than seven members. The directors so elected are in a
position to exercise control or significant influence over the affairs of
ATLANTIC if they act together. Security Capital's ownership could increase
from approximately 51.3% to approximately % after the Offering and the
Merger if no Shares are purchased in the Offering, and would remain at
approximately 51.3% if the Offering is fully subscribed. Additionally, after
the Merger, Security Capital will continue to have contractual rights of prior
approval and consultation regarding certain important matters, including
ATLANTIC's operating budget and substantial deviations therefrom, acquisitions
or sales of assets in excess of $25.0 million, issuances of securities for
less than fair market value, adoption of employee benefit plans, and certain
incurrences of additional indebtedness. See "The Merger Transaction--
Relationship with Security Capital After the Merger--Investor Agreement". To
provide for a wider distribution of ownership and greater liquidity, Security
Capital has advised ATLANTIC that it intends, over time, to allow its
ownership interest in ATLANTIC to fall to between 40% and 50% as ATLANTIC
conducts equity offerings, which is consistent with its ownership interests in
the other operating companies in which Security Capital invests.
CONFLICTS OF INTEREST
ATLANTIC currently does not have any employees and relies on the REIT
Manager for all strategic and day-to-day management services and SCG Realty
Services to provide property management services for approximately 91% of
ATLANTIC's multifamily communities. Two officers of the REIT Manager and its
affiliates (Jeffrey A. Klopf, Senior Vice President of Security Capital,
ATLANTIC and the REIT Manager (securities offerings, corporate acquisitions
and legal) and Ariel Amir, Vice President of Security Capital (securities
offerings, corporate acquisitions and legal)) may have conflicts of interest
in allocating their time and efforts between activities on behalf of ATLANTIC
and other activities of the REIT Manager's affiliates. Affiliates of the REIT
Manager also provide management services to PTR, a NYSE-listed REIT which
focuses on multifamily communities in the western United States, and Security
Capital Industrial Trust ("SCI"), a NYSE-listed REIT which focuses on
industrial real estate in the United States. Capital Markets Group, Security
Capital's registered broker-dealer affiliate, devotes a substantial portion of
its time to these other REITs,
20
<PAGE>
Homestead, an ASE-listed real estate company which focuses on extended-stay
facilities in the United States, and Security Capital. Messrs. Klopf and Amir
provide centralized securities offering, corporate acquisition and legal
services to ATLANTIC and other affiliated real estate companies, including
PTR, SCI, Homestead and Security Capital, and, as a result, do not focus their
full efforts and attention on ATLANTIC. In addition, the REIT Manager and its
affiliates share a common senior investment committee, which approves all
acquisition and development proposals before they are submitted to the
respective REIT boards for approval and therefore members of this senior
investment committee do not focus their full efforts and attention on
ATLANTIC. PTR acquires multifamily communities but operates in a different
market than ATLANTIC. See "Policies With Respect to Certain Activities--
Conflict of Interest Policies" and "--Policies Applicable to the REIT Manager
and Officers and Directors of ATLANTIC".
Ned S. Holmes, a Director of ATLANTIC, is also Chairman and President of
Parkway Investments/Texas Inc., President and Chief Executive Officer of Laing
Properties, Inc. ("Laing") and an executive officer of certain of Laing's
affiliates. Laing and its affiliates engage in the acquisition, development
and management of multifamily communities and Mr. Holmes may therefore have
conflicts of interest in presenting acquisition or development opportunities
to ATLANTIC.
The owner of the REIT Manager, Security Capital, is ATLANTIC's principal
shareholder, and Security Capital could influence decisions regarding the REIT
Management Agreement, property management agreements between ATLANTIC and SCG
Realty Services and fees relating to such agreements. Although all agreements
with the REIT Manager and SCG Realty Services must be reviewed and approved at
least annually by ATLANTIC's independent Directors, no assurance of arm's-
length negotiations can be given. See "The Merger Transaction" for a
description of an agreement that ATLANTIC has entered into with Security
Capital to merge the REIT Manager and SCG Realty Services into a newly formed
subsidiary of ATLANTIC in exchange for Shares. For a description of the
Amended and Restated Investor Agreement which will take effect upon
consummation of the Merger, see "The Merger Transaction--Relationship with
Security Capital After the Merger--Investor Agreement".
RISK OF INABILITY TO PAY FUTURE DISTRIBUTIONS
ATLANTIC's ability to pay future distributions depends on a number of
factors, including factors relating to the future operations of ATLANTIC.
These factors include, among other things, continued community occupancy,
capital expenditures and other costs relating to ATLANTIC's existing
communities. Some of the factors described above are beyond the control of
ATLANTIC, and a change in any such factor could affect ATLANTIC's ability to
pay future distributions. Hence, no assurance can be given as to ATLANTIC's
ability to pay future distributions. See "Price Range of ATLANTIC Shares and
Distributions".
BORROWING RISKS
Debt Financing Risks
To the extent it or its subsidiaries incur debt, such as the Notes, ATLANTIC
will be subject to the risks associated with debt financing, including the
risks that ATLANTIC's cash flow from operations will be insufficient to meet
required payments of principal and interest, that ATLANTIC will be unable to
refinance its unsecured revolving line of credit or current or future mortgage
indebtedness on its communities, that the terms of such refinancings will not
be as favorable as the terms of existing indebtedness and that ATLANTIC will
be unable to make necessary capital expenditures for such purposes as
renovations and releasing units due to lack of available funds. If a community
is mortgaged to secure payment of indebtedness and ATLANTIC is unable to meet
mortgage payments, the community could be transferred to the mortgagee with a
consequent loss of income and asset value to ATLANTIC. As of March 31, 1997,
21.4% of ATLANTIC's real estate assets, at cost, were encumbered by debt.
Approximately $121.4 million of ATLANTIC's tax-exempt mortgage debt at March
31, 1997 was included in a credit enhancement agreement with the Federal
National Mortgage Association ("FNMA"). The credit enhancement agreement is
effectively cross-collateralized with respect to the $207.5
21
<PAGE>
million of communities pledged under the agreement as of March 31, 1997 and
ATLANTIC's $350 million unsecured line of credit agreement contains cross-
default provisions with respect to defaults relating to in excess of $25.0
million of ATLANTIC's outstanding debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Investing and Financing Activities". ATLANTIC's policy will
be to generally arrange unsecured, fully amortizing, fixed rate long-term
debt, such as the Notes. See "Policies With Respect to Certain Activities--
Financing Policies" and "Note Offering".
Variable Interest Rate Risk
ATLANTIC has interest rate swap agreements covering all of its variable
interest rate mortgage debt and $100 million of borrowings under its $350
million unsecured line of credit, effectively mitigating its variable interest
rate exposure. ATLANTIC's variable interest rate exposure is limited to the
line of credit borrowings not covered by an interest rate swap agreement
($178.8 million at June 27, 1997). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Investing and Financing Activities". Increases in interest rates
could increase ATLANTIC's interest expense, which would adversely affect
ATLANTIC's funds from operations.
CONCENTRATION OF ATLANTIC'S COMMUNITIES IN ATLANTA
As of March 31, 1997, ATLANTIC's portfolio included $363.8 million of
communities, based on cost, that are located in the Atlanta, Georgia
metropolitan area, representing 34.7% of pro forma revenues for the three-
month period ended March 31, 1997, and thus may be affected by changes in the
economic conditions of that area. See "ATLANTIC Communities--Geographic
Distribution". Conditions in the Atlanta market, including the possibility of
an economic downturn due to the completion of the 1996 Summer Olympic Games or
otherwise, could adversely affect cash flows.
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT
ATLANTIC has elected to be taxed as a REIT under the Code, commencing with
its taxable year ended December 31, 1994. A qualified REIT generally is not
taxed on income it distributes to its shareholders as long as it distributes
at least 95% of its taxable income currently and it meets certain other
qualification requirements. No assurance can be given that ATLANTIC will
remain qualified as a REIT. No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the rules applicable to ATLANTIC with respect to
qualification as a REIT or the federal income tax consequences of such
qualification.
If ATLANTIC fails to continue to qualify as a REIT, it will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, ATLANTIC will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax could significantly reduce cash
flows. See "Federal Income Tax Considerations".
IMPACT OF MERGER ON ATLANTIC'S FINANCIAL POSITION
To date ATLANTIC has incurred a REIT Management fee and property management
fee for services provided by Security Capital. After completion of the Merger,
ATLANTIC will no longer pay a REIT Management or property management fee;
instead, it will directly incur the operating and related costs for the
professionals (currently 100 professionals) and property-level and support
personnel (currently 450 persons) employed by the REIT Manager and SCG Realty
Services. See "The Merger Transaction". ATLANTIC will directly incur all
future increases in management costs that currently are borne by the REIT
Manager and SCG Realty Services. The Board believes that ATLANTIC has reached
a sufficient size to realize economies of scale by internalizing the
management function since ATLANTIC will have sufficient depth of management
and personnel such that additional assets can be acquired, developed and
managed without a significant increase in
22
<PAGE>
personnel or other costs. However, no assurance can be given that the cost to
ATLANTIC of providing such services internally will not exceed the fees
payable to the REIT Manager and SCG Realty Services under the current
agreements. However, as a result of the Merger, ATLANTIC will capitalize
qualifying acquisition and development costs.
CHANGES IN ATLANTIC'S POLICIES WITHOUT SHAREHOLDER APPROVAL
The major policies of ATLANTIC, including its policies with respect to
investments, financing, growth, debt capitalization, REIT qualification and
distributions, are determined by the Board without the approval of ATLANTIC's
shareholders. Although it has no present intention to do so, the Board may
amend or revise these and other policies from time to time without a vote of
the shareholders of ATLANTIC. See "Policies With Respect to Certain
Activities". Accordingly, shareholders will have limited control over changes
in policies of ATLANTIC.
LIMITATIONS ON ACQUISITION OF SHARES AND CHANGE IN CONTROL
9.8% Ownership Limit
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding shares of ATLANTIC's stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). Pursuant to the constructive ownership rules, Security
Capital's ownership of Shares is attributed to its shareholders for purposes
of the 50% test. ATLANTIC's 9.8% share ownership limit for shareholders other
than Security Capital may have the effect of delaying or preventing a change
in control of ATLANTIC without the consent of the Board even if a change in
control were in the shareholders' interests and may also (i) deter tender
offers for the Shares, which offers may be advantageous to shareholders, and
(ii) limit the opportunity for shareholders to receive a premium for their
Shares that might otherwise exist if an investor were attempting to acquire in
excess of 9.8% of the outstanding shares of ATLANTIC's stock or otherwise
effect a change in control of ATLANTIC. See "Description of Stock--Restriction
on Size of Holdings of Shares".
Preferred Share Purchase Rights
On March 12, 1996, the Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each Share outstanding. Each purchaser
of a Share subsequent to March 12, 1996 (including purchasers of Shares in the
Offering) will also receive a Purchase Right with each Share purchased. Each
Purchase Right entitles the holder, under certain circumstances, to purchase
from ATLANTIC two one-hundredths of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Participating Preferred
Shares"), at a price of $40 per one one-hundredth of a Participating Preferred
Share, subject to adjustment. Purchase Rights are exercisable when a person or
group of persons (except for Security Capital and other affiliates of
ATLANTIC) acquires 20% or more of the outstanding shares or announces a tender
offer for 25% or more of the outstanding shares. Under certain circumstances,
each Purchase Right entitles the holder to purchase, at the Purchase Right's
then-current subscription price, a number of Shares having a market value of
twice the Purchase Right's subscription price. The acquisition of ATLANTIC
pursuant to certain mergers or other business transactions would entitle each
holder to purchase, at the Purchase Right's then-current subscription price, a
number of the acquiring company's common shares having a market value at that
time equal to twice the Purchase Right's subscription price. The Purchase
Rights held by certain 20% shareholders (except for Security Capital and other
affiliates of ATLANTIC) would not be exercisable.
The Purchase Rights may have the effect of delaying or preventing a change
in control of ATLANTIC without the consent of the Board by causing substantial
dilution to a person or group that attempts an acquisition without negotiating
with the Board, even if a change in control were in the shareholders'
interests and may also adversely affect the voting and other rights of
shareholders. See "Description of Stock--Purchase Rights".
Classified Board
The Board has been divided into three classes of Directors. The terms of the
classes will expire in 1997, 1998 and 1999, respectively. Beginning in 1997,
as the term of a class expires, Directors for that class will be elected for a
three-year term and the Directors in the other two classes will continue in
office.
23
<PAGE>
ATLANTIC's Ability to Issue Preferred Stock
ATLANTIC's Charter authorizes the Board to reclassify any unissued shares of
ATLANTIC's stock from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption. See
"Description of Stock-- General" and "--Preferred Stock". Except as described
above under "--Preferred Share Purchase Rights", no such shares have been so
reclassified to date. However, ATLANTIC may issue Series A Preferred Shares in
the Preferred Share Offering. See "Preferred Share Offering".
Advance Notice Requirements for Shareholder Proposals
For nominations or other business to be properly brought before an annual
meeting of shareholders by a shareholder, ATLANTIC's Bylaws require such
shareholder to deliver a notice to the Secretary, absent specified
circumstances, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting setting forth: (i) as to
each person whom the shareholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for the election of
directors pursuant to Regulation 14A of the Exchange Act; (ii) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such shareholder and of the beneficial owner, if any, on
whose behalf the proposal is made; and (iii) as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made, (a) the name and address of such shareholder as it appears
on ATLANTIC's books and of such beneficial owner and (b) the number of Shares
which are owned beneficially and of record by such shareholder and such
beneficial owner, if any.
The classified Board, the issuance of preferred stock and the advance notice
provisions discussed in the preceding paragraphs each could have the effect of
delaying or preventing a change in control of ATLANTIC even if a change in
control were in the shareholders' interests.
POSSIBLE ADVERSE CONSEQUENCE OF LIMITS ON OWNERSHIP OF SHARES
As noted above under "--Limitations on Acquisition of Shares and Change in
Control", under the REIT tax rules, not more than 50% in value of the
outstanding shares of ATLANTIC's stock may be owned, directly or indirectly,
by five or fewer individuals. ATLANTIC's Charter restricts the ownership of
more than 9.8% of the number or value of the outstanding shares of ATLANTIC's
stock by any single shareholder. The ownership limitation does not apply to
Security Capital. See "Certain Relationships and Transactions--Security
Capital Investor Agreement". The Board, in its sole discretion, may waive this
restriction if it is satisfied that ownership in excess of this limit will not
jeopardize ATLANTIC's status as a REIT. See "Description of Stock--Restriction
on Size of Holdings of Shares" for additional information regarding the
ownership limit.
EFFECT ON SHARE PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Shares, or the perception that such sales
could occur, could adversely affect the prevailing market price for the
Shares. At June 27, 1997, ATLANTIC had 41,968,780 Shares issued and
outstanding, which were held of record by approximately 300 persons. All such
Shares may be sold in the public market pursuant to registration rights or
available exemptions from registration. See "Shares Available for Future
Sale". No prediction can be made regarding the effect of future sales of
Shares on the market prices of Shares.
RESTRICTIONS ASSOCIATED WITH ATLANTIC'S TAX-EXEMPT BOND FINANCINGS
ATLANTIC's portfolio includes communities which require that 20% of their
units be occupied by households whose income does not exceed 80% of the median
household income of the submarket in which the property is located; over 50%
of the households in such communities met such requirements in December 1996.
There can be no assurance that each community will continue to meet such
requirements in the future, in which case ATLANTIC may be required to
refinance the tax-exempt bonds used to finance such community.
24
<PAGE>
EFFECT OF MARKET INTEREST RATES ON SHARE PRICES
One of the factors that may influence the price of the Shares in public
markets will be the annual yield on the price paid for Shares from
distributions by ATLANTIC. Thus, an increase in market interest rates may lead
purchasers of Shares to demand a higher annual yield, which could adversely
affect the market price of the Shares.
ATLANTIC'S REAL ESTATE INVESTMENT RISKS
General
Real property investments are subject to varying degrees of risk. Real
estate cash flows and values are affected by a number of factors, including
changes in the general economic climate, local conditions (such as an
oversupply of multifamily communities or a reduction in rental demand in an
area), the quality and philosophy of management, competition from other
available multifamily communities and the ability of the owner to provide
adequate maintenance and insurance and to control operating costs. Although
ATLANTIC seeks to minimize these risks through the REIT Manager's market
research and management capabilities, these risks cannot be eliminated
entirely. Real estate cash flows and values are also affected by such factors
as government regulations, including zoning and tax laws, interest rate
levels, the availability of financing and potential liability under, and
changes in, environmental and other laws. Since a significant portion of
ATLANTIC's income will be derived from rental income from real property,
ATLANTIC's income and distributable cash flow would be adversely affected if a
significant number of ATLANTIC's residents were unable to meet their
obligations to ATLANTIC, or if ATLANTIC were unable to lease, on economically
favorable terms, a significant number of units in its multifamily communities.
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of ATLANTIC to react promptly to changes in economic
or other conditions. In addition, certain significant expenditures associated
with equity investments (such as mortgage payments, real estate taxes and
maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investments. Like other REITs, ATLANTIC must
comply with safe harbor rules which enable a REIT to avoid punitive taxation.
Thus, ATLANTIC's ability to sell assets to change its asset base is restricted
by tax rules which impose holding periods for assets and potential
disqualification as a REIT upon certain asset sales.
Risks of Real Estate Development
ATLANTIC has developed or commenced development of 8,201 multifamily units
and expects to develop additional multifamily units in the future. See
"Business--ATLANTIC's Operating System--Developed Communities". Real estate
development involves significant risks in addition to those involved in the
ownership and operation of established multifamily communities, including the
risks that financing, if needed, may not be available on favorable terms for
development projects, that construction may not be completed on schedule
(resulting in increased debt service expense and construction costs) and that
communities may not be leased on profitable terms. Timely construction may be
adversely affected by local weather, local or national strikes and by local or
national shortages in materials, insulation, building supplies and energy and
fuel for equipment. ATLANTIC intends to finance future development with cash
on hand or revolving credit borrowings (which ATLANTIC expects to repay with
proceeds from sales of long-term debt or equity securities); however, until
such communities are developed and leased, they will not generate any cash
flow to ATLANTIC.
Land Use and Zoning Considerations
Governmental authorities at the federal, state and local levels are actively
involved in the promulgation and enforcement of regulations relating to land
use and zoning restrictions. Regulations may be promulgated which could have
the effect of restricting or curtailing certain uses of existing structures or
requiring that such structures be renovated or altered in some fashion. The
establishment of such regulations could have the effect of increasing the
expenses and lowering the profitability of any of the communities affected
thereby.
25
<PAGE>
Risks of Investments in Mortgages
Although ATLANTIC's current policy is not to invest in mortgages unrelated
to its communities, ATLANTIC may invest in mortgages in connection with the
construction and development of new multifamily communities for ATLANTIC by
third parties. See "Policies With Respect to Certain Activities--Investment
Policies". Pursuant to a funding commitment agreement entered into in
connection with the Homestead transaction, ATLANTIC has invested and will
invest in convertible mortgage notes issued by Homestead. See "Certain
Relationships and Transactions--Homestead Transaction" and "--Funding
Commitment Agreement". In addition, ATLANTIC from time to time will invest in
mortgage loans to Atlantic Development Services Incorporated ("Atlantic
Development Services"), an entity in which ATLANTIC owns substantially all of
the economic interest, to fund the acquisition and development of certain
communities that meet ATLANTIC's investment criteria. See "Business--
ATLANTIC's Operating System--Developed Communities". Mortgage investments are
subject to certain risks, including that borrowers may not be able to make
debt service payments or pay principal when due, that the value of mortgaged
property may be less than the amounts owed, and that interest rates payable on
the mortgages may be lower than ATLANTIC's cost of funds. If ATLANTIC invested
in mortgages and if any of the above occurred, cash flows could be adversely
affected.
Uninsured Loss
ATLANTIC will initially carry comprehensive liability, fire, flood,
earthquake, extended coverage and rental loss insurance with respect to its
communities with policy specifications and insured limits customarily carried
for similar communities. See "Business--Insurance Coverage". There are,
however, certain types of losses that may be either uninsurable or not
economically insurable. Should an uninsured loss occur, ATLANTIC could lose
both its capital invested in and anticipated profits from one or more
communities.
Competition
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with ATLANTIC in seeking land for
development, communities for acquisition and disposition and residents for
communities. All of ATLANTIC's multifamily communities are located in
developed areas that include other multifamily communities. The number of
competitive multifamily communities in a particular area could have a material
adverse effect on ATLANTIC's ability to lease apartment units and on the rents
charged. In addition, other forms of single family and multifamily residential
communities provide housing alternatives to residents and potential residents
of ATLANTIC's multifamily communities. See "Business--Competition".
REGULATORY COMPLIANCE RISKS
Possible Liability Relating to Environmental Laws
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for the release of asbestos-containing materials into the
air, pursuant to which third parties may seek recovery from owners or
operators of real properties for personal injuries associated with such
materials, and prescribe specific methods for the removal and disposal of such
materials, which may result in increased costs in connection with renovations
at ATLANTIC's communities.
26
<PAGE>
ATLANTIC has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of its communities
owned or being acquired at May 31, 1997, and ATLANTIC is not aware of any
environmental condition with respect to any of its communities that is likely
to be material. ATLANTIC has subjected each of its communities to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is ATLANTIC aware of, any
environmental liability (including asbestos-related liability) that ATLANTIC
believes would have a material adverse effect on its business, financial
condition or results of operations. No assurance can be given, however, that
these assessments and investigations reveal all potential environmental
liabilities, that no prior owner or operator created any material
environmental condition not known to ATLANTIC or the independent consultants
or that future uses and conditions (including, without limitation, resident
actions or changes in applicable environmental laws and regulations) will not
result in unreimbursed costs relating to environmental liabilities. See
"Business--Environmental Matters".
Compliance With the Fair Housing Amendments Act of 1988
FHA requires multifamily communities first occupied after March 13, 1990 to
be accessible to the handicapped. Noncompliance with the FHA could result in
the imposition of fines or an award of damages to private litigants. ATLANTIC
believes that its communities that are subject to the FHA are in compliance
with such law.
Compliance With the Americans with Disabilities Act of 1990
ATLANTIC's communities and any newly developed or acquired multifamily
communities must comply with Title III of the ADA to the extent that such
communities are "public accommodations" and/or "commercial facilities" as
defined by the ADA. Compliance with the ADA requirements requires that public
accommodations "reasonably accommodate" individuals with disabilities, which
includes removal of structural barriers to handicapped access in certain
public areas of ATLANTIC's communities, where such removal is readily
achievable, and that new construction or alterations made to "commercial
facilities" conform to accessibility guidelines, unless "structurally
impracticable" for new construction or in excess of 20% of the cost of the
alteration for existing structures. The ADA does not, however, consider
multifamily residential communities, such as ATLANTIC's communities, to be
public accommodations or commercial facilities except to the extent portions
of such communities, such as a leasing office, are open to the public.
ATLANTIC believes that its communities comply with all present requirements
under the ADA and applicable state laws. Noncompliance with the ADA could
result in the imposition of injunctive relief, fines or an award of damages.
Changes in Laws
Increased costs resulting from increases in real estate, income or transfer
taxes or other governmental requirements generally may not be passed through
directly to residents, inhibiting ATLANTIC's ability to recover such increased
costs. Substantial increases in rents, as a result of such increased costs,
may affect residents' ability to pay rent, causing increased vacancy. In
addition, changes in laws increasing potential liability for environmental
conditions or increasing the restrictions on discharges or other conditions
may result in significant unanticipated expenditures.
27
<PAGE>
USE OF PROCEEDS
The proceeds to ATLANTIC from the sale of the Shares offered hereby, net of
all expenses of the Offering, are expected to be approximately $ million.
The net proceeds of the Offering will be used to retire revolving credit debt
which was incurred for (i) the acquisition and development of multifamily
communities, (ii) capital improvements to communities, (iii) fundings under
ATLANTIC's funding commitment agreement with Homestead and (iv) general
corporate purposes. As of June 27, 1997, ATLANTIC had $278.8 million of
outstanding borrowings under its $350 million unsecured line of credit with
Morgan Guaranty Trust Company of New York ("MGT"), as agent for a syndicate of
banks, and such outstanding borrowings are expected to be approximately $
million at the closing of the Offering. Borrowings under the line of credit
bear interest at prime (8.5% at June 27, 1997) or, at ATLANTIC's option, LIBOR
plus 1.375% (7.0625% at June 27, 1997). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Line of Credit".
CAPITALIZATION
The following table sets forth the capitalization of ATLANTIC as of March
31, 1997 and as adjusted to give effect to the Merger, the Offering and
ATLANTIC's April 1997 public offering of Shares and the proposed Note Offering
and Preferred Share Offering and the application of the proceeds therefrom.
The table should be read in conjunction with the financial statements of
ATLANTIC included herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------
AS
HISTORICAL ADJUSTED
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Mortgages payable..................................... $155,418 $ 155,418
Long-term debt........................................ -- 150,000
Shareholders' equity:
Series A Preferred Shares ( shares at a stated
liquidation preference of $ per share)........... -- 50,000
Shares of common stock, par value $.01 per share;
250,000,000 Shares authorized; 37,891,580 Shares
issued; 44,280,580 Shares issued as adjusted....... 379 442(1)
Additional paid-in capital.......................... 747,640 878,222(1)
Unrealized gains on Homestead convertible mortgages. 5,900 5,900
Distributions in excess of net earnings............. (39,199) (39,199)
-------- ----------
Total shareholders' equity........................ $714,720 $ 895,365
-------- ----------
Total capitalization(2)........................... $870,138 $1,200,783
======== ==========
</TABLE>
- --------
(1) For purposes of this table, the entire Offering proceeds are reflected as
additional paid-in capital.
(2) Does not include borrowings under ATLANTIC's $350 million unsecured line
of credit. At March 31, 1997, $295.3 million of borrowings were
outstanding under the line of credit. On an as adjusted basis, there will
be no outstanding borrowings under the line of credit and surplus proceeds
from the Offering of $30.8 million which will be used for future
acquisitions and developments of multifamily communities.
28
<PAGE>
PRICE RANGE OF ATLANTIC SHARES AND DISTRIBUTIONS
The Shares are listed on the NYSE under the symbol "SCA". As of June 27,
1997, ATLANTIC had 41,968,780 Shares issued and outstanding, which were held
of record by approximately 300 shareholders. The Shares commenced trading on
the NYSE on October 15, 1996 and the high and low sales prices of the Shares
as reported in the NYSE Composite Tape were $24 5/8 and $20 7/8, respectively,
for the fourth quarter of 1996 (as adjusted for the Homestead Distribution
described below), and were $26 1/2 and $22, respectively, for the first
quarter of 1997 and $23 3/8 and $20 3/4, respectively, for the second quarter
of 1997 (through June 27). The following table sets forth ATLANTIC's cash
distributions per Share for the periods indicated.
<TABLE>
<CAPTION>
CASH
DISTRIBUTIONS
PER SHARE
-------------
<S> <C>
1995:
First Quarter................................................... $0.40
Second Quarter.................................................. $0.40
Third Quarter................................................... $0.40
Fourth Quarter.................................................. $0.40
-----
$1.60
=====
1996:
First Quarter................................................... $0.42
Second Quarter.................................................. $0.42
Third Quarter................................................... $0.42
Fourth Quarter.................................................. $0.39(1)
-----
$1.65
=====
1997:
First Quarter................................................... $0.39
Second Quarter.................................................. $0.39
</TABLE>
- --------
(1) In light of the Homestead transaction and ATLANTIC's initial public
offering, the Board adjusted the distribution in the fourth quarter of
1996.
In addition to the quarterly cash distributions shown above, ATLANTIC made
the Homestead Distribution on November 12, 1996 to holders of Shares of record
on October 29, 1996. The securities distributed in the Homestead Distribution
had a market value of $2.67 per Share based on the closing prices of such
securities on the ASE on November 11, 1996, the day prior to the distribution
date. The Homestead Distribution resulted in an adjustment of $2.75 per Share
to ATLANTIC's Share price information on the NYSE on November 12, 1996.
Accordingly, ATLANTIC's October 1996 initial public offering price, as
adjusted for the Homestead Distribution, was $21.25 per Share (as compared to
the pre-adjustment price of $24.00 per Share).
ATLANTIC, in order to qualify as a REIT, is required to make distributions
(other than capital gain distributions) to its shareholders in amounts at
least equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed
without regard to the dividends-paid deduction and its net capital gain) and
(B) 95% of the net income (after tax), if any, from foreclosure property minus
(ii) the sum of certain items of non-cash income. ATLANTIC's long-term
distribution strategy is to distribute what it believes is a conservative
percentage of its cash flow, permitting ATLANTIC to retain funds for capital
improvements and other investments while funding its distributions. ATLANTIC
has paid 14 consecutive quarterly cash distributions since its inception in
October 1993.
ATLANTIC announces the following year's projected annual distribution level
after the Board's annual budget review and approval in December of each year.
At its December 19, 1996 Board meeting, the Board announced a projected annual
distribution level of $1.56 per Share for 1997. The payment of distributions
is subject to the discretion of the Board and is dependent upon the financial
condition and operating results of ATLANTIC. ATLANTIC's unsecured line of
credit contains covenants which provide that ATLANTIC's distributions for the
preceding four quarters, excluding the Homestead Distribution, may not exceed
95% of funds from operations (as defined in the credit agreement) for the
preceding four quarters.
ATLANTIC expects to continue to pay regular quarterly distributions to its
shareholders, but the historical distributions presented above prior to the
fourth quarter of 1996 did not take into account the cost of being a
29
<PAGE>
public company and should not be considered to be indicative of future
distributions. ATLANTIC's ability to pay future distributions depends on a
number of factors including, among other things, continued property occupancy,
capital expenditures and other costs relating to ATLANTIC's existing
communities and ATLANTIC's financial condition and capital requirements. A
change in any such factor could affect ATLANTIC's ability to pay future
distributions. Moreover, ATLANTIC's operating results may be adversely
affected if occupancy levels decrease, if revolving credit borrowing costs
increase or if any other adverse changes occur. See "Risk Factors--Risk of
Inability to Pay Future Distributions".
Cash available for distribution will be affected by a number of factors,
including rental revenues from existing and new residents, the level of
acquisition and new leasing activity, ATLANTIC's operating expenses, the
interest expense and other debt service costs of ATLANTIC, the ability of
residents to meet their obligations, taxes payable by ATLANTIC and
unanticipated capital expenditures. ATLANTIC's policy is to expense, rather
than capitalize, repairs and maintenance, in determining net earnings and cash
available for distribution. Only major renovations, replacements or
improvements with a substantial expected economic life (such as roofs, parking
lots and additions) are capitalized. ATLANTIC has budgeted $6.1 million for
such purposes for the remainder of 1997. No assurances can be given that cash
available for distribution will be sufficient to pay future distributions.
Although ATLANTIC does not expect any future cash shortfalls, any such
shortfalls which do arise could result in reductions in ATLANTIC's cash
available for distribution which could result in lower than expected
distributions.
In addition to the $6.1 million of budgeted capital expenditures, as of May
31, 1997, ATLANTIC had $85.6 million of unfunded construction commitments and
$329.6 million of communities in planning (owned and under control), of which
$314.5 million had not been funded. In addition, pursuant to its funding
commitment agreement, ATLANTIC has agreed to fund mortgage loans to Homestead
of up to $111.1 million in exchange for convertible mortgage notes of up to
$98.0 million, of which $67.1 million had not been funded as of May 31, 1997.
See "Certain Relationships and Transactions--Funding Commitment Agreement".
ATLANTIC expects to finance its renovation, acquisition and development
investments and its funding commitment under its funding commitment agreement
with borrowings under its $350 million unsecured revolving line of credit
(which matures in December 1998) and future offerings of debt and equity
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed ATLANTIC's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather
than a dividend and reduce the shareholder's basis in the Shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in the Shares, it will generally be
treated as gain from the sale or exchange of that shareholder's Shares. For a
more complete discussion of the tax treatment of distributions to
shareholders, see "Federal Income Tax Considerations--Taxation of
Shareholders". ATLANTIC annually notifies shareholders of the taxability of
distributions paid during the preceding year. The following summarizes the
taxability of cash distributions paid in 1996, 1995 and 1994 on the Shares.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Per Share:
Ordinary income............................................. $0.78 $0.92 $0.92
Return of capital........................................... 0.87 0.68 0.28
----- ----- -----
Total..................................................... $1.65 $1.60 $1.20
===== ===== =====
</TABLE>
The securities distributed to each ATLANTIC shareholder in the Homestead
Distribution were valued at $1.91 per Share for federal income tax purposes,
of which $0.90 was taxable as ordinary income and $1.01 was treated as a
return of capital. ATLANTIC's tax returns have not been examined by the
Internal Revenue Service (the "IRS") and, therefore, the taxability of
distributions is subject to change.
30
<PAGE>
THE MERGER TRANSACTION
DESCRIPTION OF THE MERGER
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and SCG Realty Services for Shares, with the
result that ATLANTIC would become an internally managed REIT. On March 18,
1997, the Special Committee recommended that the Board approve the Merger
subject to definitive documentation. Following the meeting of the Special
Committee, the full Board approved the Merger Agreement and the Merger. On
March 24, 1997, ATLANTIC and Security Capital entered into the Merger
Agreement, which is subject to customary conditions, including the approval of
ATLANTIC's shareholders. Pursuant to the Merger Agreement, Security Capital
will cause the REIT Manager and SCG Realty Services to be merged into a newly
formed subsidiary of ATLANTIC. The employees of the REIT Manager and SCG
Realty Services will become employees of ATLANTIC as a result of the Merger,
which will be consummated as follows:
. Security Capital will transfer all of its shares of the REIT Manager and
SCG Realty Services to a newly formed subsidiary of ATLANTIC in exchange
for Shares valued at approximately $54.6 million.
. The number of Shares issuable to Security Capital was based on the
average closing price of the Shares over the five-day period prior to the
record date for determining ATLANTIC's shareholders entitled to vote at
the meeting in connection with the Merger (which was the same as the
Record Date for the Rights dividend). The average closing price of the
Shares over the five-day period prior to the Record Date was $
per Share. The Subscription Price for the Offering is equal to % of
such average price.
. The Offering is designed to allow ATLANTIC's shareholders (other than
Security Capital) the opportunity to maintain their relative ownership in
ATLANTIC by purchasing additional Shares at a price which is below the
price at which Security Capital is receiving Shares in the Merger.
Security Capital has agreed that it will not exercise its Rights to
purchase additional Shares and that it will not sell its Rights. See "The
Offering--Principal Shareholder".
. In addition to the Offering, as part of the Merger transaction, and in
order to induce holders of Shares to vote in favor of the Merger
transaction, to broaden Security Capital's shareholder base, to enable
Security Capital to raise additional equity capital at a relatively low
cost through exercises of warrants and to enable Security Capital to
raise additional equity capital in the long run by preserving and
enhancing its goodwill with the shareholders of ATLANTIC, Security
Capital will issue warrants pro rata to ATLANTIC's shareholders, other
than Security Capital, to acquire shares of its Class B Stock having an
aggregate subscription price at the time of the Warrant Issuance of
approximately $46.9 million. The Warrant Issuance will occur subject to
and after the closing of the Merger and subject to and after the closing
of the Offering. The number of warrants to be received by each
shareholder in the Warrant Issuance will be determined after ATLANTIC's
shareholders have approved the Merger. The number of shares of Class B
Stock subject to the warrants will be based on the closing price of the
Class B Stock on the date the warrants are issued to the agent for the
Warrant Issuance for subsequent distribution to holders of Shares. It is
expected that application will be made for listing of the Class B Stock
and the warrants on the NYSE, although there can be no assurance that
either, or both, the Class B Stock or the warrants will be so listed. The
warrants will expire one year after issuance and will contain customary
provisions to protect shareholders from dilution in certain events,
including certain distributions and sales of Shares at less than market
price. The issuance of the warrants by Security Capital is contingent
upon the closing of the Merger. Any securities issued pursuant to the
Warrant Issuance will be offered only by means of a separate proxy
statement/prospectus which will be delivered to ATLANTIC's shareholders.
No shareholder will be required to pay any cash or other consideration for
the warrants received in the Warrant Issuance or surrender or exchange Shares
in order to receive warrants. However, ATLANTIC believes that a shareholder
receiving warrants pursuant to the Warrant Issuance should have ordinary
taxable income equal to the value of the warrants on the issuance date. See
"Federal Income Tax Considerations--Tax Effects of the Merger".
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<PAGE>
The Merger transaction was initiated and structured by individuals who are
executive officers of Security Capital, the largest shareholder of ATLANTIC.
Although no independent representatives were retained to negotiate the terms
of the Merger transaction on behalf of ATLANTIC, the Board created the Special
Committee consisting of Messrs. Garcia, Holmes and Richman. The Special
Committee engaged Hogan & Hartson L.L.P. as its legal counsel and engaged J.P.
Morgan Securities Inc. as its financial advisor to provide a written opinion
with respect to the fairness, from a financial point of view, of the
consideration to be received in the transactions contemplated by the Merger
Agreement and the Related Agreements (as defined in the Merger Agreement) to
ATLANTIC and its shareholders (other than Security Capital). No member of the
Special Committee is an officer of ATLANTIC or a Director or officer of the
REIT Manager or SCG Realty Services, or an officer or Director of Security
Capital. However, Messrs. Garcia, Holmes and Richman beneficially own 12,000,
59,500 and 12,000 Shares, respectively, and Messrs. Holmes and Richman
beneficially own 67 and 1,516 shares, respectively, of Security Capital's
Class A common stock, par value $.01 per share (the "Class A Stock").
Additionally, Messrs. Holmes and Richman beneficially own $508,358 and
$856,318 aggregate principal amount of Security Capital's Convertible
Subordinated Debentures due 2014 (the "2014 Convertible Debentures"),
respectively (convertible into an aggregate of 486 and 819 shares of Class A
Stock, respectively). Directors of ATLANTIC, other than members of the Special
Committee, beneficially own, in the aggregate, 24,649 Shares, 511 shares of
Class A Stock and $151,248 aggregate principal amount of 2014 Convertible
Debentures (convertible into an aggregate of 144 shares of Class A Stock).
Beginning on January 1, 1998, each share of Class A Stock will be convertible
into 50 shares of Class B Stock.
Concurrently with signing the Merger Agreement with ATLANTIC, Security
Capital also signed substantially similar agreements with each of SCI and PTR,
each of which are affiliates of Security Capital and ATLANTIC. Consummation of
the Merger transaction is not dependent upon the closing of the SCI and PTR
transactions.
RELATIONSHIP WITH SECURITY CAPITAL AFTER THE MERGER
Investor Agreement
Pursuant to an investor agreement (the "Investor Agreement"), between
ATLANTIC and Security Capital, Security Capital is entitled to designate three
persons to be nominated for election to the Board. So long as Security Capital
beneficially owns at least 10% of the Shares, ATLANTIC is prohibited from
increasing the number of members of the Board to more than seven.
Additionally, the Investor Agreement, among other things, requires ATLANTIC to
obtain Security Capital's approval of (i) the annual operating budget and
substantial deviations therefrom, (ii) contracts for investment management,
property management or leasing services or that contemplate annual payments in
excess of $100,000 and (iii) acquisitions or dispositions in a single
transaction or a group of related transactions where the purchase or sale
price exceeds $5.0 million. The Investor Agreement also provides certain
registration rights to Security Capital in respect of Shares beneficially
owned by Security Capital.
As part of the Merger transaction, ATLANTIC and Security Capital will amend
and restate the Investor Agreement (as so amended and restated, the "Amended
and Restated Investor Agreement"). See "Certain Relationships and
Transactions--Security Capital Investor Agreement" for a description of the
current Investor Agreement. The Amended and Restated Investor Agreement will
provide that, without first having consulted with the nominees of Security
Capital designated in writing, ATLANTIC may not seek Board approval of (i)
ATLANTIC's annual budget; (ii) incurring expenses in any year exceeding (a)
any line item in the annual budget by the greater of $500,000 or 20% and (b)
the total expenses set forth in the annual budget by 15%; (iii) the
acquisition or sale of any assets in any single transaction or series of
related transactions in the ordinary course of ATLANTIC's business where the
aggregate purchase price paid or received by ATLANTIC exceeds $25.0 million;
and (iv) entering into any new contract with a service provider (a) for
investment management, property management or leasing services or (b) that
reasonably contemplates annual contract payments by ATLANTIC in excess of $1.0
million. ATLANTIC will be under no obligation to accept or comply with any
advice offered by Security Capital with respect to the foregoing matters.
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Additionally, so long as Security Capital beneficially owns at least 25% of
the Shares, Security Capital will have the right to approve the following
matters proposed by ATLANTIC: (i) the issuance or sale of any Shares
(including the grant of any rights, options or warrants to subscribe for or
purchase Shares or any security convertible into or exchangeable for Shares or
the issuance or sale of any security convertible into or exchangeable for
Shares), at a price per Share less than the fair market value of a Share on
the date of such issuance or sale; (ii) the issuance and sale of any
disqualified shares (as defined) if, as a result thereof, ATLANTIC's Fixed
Charge Coverage Ratio (as defined) would be less than 1.4 to 1.0; (iii) the
adoption of any employee benefit plan pursuant to which shares of ATLANTIC or
any securities convertible into shares of ATLANTIC may be issued and any
action with respect to the compensation of the senior officers of ATLANTIC
(including the granting or award of any bonuses or share-based incentive
awards); and (iv) the incurrence of any additional indebtedness (including
guarantees and including renegotiations and restructurings of existing
indebtedness) if, as a result thereof, ATLANTIC's Interest Expense Coverage
Ratio (as defined) would be less than 2.0 to 1.0. The restriction referred to
in clause (i) above will not apply to (A) the sale or grant of any options to
purchase shares of ATLANTIC pursuant to the provisions of any benefit plan
approved by the shareholders of ATLANTIC, (B) the issuance or sale of shares
of ATLANTIC upon the exercise of any rights, options or warrants granted, or
upon the conversion or exchange of any convertible or exchangeable security
issued or sold, prior to the closing date of the Merger or in accordance with
the provisions of the Amended and Restated Investor Agreement, (C) the
issuance and sale of any shares of ATLANTIC pursuant to any dividend
reinvestment and share purchase plan approved by the Board or (D) the
issuance, grant or distribution of rights, options or warrants to all holders
of Shares entitling them to subscribe for or purchase shares of ATLANTIC or
securities convertible into or exercisable for shares of ATLANTIC.
The Amended and Restated Investor Agreement will also provide that, so long
as Security Capital owns at least 10% of the outstanding Shares, ATLANTIC may
not increase the number of persons serving on the Board to more than seven.
Security Capital also will be entitled to designate one or more persons to be
nominated for election to the Board, as follows: (i) so long as Security
Capital owns at least 10% but less than 25% of the outstanding Shares, it is
entitled to nominate one person; and (ii) so long as Security Capital owns at
least 25% of the outstanding Shares, it will be entitled to nominate that
number of persons as shall bear approximately the same ratio to the total
number of members of the Board as the number of Shares beneficially owned by
Security Capital bears to the total number of outstanding Shares, provided
that Security Capital shall be entitled to designate no more than three
persons so long as the Board consists of no more than seven members.
As part of the Amended and Restated Investor Agreement, Security Capital
will be permitted to make employment opportunities with Security Capital or
its affiliates available to the officers and employees of ATLANTIC. Prior to
commencing discussions with a senior officer of ATLANTIC about any such
opportunity, Security Capital will be required to give the Board 14 days'
prior written notice.
In addition, the Amended and Restated Investor Agreement will provide
Security Capital with registration rights pursuant to which, in certain
specified circumstances, Security Capital will be permitted to request, at any
time, registration of all of Security Capital's Shares pursuant to Rule 415
under the Securities Act. Security Capital will be permitted to request one
such registration for every $100.0 million (based on market value) of Shares
it owns.
Administrative Services Agreement
Upon consummation of the Merger transaction, ATLANTIC and Security Capital
will enter into an administrative services agreement (the "Administrative
Services Agreement"), pursuant to which Security Capital will provide ATLANTIC
with certain administrative and other services with respect to certain aspects
of ATLANTIC's business, as selected from time to time by ATLANTIC at its
option. These services are expected to include, but are not limited to,
payroll and tax administration services, cash management and accounts payable
services, data processing and other computer services, human resources,
research, investor relations, insurance administration and legal
administration. The fees payable to Security Capital will be equal to Security
Capital's cost of providing such services, plus 20%, subject to a maximum
amount of approximately $5.2 million during
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<PAGE>
the initial term of the agreement, of which approximately $1.5 million will
apply to the period between closing of the Merger and December 31, 1997 and
the remainder will apply to 1998. Cost savings under the Administrative
Services Agreement will accrue to ATLANTIC. The agreement will be for an
initial term expiring on December 31, 1998 and will be automatically renewed
for consecutive one-year terms, subject to approval by a majority of the
independent members of the Board.
License Agreement
ATLANTIC and Security Capital will enter into a license agreement on the
closing date of the Merger (the "License Agreement") pursuant to which
Security Capital will grant ATLANTIC a non-exclusive license to use Security
Capital's registered logo and the non-exclusive right to use the name
"Security Capital". The term of the license will be for a period of 15 years,
subject to ATLANTIC's right to extend the license for up to two additional
five-year periods.
Protection of Business Agreement
ATLANTIC and Security Capital will enter into a protection of business
agreement on the closing date of the Merger (the "Protection of Business
Agreement"), which will prohibit Security Capital and its affiliates from
providing, anywhere within the United States, directly or indirectly,
substantially the same services as those currently provided by the REIT
Manager and SCG Realty Services to any entity that owns or operates
multifamily properties. The Protection of Business Agreement will not prohibit
Security Capital or its affiliates from owning the securities of any class of
ATLANTIC or PTR. The Protection of Business Agreement will terminate in the
event of an acquisition, directly or indirectly, (other than by purchase from
Security Capital or any of its affiliates), by any person (or group of persons
acting in concert), other than Security Capital or any of its affiliates, of
the greater of (i) 25% or more of the outstanding shares of voting securities
of ATLANTIC and (ii) the percentage of outstanding voting securities of
ATLANTIC owned directly or indirectly by Security Capital and its affiliates,
in either case without the prior written consent of the Board. Subject to
earlier termination pursuant to the preceding sentence, the Protection of
Business Agreement will terminate on the third anniversary of the closing date
of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the Merger is consummated, the current officers and employees of the REIT
Manager and SCG Realty Services (except Jeffrey A. Klopf) will become officers
and employees of ATLANTIC and be compensated for their service by ATLANTIC.
The following table sets forth the compensation for each of the Co-Chairmen
and the three other most highly compensated executive officers of ATLANTIC
(the "Named Executive Officers") and for all executive officers as a group
(who will become employees of ATLANTIC) for 1996. All compensation for 1996
was paid by Security Capital.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND TITLE SALARY BONUS COMPENSATION
-------------- -------- -------- ------------
<S> <C> <C> <C>
James C. Potts, Co-Chairman............... $186,000 $199,000 $ 0
Constance B. Moore, Co-Chairman........... 190,000 185,000 0
J. Lindsay Freeman, Senior Vice President. 160,446 100,000 0
Bradley Miller, Senior Vice President (1). 99,205 50,000 0
William Kell, Vice President and
Controller............................... 125,000 28,000 0
Executive Officers as a group (5 persons). 760,651 562,000 0
</TABLE>
- --------
(1) Began on June 1, 1996
For 1997, each Named Executive Officer will remain an employee of the REIT
Manager and be compensated by Security Capital until the closing of the
Merger, at which time he or she will become an employee of ATLANTIC and be
compensated by ATLANTIC. For 1997, each Named Executive Officer will receive a
salary and be eligible for a target bonus. The actual amount of the bonus
(which may be higher or
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<PAGE>
lower than the target bonus) will be determined by the Compensation Committee
at the end of the year and will be based on several factors, including
individual performance, ATLANTIC's performance, ATLANTIC's financial
condition, competitive conditions in the real estate industry and
recommendations of senior management. ATLANTIC will continue the same
compensation arrangements for the portion of 1997 in which the Named Executive
Officers are employees of ATLANTIC. The Named Executive Officers are expected
to be paid the following salaries for 1997 and will be eligible for the
following target bonuses for 1997:
<TABLE>
<CAPTION>
TARGET
NAME AND TITLE SALARY BONUS
-------------- -------- --------
<S> <C> <C>
James C. Potts, Co-Chairman............................ $230,000 $115,000
Constance B. Moore, Co-Chairman........................ 230,000 115,000
J. Lindsay Freeman, Senior Vice President.............. 195,000 65,000
Bradley C. Miller, Senior Vice President............... 185,000 60,000
William Kell, Vice President and Controller............ 137,500 25,625
</TABLE>
In addition, subject to shareholder approval, during 1997 officers of
ATLANTIC will be granted options to purchase Shares. Officers and certain
employees of ATLANTIC will also be granted the right to purchase Shares under
the Long-Term Incentive Plan; ATLANTIC will loan such persons up to 95% of the
purchase price for any Shares so purchased on a full recourse basis. See
"Long-Term Incentive Plan". Additionally, during 1997, officers will also be
granted options to acquire shares of Class A Common Stock of Security Capital.
The Board will also adopt a 401(k) plan which will permit eligible employees
to make pre-tax contributions of up to $9,500 to the plan or such other amount
as may be permitted under Code Section 401(k). ATLANTIC will match 50% of
participants' contributions that do not exceed 6% of their compensation.
ATLANTIC intends to make such matching contributions in the form of Shares.
Participants will become vested in the matching contributions 20% per each
year of service. Employees of the REIT Manager and SCG Realty Services will be
credited for service for the time they were employees of Security Capital.
LONG-TERM INCENTIVE PLAN
General
The Board has adopted, subject to shareholder approval, the 1997 Incentive
Plan (the "Incentive Plan") which authorizes the establishment of one or more
option programs and share purchase programs and the award of share grants. No
more than 3,000,000 Shares in the aggregate may be awarded under the Incentive
Plan and no individual may be granted awards with respect to more than 500,000
Shares in any one-year period. The Compensation Committee of the Board (the
"Compensation Committee") will administer the Incentive Plan. Subject to the
terms of the Incentive Plan, the Compensation Committee determines which
employees or other individuals providing services to ATLANTIC shall be
eligible to receive awards under the Incentive Plan, and the amount, price,
timing and other terms and conditions applicable to such awards. Non-employee
Directors are not eligible to participate in the Incentive Plan. All employees
of ATLANTIC or any of its subsidiaries and any other person providing material
services to ATLANTIC or any of its subsidiaries are eligible to participate in
the Incentive Plan.
Options awarded under the Incentive Plan may be either incentive share
options or non-qualified share options. Options become exercisable and expire
in accordance with the terms established by the Compensation Committee. Shares
transferred to a participant pursuant to the exercise of an option may be
subject to such additional restrictions or limitations as the Compensation
Committee may determine. The Incentive Plan provides generally that
participants who are awarded options will also receive dividend equivalent
units with respect to the options. The dividend equivalent units will be
subject to the same vesting schedule as the options and will be payable when
the options are exercised, unless the participant elects to defer receipt, or
expire. Each dividend equivalent unit also accumulates additional dividend
equivalent units on an annual basis. All dividend equivalent units are paid in
the form of Shares at the rate of one Share per dividend equivalent unit.
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<PAGE>
The Incentive Plan provides that the Compensation Committee may award
participants performance stock, subject to achievement of performance
objectives. The number of Shares and the performance measures and periods
shall be established by the Compensation Committee at the time the award is
made, provided that any performance period shall be at least one year.
Non-Qualified Options
Concurrently with the consummation of the Merger transaction, the Named
Executive Officers and other officers and employees of ATLANTIC will be
granted options to purchase Shares at the closing price of the Shares on the
date the Incentive Plan is approved by shareholders. The participants have no
rights as shareholders with respect to the Shares subject to their options
until the option is exercised. ATLANTIC ordinarily will be entitled to claim a
federal income tax deduction on account of the exercise of a non-qualified
option and payment of dividend equivalent units. The amount of the deduction
is equal to the ordinary income recognized by a participant.
Share Purchase Program
Concurrently with the consummation of the Merger transaction, ATLANTIC will
permit the Named Executive Officers and other officers and employees to
purchase up to a total of $14,435,000 of Shares at the closing price of the
Shares on the date the Incentive Plan is approved by shareholders with two
matching options for each Share purchased. Each matching option shall have a
subscription price equal to the closing price of one Share on the date the
Incentive Plan is approved by the shareholders. No dividend equivalent units
will be issued with respect to such matching options. The Share purchases
provide for a one year restricted period during which the participants may
not, while employed, sell the Shares. If a participant leaves the employment
of ATLANTIC prior to the end of the restricted period, ATLANTIC has the right
to repurchase the Shares at the fair market value of such Shares at the time
the participant's employment is terminated. At the end of the restricted
period, the participant shall own the Shares without further restriction.
However, if the participant sells the Shares after the end of the restricted
period, the participant's matching options may be adversely affected. ATLANTIC
will make loans for up to 95% of the purchase price available to participants.
Each loan will be full recourse to the participant and be secured by the
purchased Shares.
36
<PAGE>
BUSINESS
HIGHLY FOCUSED BUSINESS STRATEGY GROUNDED IN RESEARCH
Since its inception in 1993, ATLANTIC has employed a research-driven
investment approach, deploying its capital in markets and submarkets which
exhibit strong market fundamentals. ATLANTIC believes the southeastern United
States is geographically and economically diverse and, therefore, ATLANTIC has
a strong primary target market in which to seek future growth. Although 34.7%
of ATLANTIC's pro forma revenues for the three-month period ended March 31,
1997 were derived from the Atlanta, Georgia metropolitan area, as ATLANTIC
continues to develop and acquire new communities outside of Atlanta, it
expects the percentage of its revenues derived from communities located in
Atlanta to decline. ATLANTIC's primary target market cities are Atlanta,
Georgia; Birmingham, Alabama; Charlotte, North Carolina; Jacksonville,
Florida; Nashville, Tennessee; Orlando, Florida; Raleigh, North Carolina;
Richmond, Virginia; Southeast Florida (which includes Ft. Lauderdale and West
Palm Beach); Tampa, Florida; and Washington, D.C. Based on forecasts published
by Woods & Poole Economics, Inc., the projected population growth in
ATLANTIC's primary target market cities is 34.5% for the years 1997 through
2016, whereas the projected population growth of the United States as a whole
for the same period is 16.8%. For the same period, job growth is projected to
be 31.2% in ATLANTIC's primary target market cities compared to 20.8% for the
United States as a whole. Depending on the level of new construction starts by
other multifamily developers, ATLANTIC believes that the anticipated
population and job growth in its primary target market cities should
contribute to ATLANTIC's objective of long-term sustainable growth in cash
flow.
ATLANTIC believes that population and employment growth are the primary
demand generators for multifamily product. The following chart indicates the
expected population and employment growth in ATLANTIC's primary target market
cities versus the United States as a whole from 1997 to 2016. The chart is
based on forecasts published by Woods & Poole Economics, Inc., which bases its
historical information on Bureau of Economic Analysis of the Department of
Commerce data. There can be no assurances that the forecasted population and
job growth shown below will in fact occur.
[CHART APPEARS HERE]
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<PAGE>
At May 31, 1997, ATLANTIC owned communities in 50 of the 150 submarkets
within its target market. REIT Management is continuously researching
additional submarkets and cities and ATLANTIC may add additional primary
target market cities in the future; however, ATLANTIC intends to remain
regionally focused in the southeastern United States.
ATLANTIC differentiates its multifamily communities by the income levels of
their residents. In descending order, the full multifamily spectrum includes
upper middle income apartments, middle income apartments, moderate income
apartments, mobile home parks and government subsidized housing. ATLANTIC
deploys capital into the first three categories. ATLANTIC's upper middle
income communities appeal to residents whose incomes, which equal 115% to 140%
of submarket median household income, are often sufficient to purchase homes.
These communities typically feature large luxurious units and numerous
amenities, including large exercise facilities and attached garages.
ATLANTIC's middle income communities appeal to residents whose incomes equal
90% to 115% of submarket median household income. Middle income communities
have smaller units and fewer amenities than upper middle income communities.
ATLANTIC's moderate income communities accommodate residents with incomes
ranging from 65% to 90% of submarket median household income. Residents in
this category, which typically include couples, single parents and families
with one or two children, are value-driven and focus on unit livability and
practical amenities such as washer/dryer hookups, storage space and
playgrounds.
ATLANTIC's initial investment strategy focused on two components: the
acquisition of a substantial base of established multifamily communities to
provide operating cash flow and the creation of an internal development
process focused primarily on the development of moderate income multifamily
communities. ATLANTIC expects to continue to selectively acquire upper middle
income communities and acquire and develop middle income communities; however,
the majority of its future investment activities will concentrate on
developing moderate income communities.
The table below illustrates the growth in ATLANTIC's expected investment in
multifamily communities since its inception on October 26, 1993 to May 31,
1997:
<TABLE>
<CAPTION>
TOTAL EXPECTED INVESTMENT(1)
----------------------------------------------------
DECEMBER 31,
MAY 31, ----------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating communities:
Acquired................ $ 980,574 $ 968,951 $ 788,920 $600,880 $29,591
Less dispositions....... (99,577) (90,922) (30,934) -- --
---------- ---------- ---------- -------- -------
Net acquired............ 880,997 878,029 757,986 600,880 29,591
Developed............... 101,880 81,832 25,462 -- --
---------- ---------- ---------- -------- -------
Total operating
communities.......... 982,877 959,861 783,448 600,880 29,591
Communities under
construction............. 320,835 290,486 176,740 63,006 13,588
Communities in planning
and owned(2)............. 80,369 53,410 69,788 53,096 --
---------- ---------- ---------- -------- -------
Total owned
communities.......... $1,384,081 $1,303,757 $1,029,976 $716,982 $43,179
========== ========== ========== ======== =======
Communities in planning
and under control(2)..... $ 249,232 $ 139,275 $ 48,261 $ 69,232 --
========== ========== ========== ======== =======
</TABLE>
- --------
(1) For operating communities, represents cost through May 31, 1997 plus
budgeted renovations as of May 31, 1997. For communities under
construction and in planning, represents cost through May 31, 1997 plus
additional budgeted development expenditures as of May 31, 1997, which
include the cost of land, fees, permits, payments to contractors,
architectural and engineering fees and interest and property taxes to be
capitalized during the construction period, for communities in
development. Does not include land held for future development, which is
less than 1% of assets based on cost.
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<PAGE>
(2) The term "in planning" means that construction is anticipated to commence
within 12 months. The term "under control" means that ATLANTIC has an
exclusive right (through contingent contract or letter of intent) during a
contractually agreed-upon time period to acquire land for future
development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own
the land.
ATLANTIC'S OPERATING SYSTEM
The REIT Manager and SCG Realty Services have approximately 100
professionals and 450 property-level and support personnel dedicated to
implementing ATLANTIC's highly focused business strategy. ATLANTIC's
"Operating System" consists of six functional areas: research, acquisitions,
development, due diligence and investment analysis, property management and
capital markets/finance/legal. By focusing on a single discipline,
professionals within each of these areas develop substantial expertise.
Interaction and communication among these functional areas remain fluid; but
separation promotes certain checks and balances. For example, all acquisition
and development investments must be approved by a four-member investment
committee and ultimately by the investment committee of the Board.
Research and Development
ATLANTIC is dedicated to ongoing research and development. ATLANTIC utilizes
Security Capital Real Estate Research, an affiliate of the REIT Manager and
SCG Realty Services, to conduct comprehensive evaluations of its target market
on a submarket-by-submarket basis to identify those submarkets and product
types that present better prospects for long-term cash flow growth. These
evaluations, combined with ATLANTIC's extensive market experience in the
southeastern United States, enable ATLANTIC to identify submarkets that offer
continued opportunities for long-term cash flow growth. In addition to market
research, considerable resources are devoted to product research. The REIT
Manager and SCG Realty Services continually evaluate and refine ATLANTIC's
multifamily communities to incorporate technologies and designs that will
enhance long-term livability for its residents.
Acquired Communities
Since its inception in 1993, ATLANTIC has selectively acquired multifamily
communities where demographic trends and market trends indicate a high
likelihood of achieving superior operating results. As of May 31, 1997,
ATLANTIC's portfolio of communities acquired, net of dispositions, aggregated
17,463 operating units, representing a total expected investment cost,
including budgeted renovations, of $881.0 million.
ATLANTIC categorizes operating multifamily communities (which exclude
communities under development) as either "stabilized" or "pre-stabilized". The
term "stabilized" means that renovation, repositioning, new management and new
marketing programs (or development and marketing in the case of newly
developed communities) have been completed and in effect for a sufficient
period of time (but in no event longer than 12 months, except in cases of
major rehabilitation) to achieve 93% occupancy at market rents. Prior to being
"stabilized", a community is considered "pre-stabilized". As of May 31, 1997,
14.9% ($205.7 million) of ATLANTIC's multifamily operating portfolio was
classified as pre-stabilized, based on total expected investment cost. At May
31, 1997, ATLANTIC's operating communities (excluding communities in lease-up)
were 94.0% leased. For operating communities acquired by ATLANTIC, stabilized
operations generally have been achieved between six and 12 months after
acquisition. For communities that it is developing, ATLANTIC expects
stabilized operations generally to be achieved 12 to 18 months after
construction commences.
Developed Communities
ATLANTIC has selectively developed multifamily communities where land costs
and demographic and market trends indicate a high likelihood of achieving
attractive, sustainable operating results. At May 31, 1997, ATLANTIC's
completed developed communities and its owned communities under construction
and in planning
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<PAGE>
together comprised 36.3% of its multifamily portfolio, based on total expected
investment cost. As of May 31, 1997, the development portion of ATLANTIC's
multifamily portfolio consisted of the following:
<TABLE>
<CAPTION>
TOTAL EXPECTED
NUMBER OF UNITS INVESTMENT(1)
--------------- --------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Communities completed............................ 1,898 $101,880
Communities under construction................... 5,079 320,835
Communities in planning and owned(2)............. 1,224 80,369
----- --------
Totals....................................... 8,201 $503,084
===== ========
</TABLE>
- --------
(1) Represents cost through May 31, 1997 plus additional budgeted development
expenditures as of May 31, 1997, which include the cost of land, fees,
permits, payments to contractors, architectural and engineering fees and
interest and property taxes to be capitalized during the construction
period. Does not include land held for future development, which is less
than 1% of assets, based on cost.
(2) Does not include land in planning and under control for the development of
3,830 units with a total budgeted development cost of $249.2 million.
ATLANTIC carefully manages development risks by obtaining zoning and public
approvals prior to purchasing land. ATLANTIC mitigates construction risk by
using qualified third-party general contractors to build its communities,
using guaranteed maximum price contracts. ATLANTIC targets development for
markets with high occupancy rates and population and job growth trends that
indicate increasing future demand. ATLANTIC cannot eliminate all development
risk, but believes that the opportunities to better control its product and
realize higher returns from development communities compensate for any
additional risk.
ATLANTIC traditionally has commenced development immediately after acquiring
a tract of land. However, in cases where land prices are favorable, ATLANTIC
has acquired and will acquire, on an unleveraged basis, prudent amounts of
zoned land for the development of future multifamily communities. In addition,
to provide for growth, ATLANTIC may utilize options and rights of first
refusal in order to control land for the development of future communities.
To enhance its flexibility in developing and acquiring multifamily
communities, ATLANTIC has and will enter into presale agreements to acquire
communities developed by third-party owner/developers where the developments
meet ATLANTIC's investment criteria. ATLANTIC has and will fund such
developments through development loans to these owner/developers. In addition,
to provide greater flexibility for the use of land acquired for development
and to dispose of excess parcels, ATLANTIC plans to make mortgage loans to
Atlantic Development Services to purchase land for development. ATLANTIC owns
all of the preferred stock of Atlantic Development Services, which entitles
ATLANTIC to substantially all of the net operating cash flow (95%) of Atlantic
Development Services. All of the common stock of Atlantic Development Services
is owned by an unaffiliated trust. The common stock is entitled to receive the
remaining 5% of net operating cash flow. As of May 31, 1997, there were no
outstanding development or mortgage loans made by ATLANTIC. The activities of
Atlantic Development Services and third-party owner/developers are
consolidated with ATLANTIC's activities and all intercompany transactions have
been eliminated in consolidation.
Due Diligence and Investment Analysis
ATLANTIC believes that a REIT should have experienced personnel dedicated to
performing intelligent and thorough due diligence. The REIT Manager has three
full-time professionals performing due diligence for ATLANTIC. The REIT
Manager's professionals utilize due diligence information in screening
potential acquisitions and developments for ATLANTIC.
Prospective property investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for long-term growth in cash flow. ATLANTIC's
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investment decisions are based upon the expected contribution of the community
to long-term cash flow growth on an unleveraged basis. The expected economic
contribution is based on an evaluation of a community's stabilized operations,
including an estimate of all cash revenues from leases and other revenue
sources, minus expenses incurred in operating the community (including real
estate taxes, insurance, maintenance, turnover costs (such as carpet and
appliance replacement), personnel costs and utility charges, but excluding
depreciation, debt service and amortization of loan costs) and a reserve for
capital expenditures.
Property Management
ATLANTIC believes that a successful REIT must actively manage its
communities in order to increase cash flow and enhance the long-term economic
performance of the communities. Approximately 91% of ATLANTIC's operating
multifamily units are managed by SCG Realty Services, which is headquartered
in Atlanta, Georgia, with the balance in various stages of transition to SCG
Realty Services' management. Security Capital is the sole owner of SCG Realty
Services and the REIT Manager. See "The Merger Transaction" for a description
of an agreement that ATLANTIC has entered into with Security Capital to merge
the REIT Manager and SCG Realty Services into a newly formed subsidiary of
ATLANTIC in exchange for Shares. The property management fee paid to SCG
Realty Services for the three-month period ended March 31, 1997 and for the
year ended December 31, 1996 was $1.3 million and $4.2 million, respectively.
See "Certain Relationships and Transactions--Property Management Company".
SCG Realty Services has approximately 45 professionals and 435 property-
level and support personnel. All such persons are expected to become employees
of ATLANTIC after the Merger. SCG Realty Services emphasizes locally-based
management and has ten local offices to serve ATLANTIC's target market. This
network improves SCG Realty Services' ability to respond to changes in local
market conditions and resident needs. ATLANTIC believes that SCG Realty
Services has developed superior operating procedures, financial controls,
information systems and training programs, which it expects to positively
affect rental returns and occupancy rates. In addition, incentive compensation
programs have been implemented for on-site property managers to further
improve the performance of the communities. The REIT Manager has taken an
active role in overseeing SCG Realty Services' management of ATLANTIC's
multifamily communities.
ATLANTIC recognizes that highly focused day-to-day management attention is
essential to maximize short-term and long-term cash flow from each of its
multifamily communities. As a result, SCG Realty Services has been
specifically dedicated to the pursuit of this single goal. The professionals
within SCG Realty Services focus only on ATLANTIC's communities. Therefore,
their attention is not diluted by competing demands of other customers. SCG
Realty Services and the REIT Manager work closely together to develop
innovative new ideas to maintain high resident satisfaction while maximizing
cash flow growth. During 1996, SCG Realty Services established a Regional
Information Management ("RIM") Center. The RIM Center concept is designed to
enable property-level management personnel to focus on community operating
performance while moving certain accounting and administrative functions to
the RIM Center. The RIM Center is designed to carry out these functions for
several area communities and thus benefit from economies of scale, better
accounting control and enhanced cash management capabilities. During 1996,
ATLANTIC entered into revenue sharing agreements with certain cable television
and telephone service providers which provide for ATLANTIC to receive a
percentage of the service providers' revenues generated from subscribing
residents in return for access to the resident base.
Capital Markets/Finance/Legal
ATLANTIC believes that a successful REIT must have the ability to access the
equity and debt markets efficiently, expeditiously and cost-effectively.
ATLANTIC's ability to efficiently access the capital markets permits it to
capitalize on the development and acquisition opportunities that exist in its
target market. In order to maximize this function and enhance relationships
with major institutional sources of capital, Security Capital formed Capital
Markets Group, a registered broker-dealer affiliate. Capital Markets Group's
services are included in the REIT Manager's fee and do not result in a
separate charge to ATLANTIC. After the Merger, shareholders
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<PAGE>
relations services will be charged in accordance with the terms of the
Administrative Services Agreement while capital raising services will be
charged based on the services used. Capital Markets Group and the REIT Manager
have arranged approximately $420 million in private offerings and a $350
million line of credit for ATLANTIC.
ATLANTIC's increased borrowing capacity enables it to acquire communities
prior to equity and long-term debt offerings and to eliminate or minimize the
amount of cash it must invest in low-yielding short-term investments. ATLANTIC
believes its current leverage provides considerable flexibility to prudently
utilize long-term debt as a financing tool in the future. After it has
achieved a substantial equity base, ATLANTIC expects to arrange fully
amortizing, fixed-rate, 15-year to 25-year unsecured debt, such as the Notes,
the proceeds of which will be used primarily for the reduction of line of
credit balances related to multifamily acquisition and development. This long-
term financing strategy is expected to allow ATLANTIC to prudently increase
its capital base with debt and equity.
In July 1995, the REIT Manager negotiated a credit enhancement agreement
with FNMA that covers all of ATLANTIC's tax-exempt bond issues. Under the
agreement with FNMA, ATLANTIC makes monthly principal payments, based on a 30-
year amortization, into a principal reserve account. Of these bond issues,
$108.2 million have variable interest rates. To mitigate the variable interest
rate exposure, ATLANTIC entered into swap agreements. These swap agreements
effectively result in ATLANTIC paying interest at a fixed rate of 6.63% on
these borrowings.
STRATEGY FOR CASH FLOW AND DISTRIBUTION GROWTH
ATLANTIC seeks to achieve long-term sustainable growth in cash flow by
maximizing the operating performance of its core portfolio through value-added
operating systems and concentrating its experienced team of professionals on
developing and acquiring industry-leading communities in targeted submarkets
exhibiting strong job growth and favorable demographic trends.
In addition to its strong primary target market, ATLANTIC believes that the
following key factors will drive ATLANTIC's future growth: research and
development, moderate income development, opportunistic acquisitions, "same
store" growth, portfolio and asset optimization and a conservative balance
sheet strategy.
Research and Development
ATLANTIC believes that its research-based investment strategy differs from
other multifamily REITs in that the REIT Manager and SCG Realty Services and
their respective affiliates have dedicated personnel who conduct comprehensive
proprietary evaluations of ATLANTIC's target market on a submarket-by-
submarket basis taking into account 24 key variables that ATLANTIC has
identified as having the greatest impact on multifamily operating performance.
A few of these variables include market demand analysis, detailed supply
evaluations of each submarket and other economic and demographic data. See "--
ATLANTIC's Operating System--Research".
Development of Moderate Income Communities
ATLANTIC differentiates its multifamily communities by the income levels of
their residents. In descending order, the full multifamily spectrum includes
upper middle income apartments, middle income apartments, moderate income
apartments, mobile home parks and government subsidized housing. ATLANTIC
deploys capital into the first three categories. ATLANTIC's upper middle
income communities appeal to residents whose incomes, which equal 115% to 140%
of submarket median household income, are often sufficient to purchase homes.
These communities typically feature large luxurious units and numerous
amenities, including large exercise facilities and attached garages.
ATLANTIC's middle income communities appeal to residents whose incomes equal
90% to 115% of submarket median household income. Middle income communities
have smaller units and fewer amenities than upper middle income communities.
ATLANTIC's moderate income communities accommodate residents with incomes
ranging from 65% to 90% of submarket median household income. Residents in
this category, which typically include couples, single parents and families
with one or two children, are value-driven and focus on unit livability and
practical amenities such as washer/dryer hookups, storage space and
playgrounds.
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<PAGE>
ATLANTIC's initial acquisitions were principally middle income communities
since the existing moderate income inventory in the southeastern United States
consisted primarily of older communities (15-30 years old) which had been
poorly managed, were either dilapidated or approaching obsolescence and would
not compete effectively for residents in ATLANTIC's market. Accordingly,
ATLANTIC's portfolio at May 31, 1997 includes a larger percentage of upper
middle income communities (9.6%, based on total expected investment cost) and
middle income communities (41.7%, based on total expected investment cost)
than moderate income communities (48.7%, based on total expected investment
cost).
As of May 31, 1997, ATLANTIC's portfolio consisted of seven upper middle
income communities with a total expected investment cost of $133.0 million, 37
middle income communities with a total expected investment cost of $576.8
million and 48 moderate income communities with a total expected investment
cost of $674.3 million. ATLANTIC focuses primarily on moderate income
communities, which comprise one of the largest segments of the renter
population. Moderate income communities comprised 51.8% of ATLANTIC's 1996
development starts, based on total budgeted development cost. In 1997,
approximately 74.3% of development starts and approximately 63.8% of
ATLANTIC's total development activities are expected to constitute moderate
income communities, based on total budgeted development cost. The balance of
development starts are expected to consist of middle income communities.
Based on ATLANTIC's review of information filed under the Exchange Act
regarding other REITs in ATLANTIC's primary target market and other publicly
available data, ATLANTIC believes that few other REITs in its primary target
market currently focus on the moderate income segment. Moreover, based on
ATLANTIC's proprietary information regarding available land parcels and
construction starts in its primary target market, ATLANTIC believes that less
than 10% of the 1995 and 1996 multifamily starts in ATLANTIC's primary target
market cities constituted moderate income product. Consequently, ATLANTIC
believes that the moderate income segment is a significantly underserved
market with limited competition.
In ATLANTIC's experience, moderate income residents are typically longer-
term residents (as evidenced by the turnover percentages presented in the
following table) because they often lack the financial resources required to
purchase single-family homes. As a result, resident turnover is often lower in
ATLANTIC's moderate income communities than in its upper middle income or
middle income communities particularly during softening market conditions. The
total cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on an asset's
profitability.
During the first quarter of 1997 and the fourth quarter of 1996, certain of
ATLANTIC's primary target market cities experienced a slowing in collections
growth and a decrease in average physical occupancy principally due to demand
and supply imbalances. During this period, ATLANTIC's moderate income
communities outperformed ATLANTIC's product types as a whole. The table below
demonstrates the performance of ATLANTIC's moderate income communities in the
"same store" portfolios.
<TABLE>
<CAPTION>
FIRST QUARTER 1997 COMPARED TO FIRST COLLECTIONS CHANGE IN
QUARTER 1996 GROWTH TURNOVER OCCUPANCY
------------------------------------ ----------- -------- ---------
<S> <C> <C> <C>
Moderate income.......................... 3.72% 56.5% 0.7%
Middle income............................ 1.62 54.9 -0.4
Upper middle income...................... 1.04 56.7 -2.6
All product types........................ 2.42 55.9 -0.3
<CAPTION>
FOURTH QUARTER 1996 COMPARED TO FOURTH
QUARTER 1995
--------------------------------------
<S> <C> <C> <C>
Moderate income.......................... 4.66 60.1 1.0
Middle income............................ -0.44 69.5 -1.6
Upper middle income...................... -0.20 65.6 -2.6
All product types........................ 1.00 65.7 -1.1
<CAPTION>
1996 COMPARED TO 1995
---------------------
<S> <C> <C> <C>
Moderate income.......................... 4.02 61.0 0.1
Middle income............................ 1.92 66.1 -0.6
Upper middle income...................... 2.98 57.9 -0.3
All product types........................ 2.76 62.6 -0.3
</TABLE>
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<PAGE>
Due to market fundamentals and the operating characteristics of moderate
income communities, ATLANTIC believes that this category offers better
prospects for long-term sustainable cash flow growth.
ATLANTIC's research-driven development strategy is focused on developing
state of the art communities in attractive submarkets that responds to renter
preferences and demographic trends. ATLANTIC believes that developing
communities designed for long-term appeal to one of the largest segments of
the renter population (moderate income households) will allow ATLANTIC to
achieve more consistent rental increases and higher occupancies over the long
term and thereby realize superior cash flow growth. Development, principally
of moderate income communities, will be a critical factor driving ATLANTIC's
long-term growth. By year-end 1997, ATLANTIC anticipates that approximately
45.1% of its total portfolio will consist of communities ATLANTIC has
developed or is in the process of developing and approximately 62.7% of these
development communities will be moderate income product, based on total
expected investment cost. Over an extended period, management believes that
operating results from ATLANTIC's development starts will contribute
significantly to ATLANTIC's cash flow growth.
Development opportunities also permit ATLANTIC to incorporate technologies
and designs aimed at enhancing long-term rental growth and reducing ongoing
maintenance costs. ATLANTIC has had the opportunity to evaluate and refine its
multifamily communities through its history of development. ATLANTIC, unlike a
typical merchant builder, intends to be a long-term owner of the communities
that it develops. Hence, ATLANTIC emphasizes long-term durability by using
materials and designs that minimize ongoing operation and maintenance costs.
Opportunistic Acquisitions
It is often advantageous for ATLANTIC to acquire existing multifamily
communities in markets that are expected to experience favorable growth in
rents and income. In many cases, communities can be acquired and redeveloped
at prices well below the cost to build a comparable community in the same
area. The REIT Manager thoroughly analyzes and evaluates potential community
acquisitions throughout ATLANTIC's target market which, together with
ATLANTIC's access to capital, provides ATLANTIC with a competitive advantage
in acquiring multifamily assets. From its inception on October 26, 1993 to May
31, 1997, ATLANTIC had completed acquisitions with a total expected investment
cost of $980.6 million.
"Same Store" Growth
Net operating income on a "same store" basis (as adjusted for pre-stabilized
versus stabilized accounting differences) increased 4.88% from 1995 to 1996
for the 34 communities that were fully operational during both periods and
increased 5.72% from the first quarter of 1996 to the first quarter of 1997
for the 50 communities that were fully operational during both periods. The
accounting differences result from capitalizing certain costs during the
period after acquisition when a community is being repositioned and is
classified as pre-stabilized and expensing those costs once repositioning is
completed and the community is classified as stabilized.
ATLANTIC believes that the underlying long-term conditions of its primary
target market, including its strong job growth, should continue to support
high occupancy levels and allow for consistent increases in rental income. In
addition, operating efficiencies and lower resident turnover resulting from
ATLANTIC's increasing focus on moderate income product are expected to reduce
operating costs and improve profit margins.
Portfolio and Asset Optimization
ATLANTIC develops and acquires communities with a view to effective long-
term operation and ownership. REIT Management actively reviews ATLANTIC's
asset base. These reviews generate operating and capital plans and, with
guidance from its affiliate, Security Capital Real Estate Research, help
ATLANTIC to identify submarkets and product types that it believes will
generate above average long-term growth
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opportunities. In evaluating each multifamily community owned or being
considered for acquisition or development, the REIT Manager focuses on those
components that it believes provide the greatest opportunity for consistent
rental increases and high occupancies over the long term. Submarket locations
and demographics, unit mix, density and amenities of each community are
important contributors to long-term cash flow growth. Under its portfolio and
asset optimization program, ATLANTIC may from time to time dispose of assets
that no longer meet its long-term investment objectives and redeploy the
proceeds, preferably through tax-deferred exchanges, into assets with better
prospects for cash flow growth. ATLANTIC's portfolio and asset optimization
strategy is based on the premise that it has a finite amount of investment
capital and that this capital should be deployed where it can produce maximum
long-term cash flow growth. ATLANTIC believes that many of its existing upper
middle income communities will be candidates for exchange or disposition given
the increased competition from this product type being developed by third
parties. Consistent with its current strategy, ATLANTIC expects to redeploy
the proceeds from these dispositions into moderate income communities with
superior growth prospects. Since inception, ATLANTIC has disposed of eight
operating communities aggregating 2,140 units, realizing an aggregate gain,
net of provisions for possible losses, of $4.3 million on aggregate proceeds
of $107.7 million. Five of these eight dispositions have been included in tax-
deferred exchanges.
Conservative Balance Sheet Strategy
ATLANTIC has a conservative balance sheet strategy. Long-term debt as a
percentage of total long-term undepreciated book capitalization was 16.9% at
March 31, 1997 on a historical basis and 25.5% at March 31, 1997 on a pro
forma basis, as adjusted to give effect to the Merger, ATLANTIC's April 1997
public offering of Shares and the proposed Note Offering and Preferred Share
Offering and the application of the proceeds therefrom. In the future,
ATLANTIC intends to access the public equity and debt markets and to issue
long-term, fixed rate, fully amortizing unsecured corporate debt, such as the
Notes, which will limit ATLANTIC's exposure to floating rate or balloon
financing. However, there can be no assurance that ATLANTIC will be able to
complete such offerings. To the extent ATLANTIC issues additional Shares to
the public in future offerings, the interests of ATLANTIC's current
shareholders will be diluted. ATLANTIC's $350 million unsecured line of credit
enables ATLANTIC to take advantage of investment opportunities in its target
market without investing significant funds in short-term investments between
securities offerings. As of June 27, 1997, $278.8 million of borrowings were
outstanding under the line of credit and such outstanding borrowings are
expected to be approximately $ million at the closing of the Offering.
This conservative balance sheet strategy is expected to provide ATLANTIC with
the ability to raise funds through offerings of debt and equity and allow
ATLANTIC to take advantage of future investment opportunities, contributing to
ATLANTIC's objective of long-term growth in cash flow.
EMPLOYEES
ATLANTIC currently has no employees. The REIT Manager, whose sole activity
is advising ATLANTIC, manages the day-to-day operations of ATLANTIC. The REIT
Manager and SCG Realty Services have assembled a team of approximately 100
operating professionals, collectively possessing extensive experience in
multifamily real estate. All such persons are expected to become employees of
ATLANTIC after the Merger.
LEGAL PROCEEDINGS
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of its business. ATLANTIC does not believe that the results of
any of such claims and litigation, individually or in the aggregate, will have
a material adverse effect on its business, financial position or results of
operations.
COMPETITION
There are numerous commercial developers, real estate companies and other
owners of real estate that compete with ATLANTIC in seeking land for
development, communities for acquisition and disposition and residents for
communities. All of ATLANTIC's multifamily communities are located in
developed areas that
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include other multifamily communities. The number of competitive multifamily
communities in a particular area could have a material adverse effect on
ATLANTIC's ability to lease units and on the rents charged. In addition, other
forms of single family and multifamily residential communities provide housing
alternatives to residents and potential residents of ATLANTIC's multifamily
communities.
AMERICANS WITH DISABILITIES ACT
ATLANTIC's communities must comply with Title III of the ADA to the extent
that such communities are "public accommodations" and/or "commercial
facilities" as defined by the ADA. The ADA does not consider multifamily
communities to be public accommodations or commercial facilities, except
portions of such facilities open to the public, such as the leasing office.
Noncompliance could result in imposition of fines or an award of damages to
private litigants. ATLANTIC believes that the mandated portions of its
communities comply with all present requirements under the ADA and applicable
state laws.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the release or presence of such hazardous or toxic
substances. The presence of such substances may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate
as collateral. Persons who arrange for the disposal or treatment of hazardous
or toxic substances also may be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for the release of asbestos-containing materials into the
air, pursuant to which third parties may seek recovery from owners or
operators of real properties for personal injuries associated with such
materials, and prescribe specific methods for the removal and disposal of such
materials, which may result in increased costs in connection with renovations
at ATLANTIC's communities.
ATLANTIC has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of its communities
owned or being acquired at May 31, 1997, and ATLANTIC is not aware of any
environmental condition with respect to any of its communities that is likely
to be material. ATLANTIC has subjected each of its communities to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is ATLANTIC aware of, any
environmental liability (including asbestos-related liability) that the REIT
Manager believes would have a material adverse effect on ATLANTIC's business,
financial condition or results of operations. No assurance can be given,
however, that these assessments and investigations reveal all potential
environmental liabilities, that no prior owner or operator created any
material environmental condition not known to ATLANTIC or the independent
consultants or that future uses and conditions (including, without limitation,
resident actions or changes in applicable environmental laws and regulations)
will not result in unreimbursed costs relating to environmental liabilities.
See "Risk Factors--Regulatory Compliance Risks--Possible Liability Relating to
Environmental Laws".
INSURANCE COVERAGE
ATLANTIC carries comprehensive general liability coverage on its owned
communities, with limits of liability customary within the industry, to insure
against liability claims and related defense costs. Similarly, ATLANTIC is
insured against the risk of direct physical damage in amounts necessary to
reimburse ATLANTIC on a replacement-cost basis for costs incurred to repair or
rebuild each community, including loss of rental income during the
reconstruction period (up to a six-month period).
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REIT MANAGEMENT
GENERAL
The REIT Manager and its specialized services affiliates provide ATLANTIC
with strategic and day-to-day management, research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, and legal and accounting services, all of
which are included in the REIT Management fee. ATLANTIC currently has no
employees. Hence, ATLANTIC depends on the quality of the management provided
by the REIT Manager. ATLANTIC believes that its relationship with the REIT
Manager provides ATLANTIC with access to high quality and depth of management
personnel and resources, savings from a dedicated capital markets group, and
access to centralized research, accounting and legal support. As of June 27,
1997, approximately 55 operating professionals were employed by the REIT
Manager. The REIT Manager also provides office and other facilities supporting
ATLANTIC's needs. The REIT Manager's address is the same as ATLANTIC's. The
owner of the REIT Manager, Security Capital, currently owns approximately
51.3% of ATLANTIC's outstanding Shares. See "The Merger Transaction" for a
description of an agreement that ATLANTIC has entered into with Security
Capital to merge the REIT Manager and SCG Realty Services into a newly formed
subsidiary of ATLANTIC in exchange for Shares.
The owner of the REIT Manager has a substantial shareholder interest in
ATLANTIC, creating alignment of interest with ATLANTIC's shareholders.
Furthermore, the REIT Manager provides all its services for one fee, and an
affiliate provides property management services at market rates in a
competitive environment. The REIT Manager does not receive additional fees for
investment banking, financing, asset sales or similar services.
The REIT Manager has organized itself such that each operating professional
specializes in a particular discipline (such as research, marketing,
development, acquisition, due diligence, asset management, capital markets or
financial operations) rather than being responsible for all functions on a
project-by-project basis. Local investments are approved by the REIT Manager's
investment committee, using uniform criteria, prior to being submitted to
ATLANTIC's investment committee. Regional operating professionals focus on
specific target markets to ensure attention to resident services.
ATLANTIC believes that the quality of management should be assessed in light
of the following factors:
Management Depth/Succession
ATLANTIC believes that management should have several senior executives with
the leadership, operational, investment and financial skills and experience to
oversee the entire operations of the REIT. ATLANTIC believes that several of
its senior officers could serve as the principal executive officer and
continue ATLANTIC's performance. See "--Directors and Officers of ATLANTIC and
the REIT Manager" below.
Strategic Vision
ATLANTIC believes that management should have the strategic vision to
determine an investment focus that provides favorable initial yields and long-
term growth prospects. The REIT Manager has demonstrated its strategic vision
by focusing ATLANTIC on multifamily communities in the southeastern United
States, where demographic and supply factors have permitted high occupancies
at increasing rents.
ATLANTIC focuses primarily on moderate income communities, which comprise
one of the largest segments of the renter population. Based on ATLANTIC's
review of information filed under the Exchange Act regarding other REITs in
ATLANTIC's primary target market and other publicly available data, ATLANTIC
believes that few other REITs in its primary target market currently focus on
the moderate income segment. Consequently, ATLANTIC believes that the moderate
income segment is a significantly underserved market with limited competition.
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Research Capability
ATLANTIC believes that management should have the means for researching
markets to determine appropriate investment opportunities. ATLANTIC divides
its target market cities into numerous submarkets for analysis purposes. The
REIT Manager and its affiliates have several persons who devote substantial
time to research, on a submarket-by-submarket basis, and are closely
supervised by senior officers of the REIT Manager.
Investment Committee Process
ATLANTIC believes that investment committees should provide discipline and
guidance to the investment activities of the REIT in order to achieve its
investment goals. The four members of the REIT Manager's investment committee
have a combined 95 years experience in the real estate industry. See "--
Directors and Officers of ATLANTIC and the REIT Manager" below. The investment
committee receives detailed written analyses and research, in a standardized
format, from the REIT Manager's personnel and evaluates all prospective
investments pursuant to uniform underwriting criteria prior to submission of
investment recommendations to the investment committee of the Board. The
quality of the REIT Manager's investment committee process is demonstrated by
ATLANTIC's ability to achieve its investment goals and generally realize its
projected initial returns and growth from multifamily investments.
Development/Redevelopment and Acquisition Capability
ATLANTIC believes that by internally developing projects and redeveloping
well-located operating communities, management can capture for the REIT the
value that normally escapes through sales premiums paid to successful
developers. The REIT Manager's personnel have substantial development and
redevelopment experience, as described in "--Directors and Officers of
ATLANTIC, the REIT Manager and Relevant Affiliates" below. The REIT Manager
has 19 full-time professionals committed to development and acquisition
activities. The REIT Manager has arranged for over $980.6 million of
successful acquisitions for ATLANTIC. As of May 31, 1997, the REIT Manager was
developing 6,303 multifamily units for ATLANTIC with a total budgeted
development cost of $401.2 million. Additionally, as of May 31, 1997, ATLANTIC
had land in planning and under control for the development of 3,830 units with
a total budgeted development cost of $249.2 million. REIT Management has
engaged in substantial development on behalf of ATLANTIC at attractive yields
that have exceeded projections and ATLANTIC believes that development will
contribute to its objective of long-term growth in cash flow. See "Business--
ATLANTIC's Operating System".
Disposition Capability
The ability to identify and effectively complete the cost-effective
disposition of targeted communities is essential to the successful execution
of ATLANTIC's asset optimization strategy. Since inception, ATLANTIC disposed
of 2,140 units, realizing an aggregate gain, net of provisions for possible
losses, of $4.3 million on aggregate proceeds of $107.7 million, which were
redeployed into strategic acquisitions and developments. Marketing efforts and
related costs and negotiation were conducted primarily by the REIT Manager
and, therefore, broker fees were minimal.
Due Diligence Process
ATLANTIC believes that management should have experienced senior personnel
dedicated to performing intelligent and thorough due diligence. The REIT
Manager has three full-time due diligence professionals and has developed
uniform systems and procedures for due diligence, as described under
"Business--ATLANTIC's Operating System--Due Diligence and Investment
Analysis". The REIT Manager's due diligence personnel have screened and
selected a large volume of investments.
Operating Capability
ATLANTIC believes that management can substantially improve funds from
operations by actively and effectively managing assets. As described under
"Business--ATLANTIC's Operating System", the REIT Manager and its affiliates
have devoted substantial personnel and financial resources to control and
effectively manage ATLANTIC's multifamily portfolio.
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Capital Markets Capability
ATLANTIC believes that management must be able effectively to raise equity
and debt capital in order for the REIT to achieve superior growth through
investment. As described under "Business--ATLANTIC's Operating System--Capital
Markets/Finance/Legal", REIT Management has successfully arranged funding for
ATLANTIC's investment program.
Communications/Shareholder Relations Capability
ATLANTIC believes that a REIT's success in capital markets and investment
activities can be enhanced by management's ability to effectively communicate
the REIT's strategy and performance to investors, sellers of property and the
financial media. The REIT Manager provides full time personnel who prepare
informational materials for and conduct periodic meetings with the investment
community and analysts.
ATLANTIC believes that successfully combining the foregoing attributes
significantly enhances a REIT's ability to increase cash flow and increase the
market valuation of the REIT's portfolio.
DIRECTORS AND OFFICERS OF ATLANTIC AND THE REIT MANAGER
Upon consummation of the Merger, each of the persons discussed below will
become officers or directors of ATLANTIC and be compensated for such services
by ATLANTIC (other than Mr. Klopf who will be compensated by Security
Capital).
Directors of ATLANTIC
Members of the REIT Manager's Investment Committee are designated by an
asterisk.
C. RONALD BLANKENSHIP--47--Advisory Director of ATLANTIC since September
1996 and Director from April 1996 to September 1996; Managing Director of
Security Capital since March 1991 and Non-Executive Chairman of PTR since June
1997; Chairman of PTR from June 1991 to June 1997. Mr. Blankenship is a
Director of Strategic Hotel Capital Incorporated and an advisory Director of
Homestead. From July 1988 to June 1991, Mr. Blankenship was a regional partner
with Trammell Crow Residential in Chicago, a multifamily real estate
development and property management firm. Prior thereto, Mr. Blankenship was
an Executive Vice President and Chief Financial Officer of the Mischer
Corporation in Houston, a multibusiness holding company with investments
primarily in real estate.
MANUEL A. GARCIA III--53--Director of ATLANTIC since December 1995; Chief
Executive Officer of Davgar Restaurants, Inc. since May 1969, where he is the
owner/operator of ten Burger King Restaurants in central Florida, five Pebbles
Restaurants, Harvey's Bistro and Manuel's on the 28th Restaurant in Orlando,
Florida; Director of Homestead, The Foundation for Orange County Public
Schools, Florida State University Seminole Boosters' Association, a Director
and Member of the Executive Committee of the Florida Citrus Sports Association
and National Director of Cities in Schools. Mr. Garcia is also on the Board of
the National Conference of Christians and Jews and an Honorary Director of the
Boys' Clubs and Boy Scouts of Central Florida. In addition, Mr. Garcia is a
former member of former President Bush's Drug Advisory Council.
NED S. HOLMES--52--Director of ATLANTIC since May 1994; President and Chief
Executive Officer of Laing since May 1990; from April 1984 to present,
Chairman and President of Parkway Investment/Texas Inc., a Houston-based real
estate investment and development company, which specializes in residential
(apartment and townhouse), commercial (office and warehouse) and subdivision
projects. Mr. Holmes also serves as a Director of Commercial Bancshares, Inc.
and Heritage Bank, both based in Houston, Texas. Mr. Holmes is a Chairman of
the Port Commission of the Port of Houston Authority and a Director of the
Greater Houston Partnership.
*CONSTANCE B. MOORE--41--Co-Chairman, Chief Operating Officer and Director
of ATLANTIC and the REIT Manager since January 1996, where she has overall
responsibility for operations of ATLANTIC; from May
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1994 to December 1995, Managing Director of PTR, Director and Managing
Director of PTR's REIT manager; Senior Vice President of Security Capital from
March 1993 to April 1994; from January 1990 to December 1992, President and
Director of Kingswood Realty Advisors, Inc., investment advisor to ICM
Property Investors, a NYSE-listed REIT, and from March 1991 to December 1992,
President and Director of ICM Property Investors.
*JAMES C. POTTS--50--Co-Chairman and Chief Investment Officer of ATLANTIC
and the REIT Manager since January 1996 and Director of ATLANTIC and the REIT
Manager since October 1993, where he has overall responsibility for
investments of ATLANTIC; Chairman of ATLANTIC and the REIT Manager from May
1994 to December 1995; from December 1992 to April 1994, Managing Director of
PTR's REIT manager, where he supervised the asset management of all of PTR's
multifamily communities and oversaw the relationship of PTR's REIT manager
with SCG Realty Services Incorporated, which provides on-site management for
these communities; from April 1984 to December 1992, Chief Executive Officer
of four regional multifamily management companies of Trammell Crow Residential
Services.
JOHN M. RICHMAN--69--Director of ATLANTIC since September 1996; Counsel to
the law firm of Wachtell, Lipton, Rosen & Katz since January 1, 1990; Mr.
Richman is a member of the American, Illinois and New York Bar Associations.
He was Chairman and Chief Executive Officer of Kraft, Inc. from 1979 to 1989,
prior to which he was Senior Vice President--Administration and General
Counsel of that company. He is currently a Director of BankAmerica Corporation
and Bank of America National Trust and Savings Association, USX Corporation,
R. R. Donnelley and Sons Company and the Evanston Hospital Corporation. He is
also a Trustee of the Chicago Symphony Orchestra, Northwestern University and
The Johnson Foundation. In addition, Mr. Richman is a Director of The Chicago
Council on Foreign Relations and Lyric Opera of Chicago and a member of The
Business Council, The Commercial Club of Chicago and the Economic Club of
Chicago.
Senior Officers of ATLANTIC and the REIT Manager
CONSTANCE B. MOORE--See "--Directors of ATLANTIC" above.
JAMES C. POTTS--See "--Directors of ATLANTIC" above.
*J. LINDSAY FREEMAN--51--Senior Vice President of ATLANTIC and the REIT
Manager since May 1994 and Director of the REIT Manager since March 1995,
where he is responsible for operations; from June 1980 to March 1994, Senior
Vice President and Operating Partner of Lincoln Property Company in Atlanta,
Georgia, where he was responsible for acquisitions, financing, construction
and management of multifamily communities within the Atlantic region and
oversaw operations of 16,000 multifamily units.
JEFFREY A. KLOPF--49--Senior Vice President and Secretary of ATLANTIC, the
REIT Manager and Security Capital since January 1996, where he provides
securities offerings and corporate acquisition services and oversees the
provisions of legal services for affiliates of Security Capital; from January
1988 to December 1995, Mr. Klopf was a partner with Mayer, Brown & Platt where
he practiced corporate and securities law.
*BRADLEY C. MILLER--50--Senior Vice President of ATLANTIC and the REIT
Manager since June 1996 and Director of the REIT Manager since February 1997,
where he is responsible for investments; from October 1979 to May 1996, Mr.
Miller was Senior Vice President and Operating Partner of Lincoln Property
Company in Tampa, Florida, where he was responsible for acquisitions,
financing, construction and management of multifamily communities within the
Atlantic region and oversaw the development of over 6,500 new multifamily
units and operations of 11,000 multifamily units.
WILLIAM KELL--41--Vice President and Controller of ATLANTIC and the REIT
Manager since January 1996, where he supervises accounting and financial
reporting for ATLANTIC; from June 1991 to December 1995, Vice President and
Controller of PTR, where he had overall responsibility for multifamily
accounting and financial reporting; from 1987 to 1991, Vice President and
Treasurer, Bohannon Development Corporation, El Paso, Texas (multifamily
development); prior thereto, Manager with KPMG Peat Marwick in its El Paso,
Texas office.
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Other Officers
STEVEN A. ABNEY--42--Vice President of ATLANTIC and the REIT Manager since
March 1997, where he has been responsible for property accounting and
reporting since April 1996; from August 1994 to March 1996, Division
Controller for Lincoln Property Company in Dallas, Texas, where he was
responsible for financial reporting activities for all Dallas/Ft. Worth area
commercial properties; from July 1989 to August 1994, Director of Finance and
Accounting for Bramalea USA Retail Group, a shopping center developer/manager
in Dallas, Texas.
RAYMOND D. BARROWS--35--Vice President of ATLANTIC and the REIT Manager
since May 1994, where he is a member of the development group; prior thereto,
he supervised the due diligence group; from January 1994 to December 1995, a
member of ATLANTIC's asset management group and prior thereto, a member of
PTR's asset management group; from May 1990 to August 1993, Portfolio Manager
with The First National Bank of Chicago, where he was responsible for
underwriting and structuring transactions for both project and corporate
facilities.
LESLIE L. BIVINS--43--Vice President of ATLANTIC and the REIT Manager since
June 1996, where she is responsible for asset and property management for the
States of Georgia and Alabama and with SCG Realty Services since May 1994;
from January 1992 to May 1994, Senior Regional Manager of Laing Management
Company in Atlanta, Georgia, where she was responsible for management of over
2,000 units throughout the southeastern United States; from November 1987
through December 1991, District Manager of Trammell Crow Residential, Atlanta,
Georgia, where she supervised the management of approximately 2,000
multifamily units in the Atlanta market.
NEIL T. BROWN--40--Vice President of ATLANTIC and the REIT Manager since
April 1996, where he is responsible for directing the development of new
multifamily communities in the mid-Atlantic region; from July 1992 to December
1995, Regional Vice President/Regional Partner of JPI Development Partners,
Inc., where he was responsible for all development activity in Florida; prior
thereto, Partner of Trammell Crow Residential where he was responsible for
development of residential projects in Dade and Broward Counties, Florida.
ANDREW W. COLQUITT--30--Vice President of ATLANTIC and the REIT Manager
since December 1996, where he is responsible for land acquisition for all
markets north of Florida; prior thereto, he was a member of the Development
Group; from March 1994 to October 1995, Development Associate for Trammell
Crow Residential in Portland, Oregon, where he was responsible for acquisition
and development management for the Portland development portfolio including
1,800 multifamily units; from June 1993 to February 1994, Acquisitions Analyst
for Prudential Real Estate Investors in San Francisco, with emphasis on
multifamily and office acquisitions; in May 1994, he obtained his M.B.A. from
the University of California at Berkeley; from June 1987 to June 1992, Cost
Engineer and Project Engineer for Holder Construction Company in Atlanta,
Georgia, with emphasis on project management, estimating and scheduling.
JOSEPH J. DOMINGUEZ--37--Vice President of ATLANTIC and the REIT Manager
since April 1996, where he is a member of the development group; prior
thereto, he was an associate in the development group; from November 1984 to
August 1995, Vice President of Operations for The Casden Company, where he had
overall responsibility for the start-up and operations of a general
contracting subsidiary; prior thereto, Project Manager with Pacific Southwest
Construction Company where he oversaw the construction of various residential
projects.
RICHARD L. GLEICHAUF--45--Vice President of ATLANTIC and the REIT Manager
since March 1997, where he has been responsible for financial planning and
analysis since April 1996; from 1977 to 1996, manager with various El Paso
Energy Corporation subsidiaries in El Paso, Texas and Paris, France where he
was responsible for financial accounting, budgeting and forecasting, and
auditing; prior thereto with KPMG Peat Marwick in its El Paso, Texas office.
W. SCOTT HARTMAN--32--Vice President of ATLANTIC and the REIT Manager since
September 1996, where he oversees financing activities, coordinates external
financial reporting and supervises acquisition due
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diligence compliance activities; prior thereto, he was in the Management
Development Program with Security Capital working in six-month rotational
assignments with Managing Directors of Security Capital and its affiliates;
from May 1993 to May 1994, Research Analyst with AMB Institutional Realty
Advisors; in May 1994, Mr. Hartman obtained his J.D. from The University of
California, Hastings College of the Law and his M.B.A. from The University of
California, Haas School of Business.
GEORGE E. KELLY--44--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for planning, coordinating and
executing the production of development of multifamily communities; from May
1995 to December 1996, Development Manager of ATLANTIC; from February 1995 to
April 1995, Real Estate and Construction Management Consultant to property
management companies; from August 1992 to April 1995, Assistant Vice President
of The Travelers Realty Investment Company in Atlanta, Georgia.
MONA D. KING--36--Vice President of ATLANTIC and the REIT Manager since May
1997, where she has overall responsibility for human resources; from September
1994 to May 1997, she was Regional Human Resources Manager for SCG Realty
Services and the REIT Manager; prior thereto, she had a variety of Human
Resources positions for Rich's Department Stores from June 1989 to September
1994.
MARY CAPERTON LESTER--42--Vice President of ATLANTIC and the REIT Manager
since July 1995, where she is responsible for asset and property management in
the Mid-Atlantic region (except Georgia and Alabama) and with SCG Realty
Services since June 1994; prior thereto, she was a member of the asset
management group; from May 1993 to May 1994, she was with Summit Management
Company, where she specialized in new business development; from April 1984 to
May 1993, with Trammell Crow Residential Services, most recently as a Vice
President, where she was responsible for property operations, marketing and
new business development.
JEFFREY G. MEGRUE--35--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is a member of the development group; prior thereto, he
was an associate in the development group; from March 1993 to May 1994, he was
a member of the acquisition group of PTR; from June 1988 to February 1993,
Vice President of Trammell Crow Residential Services North; prior thereto,
Development Associate for the New Jersey/Pennsylvania division of Trammell
Crow Residential.
GLENN T. RAND--36--Vice President of ATLANTIC and of the REIT Manager since
June 1996, where he is responsible for asset and property management for the
State of Florida, and with SCG Realty Services since May 1995; from August
1987 to April 1995, Vice President of Trammell Crow Residential and Avalon
Properties, where he was responsible for operations and third party management
solicitation in southern Florida and the northeastern United States.
JAMES C. ROOT--42--Vice President of ATLANTIC and the REIT Manager since
December 1996, where he is responsible for major capital expenditures; from
February 1994 to December 1996, Construction Services Manager, where he was
responsible for capital budgeting, major repairs and renovations of over
13,000 units located throughout the Southeast; from February 1993 to February
1994, Construction Manager and Consultant in Chicago, Illinois, where he
evaluated potential acquisitions for Republic Management, a Houston-based,
nationwide property management company; from June 1992 to February 1993,
Construction Services Director with Genmar Realty Group, Inc. in Chicago,
where he established the Construction Department responsible for capital items
for a nationwide portfolio of communities.
ANN L. SCHUMACHER--38--Vice President of ATLANTIC and the REIT Manager since
July 1995 and a member of the accounting group since January 1994, where she
is responsible for accounting and financial reporting; from September 1988 to
October 1993, she was with Trammell Crow Company, most recently as Regional
Controller, where she managed the accounting department for the company's 26
million-square-foot industrial portfolio in Southern California and Arizona;
prior thereto, Senior Accountant for Price Waterhouse.
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L. DOUGLAS SNIDER--43--Vice President of ATLANTIC and the REIT Manager since
July 1995, where he is responsible for directing the development of new
multifamily communities in the South Atlantic region; prior thereto, he was an
associate in the development group; from July 1993 to March 1995, Vice
President of Operations with American Constructors, where he was responsible
for all design/build activities; from June 1990 to July 1993, Vice President
of Robert L. Mayer Corporation, where he was responsible for residential and
commercial development activities.
C. MELVIN WHITE--58--Vice President of ATLANTIC and the REIT Manager since
April 1996, where he has been a member of the development group since August
1995; from September 1991 to August 1995, Founder/Partner of Sherrill and
Associates, an interior specialty contracting firm; from 1985 to 1991,
Construction Manager of Laing, where he was responsible for construction of
garden apartments, personal care retirement facilities and mid-rise office
space.
TIMOTHY C. YEAGER--33--Vice President for ATLANTIC and the REIT Manager
since May 1997, where he has overall responsibility for acquisitions; from
September 1994 to December 1996, he was a member of the asset management
group; from January 1997 to May 1997, he was a member of the acquisitions
group; from December 1991 to May 1992, Vice President and co-founder of SMAC,
Inc., a management consulting firm. Mr. Yeager obtained a Masters in
International Business Studies from the University of South Carolina in May
1994.
CLASSIFICATION OF DIRECTORS
Pursuant to the terms of ATLANTIC's Charter, the Directors are divided into
three classes. One class (consisting of Mr. Potts) will hold office for a term
expiring at the annual meeting of shareholders to be held in 2000, a second
class (consisting of Messrs. Garcia and Holmes) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1998 and a third
class (consisting of Ms. Moore and Mr. Richman) will hold office for a term
expiring at the annual meeting of shareholders to be held in 1999. Each
Director will hold office for the term to which he or she is elected and until
his or her successor is duly elected and qualifies. At each annual meeting of
shareholders of ATLANTIC, the successors to the class of Directors whose terms
expire at such meeting will be elected to hold office for a term expiring at
the annual meeting of shareholders held in the third year following the year
of their election. See "Certain Provisions of Maryland Law and of ATLANTIC's
Charter and Bylaws". Security Capital has a right to nominate up to three
Directors, depending upon its level of ownership of Shares, as described under
"Certain Relationships and Transactions--Security Capital Investor Agreement".
Ms. Moore and Mr. Potts are deemed to be the nominees of Security Capital.
COMMITTEES OF THE BOARD
The Board has established an Audit Committee consisting of Messrs. Garcia
and Holmes. The Audit Committee is responsible for making recommendations
concerning the engagement of independent public accountants, reviewing the
plans and results of the audit engagement with the independent public
accountants, approving professional services provided by the independent
public accountants, reviewing the independence of the independent public
accountants, considering the range of audit and non-audit fees and reviewing
the adequacy of ATLANTIC's internal accounting controls.
The Board has established an Investment Committee consisting of Messrs.
Holmes and Potts. The Investment Committee is responsible for reviewing and
approving all asset acquisitions and other investment decisions between
meetings of the full Board. Any decisions made by the Investment Committee are
reported to the full Board at its next quarterly meeting. The Investment
Committee receives recommendations from the REIT Manager's investment
committee.
The Board has established a Compensation Committee consisting of Messrs.
Garcia, Holmes and Richman, with Mr. Potts and Ms. Moore serving as non-voting
members, which reviews and approves ATLANTIC's compensation arrangements and
plans.
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COMPENSATION OF DIRECTORS
ATLANTIC pays an annual retainer of $14,000 to Directors who are not
officers or employees of ATLANTIC, the REIT Manager or its affiliates. These
fees are currently paid to Directors in cash (quarterly on each meeting date)
and will be paid to the Directors in Shares (quarterly on each dividend
payment date) based on the then-current market price of the Shares following
the adoption by ATLANTIC of a dividend reinvestment and share purchase plan as
described below. Such Directors also receive $1,000 for each meeting attended
(other than telephonic meetings), which is also paid in cash. Non-employee
chairpersons of Board committees (other than the Investment Committee) receive
an additional annual retainer of $1,000 payable in cash and non-employee
members of the Investment Committee receive an additional annual retainer of
$4,000 payable in cash. In the event that ATLANTIC adopts a dividend
reinvestment and share purchase plan, both the retainer and fees will be paid
directly into such plan. Officers of ATLANTIC, the REIT Manager or its
affiliates who are Directors are not paid any Director fees.
In addition, pursuant to the Outside Directors Plan, each Outside Director,
as defined below, will be entitled to receive, on the date of each annual
meeting of shareholders, an option to purchase 1,000 Shares at a price per
Share equal to the closing price of one Share on the NYSE on such annual
meeting date. See "--Outside Directors Plan".
Directors are reimbursed for any out-of-town travel expenses incurred in
connection with attendance at Board meetings. Ms. Moore and Mr. Potts are not
separately compensated for serving as Directors.
OUTSIDE DIRECTORS PLAN
On March 12, 1996, the Board approved the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). The Outside Directors Plan is incorporated by reference as an exhibit
to the Registration Statement of which this Prospectus forms a part and the
following summary of the material terms of the Outside Directors Plan is
qualified in its entirety by reference to the actual terms thereof.
The purpose of the Outside Directors Plan is to enable the Directors of
ATLANTIC who are not employees or officers of ATLANTIC or Security Capital or
any of its affiliates ("Outside Directors") to increase their ownership of
ATLANTIC and thereby further the identity of their interests with those of
ATLANTIC's other shareholders.
To achieve the foregoing objective, the Outside Directors Plan provides for
grants of options ("Options") to purchase Shares. The Secretary of ATLANTIC
(the "Administrator") administers the Outside Directors Plan with a view to
ATLANTIC's best interests and the Outside Directors Plan's objectives. The
Administrator has authority to adopt administrative guidelines, rules and
regulations relating to the Outside Directors Plan and to make all
determinations necessary or advisable for the implementation and
administration of the Outside Directors Plan.
The number of Shares reserved for issuance upon exercise of Options granted
under the Outside Directors Plan is 100,000. Shares that are forfeited will
again become available for awards under the Outside Directors Plan.
In the event of changes in the outstanding Shares by reason of any increase
or decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or the payment of a dividend in Shares, or any other
increase or decrease in the number of Shares, or merger or consolidation, or
other similar event, the Administrator shall make appropriate adjustments to
the aggregate number of Shares available under the Outside Directors Plan.
On the date of each annual meeting of shareholders of ATLANTIC through and
including 2006, each Outside Director serving on such date (after the election
of Directors in the meeting) will be granted an Option to purchase 1,000
Shares at an exercise price equal to the closing price of the Shares on the
NYSE on such date.
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Also, each Outside Director serving at the time of ATLANTIC's initial public
offering was granted an Option to purchase 1,000 Shares at the initial public
offering price of $21.25 per Share, after adjusting for the Homestead
Distribution.
Each Option will be immediately exercisable, but must be exercised before
the earliest of the following events to occur: the date that is three months
after the date that the Option holder's position as a Director terminates, the
date that is twelve months after the date the Director becomes disabled or
dies or the date that is five years after the date the Option is granted.
If fifty percent or more of the outstanding Shares are acquired in a cash
tender offer or exchange offer, each Option holder shall have the right to
exercise his or her Option in full or surrender his or her outstanding Option
in exchange for a cash payment from ATLANTIC in an amount equal to the excess
of the offer price or value over the Option price. If ATLANTIC dissolves, each
Option holder shall have the right to exercise his or her Option in full
before the date of the dissolution.
The Outside Directors Plan may be amended or terminated at any time by the
Board. The provisions relating to the amount, price and timing of grants under
the Outside Directors Plan may not be amended more than once every six months,
other than to comport with changes in the Code or the rules thereunder, unless
such amendment would not affect the exemption provided by Rule 16b-3
promulgated under the Exchange Act.
LIABILITY LIMITATION AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. ATLANTIC's Charter
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law. ATLANTIC's officers and Directors are and
will be indemnified under ATLANTIC's Charter against certain liabilities.
ATLANTIC's Charter provides that ATLANTIC will, to the maximum extent
permitted by Maryland law in effect from time to time, indemnify and pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any individual who is a present or former Director or officer of
ATLANTIC or (b) any individual who, while a Director of ATLANTIC and at the
request of ATLANTIC, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, employee benefit plan or other enterprise. ATLANTIC's Charter
authorizes ATLANTIC, with the approval of the Board, to provide such
indemnification and advancement of expenses to a person who served a
predecessor of ATLANTIC in any of the capacities described in (a) or (b) above
and to any employee or agent of ATLANTIC or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which ATLANTIC's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding
to which he or she is made a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits ATLANTIC to advance
reasonable expenses to a director or officer upon ATLANTIC's receipt of (a) a
written affirmation by the Director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification
by ATLANTIC as authorized by ATLANTIC's Bylaws and (b) a written statement by
or on his or her behalf to repay the amount paid or reimbursed by ATLANTIC if
it shall ultimately be determined that the standard of conduct was not met.
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Additionally, ATLANTIC has entered into indemnity agreements with each of
its officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Exchange Act or (c) relating to
judicially determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to Directors,
officers or persons controlling ATLANTIC pursuant to the foregoing provisions,
ATLANTIC has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
ATLANTIC'S COMMUNITIES
PORTFOLIO COMPOSITION
ATLANTIC believes that moderate income communities offer better prospects
for long-term growth in cash flow. Based on ATLANTIC's review of information
filed under the Exchange Act regarding other REITs in ATLANTIC's primary
target market and other publicly available data, ATLANTIC believes that few
other REITs in its primary target market currently focus on the moderate
income segment. Moreover, based on ATLANTIC's proprietary information
regarding available land parcels and construction starts in its primary target
market, ATLANTIC believes that less than 10% of the 1995 and 1996 multifamily
starts in ATLANTIC's primary target market cities constituted moderate income
communities. Consequently, ATLANTIC believes that the moderate income segment
is a significantly underserved market with limited competition. In ATLANTIC's
experience, moderate income residents are typically longer-term residents
because they often lack the financial resources required to purchase single-
family homes. As a result, resident turnover is often lower in ATLANTIC's
moderate income communities than in upper middle income or middle income
communities. The total cost of refurbishing and re-leasing a unit ranges from
$700 to $1,500; therefore, reducing resident turnover can have a material
impact on an asset's profitability. The following table indicates the product-
type composition of communities owned by ATLANTIC at May 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
ASSETS BASED
ON TOTAL
NUMBER OF EXPECTED
COMMUNITIES INVESTMENT(1)
----------- -------------
<S> <C> <C>
Moderate Income(2).................................... 48 48.7%
Middle Income(3)...................................... 37 41.7
Upper Middle Income(4)................................ 7 9.6
--- ----
Total............................................... 92 100%
=== ====
</TABLE>
- --------
(1) For operating communities, represents cost through May 31, 1997 plus
budgeted renovations as of May 31, 1997. For communities under
construction and in planning, represents cost through May 31, 1997 plus
additional budgeted development expenditures as of May 31, 1997, which
include the cost of land, fees, permits, payments to contractors,
architectural and engineering fees and interest and property taxes to be
capitalized during the construction period. Does not include land held for
future development, which is less than 1% of assets, based on cost.
(2) These communities appeal to residents with incomes ranging from 65% to 90%
of submarket median household income. Residents in this category, which
typically include couples, single family parents and families with one or
two children, are value-driven and focus on unit livability and practical
amenities such as washer/dryer hookups, storage space and playground.
(3) These communities appeal to residents with incomes ranging from 90% to
115% of submarket median household income. These communities have smaller
units and fewer amenities than upper middle income communities.
(4) These communities appeal to residents with incomes ranging from 115% to
140% of submarket median household income. These communities typically
feature large luxurious units and numerous amenities, including large
exercise facilities and attached garages.
56
<PAGE>
GEOGRAPHIC DISTRIBUTION
In order to effectively manage its multifamily communities, ATLANTIC has
organized its operations with a regional focus (Mid-Atlantic and South
Atlantic). ATLANTIC's multifamily communities are located in 15 metropolitan
areas in seven states and the District of Columbia. The table below
demonstrates the geographic distribution of ATLANTIC's portfolio (operating
communities and total communities, which includes operating communities and
owned communities under construction and in planning) at May 31, 1997:
<TABLE>
<CAPTION>
OPERATING COMMUNITIES TOTAL COMMUNITIES
------------------------- -------------------------
PERCENTAGE OF PERCENTAGE OF
ASSETS BASED ASSETS BASED
ON TOTAL ON TOTAL
NUMBER OF EXPECTED NUMBER OF EXPECTED
COMMUNITIES INVESTMENT(1) COMMUNITIES INVESTMENT(1)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Carolina.. 4 6% 6 6%
Greenville, South
Carolina.................. 1 1 1 1
Memphis, Tennessee......... 4 4 4 3
Nashville, Tennessee....... 2 4 3 4
Raleigh, North Carolina.... 6 9 7 7
Richmond, Virginia......... 2 3 6 7
Washington, D.C. .......... 4 7 6 10
--- --- --- ---
Total Mid-Atlantic....... 23 34% 33 38%
--- --- --- ---
SOUTH ATLANTIC:
Atlanta, Georgia........... 21 34% 25 30%
Birmingham, Alabama........ 4 5 5 5
Ft. Lauderdale/West Palm
Beach, Florida............ 7 10 9 9
Ft. Myers, Florida......... 1 1 1 1
Jacksonville, Florida...... 2 3 6 7
Orlando, Florida........... 5 4 6 4
Sarasota, Florida.......... 1 3 1 2
Tampa, Florida............. 6 6 6 4
--- --- --- ---
Total South Atlantic..... 47 66% 59 62%
--- --- --- ---
Total.................. 70 100% 92 100%
=== === === ===
</TABLE>
- --------
(1) For operating communities, represents cost through May 31, 1997 plus
budgeted renovations as of May 31, 1997. For communities under
construction and in planning, represents cost through May 31, 1997 plus
additional budgeted development expenditures as of May 31, 1997, which
include the cost of land, fees, permits, payments to contractors,
architectural and engineering fees and interest and property taxes to be
capitalized during the construction period. Does not include land held for
future development, which is less than 1% of assets, based on cost.
57
<PAGE>
COMMUNITIES
The information in the following table is as of March 31, 1997, except total
expected investment which is as of May 31, 1997 (dollar amounts in thousands).
Additional information on ATLANTIC's communities is contained in Schedule III,
Real Estate and Depreciation, in ATLANTIC's financial statements. No
individual community, or group of communities operated as a single business
unit, amounts to 10% or more of ATLANTIC's pro forma total assets at December
31, 1996 nor does the gross revenue from any such communities amount to 10% or
more of ATLANTIC's pro forma gross revenues for the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
COMMUNITIES OWNED AS OF
MARCH 31, 1997:
OPERATING
COMMUNITIES(3):
MID-ATLANTIC:
Charlotte, North
Carolina:
STABILIZED:
Cameron at Hickory
Grove(4)............. 1996 92.6% 202 $ 8,410 $ 8,453
Cameron Oaks.......... 1994 95.1 264 15,406 15,443
Waterford Hills*...... 1995 85.6 270 13,499 13,511(5)
Waterford Square I*... 1996 91.9 408 19,575 20,799(5)
---- ------ ---------- ----------
Subtotals/Average... 91.3 1,144 56,890 58,206
---- ------ ---------- ----------
Greenville, South
Carolina:
STABILIZED:
Cameron Court......... 1996 96.2 234 11,092 11,126
Memphis, Tennessee:
STABILIZED:
Cameron at Kirby
Parkway.............. 1994 91.1 324 10,179 10,259
Stonegate............. 1994 92.3 208 7,090 7,271
PRE-STABILIZED:
Cameron Century
Center............... 1996 90.7 420 16,131 16,541
Country Oaks(6)....... 1996 93.0 200 8,557 8,713
---- ------ ---------- ----------
Subtotals/Average... 91.5 1,152 41,957 42,784
---- ------ ---------- ----------
Nashville, Tennessee:
STABILIZED:
Arbor Creek(7)........ 1994 95.6 360 18,197 18,306
Enclave at Brentwood.. 1995 91.1 380 16,181 16,292
---- ------ ---------- ----------
Subtotals/Average... 93.3 740 34,378 34,598
---- ------ ---------- ----------
Raleigh, North
Carolina:
STABILIZED:
Cameron Square........ 1994 95.2 268 16,036 16,087
Waterford Point*...... 1996 90.2 336 15,866 16,880(5)
PRE-STABILIZED:
Cameron Lake.......... 1996 94.4 196 9,536 9,798
Cameron Ridge(8)...... 1996 96.1 228 10,276 10,502
Emerald Forest........ 1996 88.8 320 14,762 15,159
---- ------ ---------- ----------
Subtotals/Average... 92.5 1,348 66,476 68,426
---- ------ ---------- ----------
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Richmond, Virginia:
STABILIZED:
Camden at Wellesley.... 1994 96.5% 340 $ 19,544 $ 19,608
Potomac Hunt(9)........ 1994 94.6 220 10,142 10,224
---- ------ ---------- ----------
Subtotals/Average.... 95.8 560 29,686 29,832
---- ------ ---------- ----------
Washington, D.C.:
STABILIZED:
Camden at Kendall
Ridge................. 1994 94.6 184 11,737 11,795
Cameron at Saybrooke... 1994 96.4 252 18,985 19,064
Sheffield Forest....... 1995 97.3 256 15,562 15,640
PRE-STABILIZED:
West Springfield
Terrace............... 1996 91.0 244 16,483 16,637
---- ------ ---------- ----------
Subtotals/Average.... 94.9 936 62,767 63,136
---- ------ ---------- ----------
Subtotals/Average--
Mid-Atlantic...... 93.0 6,114 303,246 308,108
---- ------ ---------- ----------
SOUTH ATLANTIC:
Atlanta, Georgia:
STABILIZED:
Azalea Park(10)(11).... 1995 87.7 447 25,832 26,081
Cameron Ashford........ 1994 95.1 365 24,922 25,032
Cameron Briarcliff(9).. 1994 98.6 220 14,277 14,315
Cameron Brook(10)(12).. 1994 96.8 440 22,448 22,620
Cameron Crest.......... 1994 92.6 377 23,814 23,925
Cameron Dunwoody....... 1994 87.8 238 16,902 17,007
Cameron Forest......... 1995 90.8 152 6,259 6,382
Cameron Place.......... 1995 94.3 212 8,094 8,217
Cameron Pointe......... 1996 93.5 214 14,928 15,001
Cameron
Station(10)(13)....... 1995 89.9 348 16,083 16,349
Clairmont
Crest(10)(14)......... 1994 96.7 213 11,063 11,091
The Greens(10)(15)..... 1994 95.4 304 13,769 13,833
Lake Ridge............. 1993 97.0 268 17,385 17,463
Morgan's Landing....... 1993 96.4 165 8,635 8,688
Old Salem.............. 1994 98.3 172 8,236 8,401
Trolley Square......... 1994 96.7 270 13,920 13,997
Vinings Landing........ 1994 94.0 200 9,986 10,062
WintersCreek(10)(16)... 1995 98.0 200 7,800 7,914
Woodlands.............. 1995 94.6 644 25,745 26,049
PRE-STABILIZED:
Balmoral Village....... 1996 99.0 312 19,300 19,509
Cameron Creek I(17).... 1994 86.9 404 24,615 24,877
---- ------ ---------- ----------
Subtotals/Average.... 93.9 6,165 334,013 336,813
---- ------ ---------- ----------
Birmingham, Alabama:
STABILIZED:
Cameron on the
Cahaba(18)............ 1995 95.7 400 18,937 19,035
Colony Woods I......... 1994 90.3 216 10,687 10,697
Colony Woods II*....... 1995 95.5 198 10,533 11,423(5)
Morning Sun Villas..... 1994 95.1 184 9,317 9,445
---- ------ ---------- ----------
Subtotals/Average.... 94.4 998 49,474 50,600
---- ------ ---------- ----------
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Ft. Lauderdale/W. Palm Beach, Florida:
STABILIZED:
Cameron at Meadow Lakes.. 1995 99.5% 189 $ 8,847 $ 8,968
Cameron at the
Villages(9)............. 1994 96.9 384 19,538 19,801
Cameron Cove(10)(19)..... 1994 96.4 221 9,391 9,494
Cameron View............. 1995 96.0 176 8,536 8,780
Parrot's Landing
I(10)(20)............... 1994 94.1 408 18,659 18,836
PRE-STABILIZED:
Cameron at Bayberry
Lake.................... 1996 93.8 308 17,099 17,326
Park Place at Turtle
Run..................... 1996 95.7 350 15,753 15,905
---- ------ --------- ---------
Subtotals/Average...... 95.8 2,036 97,823 99,110
---- ------ --------- ---------
Ft. Myers, Florida:
STABILIZED:
Forestwood(10)(21)....... 1994 95.7 397 13,885 14,063
Jacksonville, Florida:
STABILIZED:
Bay Club................. 1994 94.6 220 12,225 12,317
PRE-STABILIZED:
Cameron Lakes I*......... 1996 (22) 302 16,239 17,778(5)
---- ------ --------- ---------
Subtotals/Average...... 94.6 522 28,464 30,095
---- ------ --------- ---------
Miami, Florida:
STABILIZED:
Park Hill(23)............ 1994 93.6 264 8,655 8,655
Orlando, Florida:
STABILIZED:
Camden Springs........... 1994 90.9 340 17,371 17,576
Cameron Villas I(24)..... 1994 96.4 192 8,036 8,156
Cameron Villas II(9)..... 1995 97.6 42 1,777 1,850
Kingston Village......... 1995 98.3 120 6,057 6,226
The Wellington I(9)...... 1994 98.4 192 8,044 8,081
---- ------ --------- ---------
Subtotals/Average...... 95.0 886 41,285 41,889
---- ------ --------- ---------
Sarasota, Florida:
STABILIZED:
Camden at Palmer Ranch... 1994 93.5 432 24,206 24,426
Tampa, Florida:
STABILIZED:
Camden Downs............. 1994 97.2 250 12,617 12,682
Cameron Lakes............ 1995 98.1 207 8,669 8,715
Country Place
Village(25)............. 1995 94.7 188 8,386 8,587
Foxbridge on the
Bay(10)(26)............. 1994 99.2 358 10,966 11,010
Summer Chase(9)(27)...... 1994 95.8 96 3,788 3,805
PRE-STABILIZED:
Cameron Bayshore......... 1996 96.7 328 10,868 11,485
---- ------ --------- ---------
Subtotals/Average...... 97.3 1,427 55,294 56,284
---- ------ --------- ---------
Subtotals/Average--
South Atlantic...... 94.7 13,127 653,099 661,935
---- ------ --------- ---------
Subtotals/Average--
Operating
Communities....... 94.1 19,241 956,345 970,043
---- ------ --------- ---------
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
COMMUNITIES UNDER
CONSTRUCTION:
MID-ATLANTIC:
Charlotte, North
Carolina:
Waterford Square
II*................. 1998 N/A 286 $ 10,762 $ 17,495
Nashville, Tennessee:
Cameron Overlook*.... 1998 N/A 452 13,696 23,848
Raleigh, North
Carolina:
Cameron Brooke*(28).. 1997 N/A 228 12,132 13,238
Waterford
Forest*(29)......... 1997 N/A 384 20,360 21,489
--- ------ --------- ---------
Subtotals.......... N/A 612 32,492 34,727
--- ------ --------- ---------
Richmond, Virginia:
Cameron at Wyndham*.. 1999 N/A 312 5,908 20,405
Cameron Crossing I*.. 1998 N/A 280 12,806 18,367
--- ------ --------- ---------
Subtotals.......... N/A 592 18,714 38,772
--- ------ --------- ---------
Washington, D.C.
Cameron at
Milestone(28)*...... 1997 N/A 444 30,726 31,404
Woodway at Trinity
Center(28)*......... 1998 N/A 504 36,533 37,836
--- ------ --------- ---------
Subtotals.......... N/A 948 67,259 69,240
--- ------ --------- ---------
Subtotals--Mid-
Atlantic........ N/A 2,890 142,923 184,082
--- ------ --------- ---------
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron Creek
II(28)*............. 1997 N/A 260 19,706 20,210
Cameron Landing*..... 1999 N/A 368 3,484 21,630
--- ------ --------- ---------
Subtotals.......... N/A 628 23,190 41,840
--- ------ --------- ---------
Birmingham, Alabama:
Cameron at the Summit
I*.................. 1998 N/A 372 14,981 21,644
Ft. Lauderdale/W. Palm
Beach, Florida:
Cameron Waterways*... 1999 N/A 300 5,497 21,255
Parrot's Landing
II(28)*............. 1997 N/A 152 9,832 10,200
--- ------ --------- ---------
Subtotals.......... N/A 452 15,329 31,455
--- ------ --------- ---------
Jacksonville, Florida:
Cameron
Deerwood(28)*....... 1997 N/A 336 16,799 18,039
Cameron Lakes II*.... 1998 N/A 253 6,674 15,812
Cameron Timberlin
Parc I(28)*......... 1997 N/A 320 16,876 17,386
--- ------ --------- ---------
Subtotals/Average.. N/A 909 40,349 51,237
--- ------ --------- ---------
Subtotals--South
Atlantic........ N/A 2,361 93,849 146,176
--- ------ --------- ---------
Subtotals--
Communities
Under
Construction.. N/A 5,251 236,772 330,258
--- ------ --------- ---------
COMMUNITIES IN PLANNING AND OWNED:
MID-ATLANTIC:
Charlotte, North
Carolina:
Cameron
Matthews(30)*....... 1999 N/A 212 $ 1,652 $ 12,066
Richmond, Virginia:
Cameron at Virginia
Center*............. 1999 N/A 264 1,962 16,079
Cameron Crossing II*. 1998 N/A 144 1,404 8,951
--- ------ --------- ---------
Subtotals.......... N/A 408 3,366 25,030
--- ------ --------- ---------
Subtotals--Mid-
Atlantic........ N/A 620 5,018 37,096
--- ------ --------- ---------
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
YEAR TOTAL
ACQUIRED OR PERCENTAGE ATLANTIC EXPECTED
COMPLETED(1) LEASED UNITS INVESTMENT(2) INVESTMENT(2)
------------ ---------- ------ ------------- -------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOUTH ATLANTIC:
Atlanta, Georgia:
Cameron at Double
Bridge*.............. 1999 N/A 232 $ 2,877 $ 16,115
Cameron at North
Point*............... 1999 N/A 264 3,718 19,788
---- ------ ---------- ----------
Subtotals........... N/A 496 6,595 35,903
---- ------ ---------- ----------
Jacksonville, Florida:
Cameron Timberlin Parc
II*.................. 2000 N/A 200 1,416 10,500
---- ------ ---------- ----------
Subtotals--South
Atlantic......... N/A 696 8,011 46,403
---- ------ ---------- ----------
Subtotals--
Communities in
Planning and
Owned............ N/A 1,316 13,029 83,499
---- ------ ---------- ----------
LAND HELD FOR FUTURE
MULTIFAMILY
DEVELOPMENT............ N/A -- 2,083 --
---- ------ ---------- ----------
Total
Communities
Owned at March
31, 1997....... 94.1 25,808 $1,208,229 $1,383,800
---- ------ ---------- ----------
COMMUNITY ACQUIRED FROM
MARCH 31, 1997 TO MAY
31, 1997
COMMUNITY IN PLANNING
AND OWNED:
SOUTH ATLANTIC:
Orlando, Florida:
The Wellington II*.... 1998 N/A 120 -- $ 8,936
---- ------ ---------- ----------
COMMUNITY DISPOSED OF
FROM
MARCH 31, 1997 TO MAY
31, 1997:
OPERATING COMMUNITY:
SOUTH ATLANTIC:
Miami, Florida:
Park Hill(23)......... N/A N/A (264) $ (8,655) $ (8,655)
---- ------ ---------- ----------
Total
Communities
Owned at May
31, 1997....... 94.1% 25,664 $1,199,574 $1,384,081
==== ====== ========== ==========
</TABLE>
Additionally, at May 31, 1997, ATLANTIC had land in planning and under
control for the development of 3,830 units with a total budgeted development
cost of $249.2 million. The term "in planning" means that construction is
anticipated to commence within 12 months. The term "under control" means that
ATLANTIC has an exclusive right (through contingent contract or letter of
intent) during a contractually agreed-upon time period to acquire land for
future development of multifamily communities, subject to removal of
contingencies during the due diligence process, but does not currently own the
land. There can be no assurance that such land will be acquired. The unit and
total budgeted development cost information for these communities is based on
management's best estimates of the cost upon completion of these communities.
- --------
* Community developed by ATLANTIC.
(1) With respect to communities under construction or communities in planning
and owned, represents expected completion date.
(2) ATLANTIC investment represents cost through March 31, 1997. For operating
communities, total expected investment represents cost through May 31,
1997 plus budgeted renovations as of May 31, 1997. For communities under
construction and in planning, total expected investment represents cost
through May 31, 1997 plus additional budgeted development expenditures as
of May 31, 1997, which include the cost of land, fees, permits, payments
to contractors, architectural and engineering fees and interest and
property taxes to be capitalized during the construction period. The term
"in planning" means that construction is anticipated to commence within
12 months.
62
<PAGE>
(3) The term "stabilized" means that renovation, repositioning, new
management and new marketing programs (or development and marketing in
the case of newly developed communities) have been completed and in
effect for a sufficient period of time (but in no event longer than 12
months, except in cases of major rehabilitation) to achieve 93% occupancy
at market rents. Prior to being "stabilized", a community is considered
"pre-stabilized". See "Business--ATLANTIC's Operating System--Acquired
Communities".
(4) Cameron at Hickory Grove Apartments are subject to a deed of trust
securing a mortgage note of $6.0 million.
(5) The total expected investment cost of these developed communities
includes potential incentive payments to third-party developer/managers
that had not been earned by them at May 31, 1997.
(6) Country Oaks Apartments are subject to a deed of trust securing a
mortgage note of $5.9 million.
(7) The land associated with the Arbor Creek Apartments is leased by ATLANTIC
through the year 2058 under an agreement with the Metropolitan Nashville
Airport Authority.
(8) Cameron Ridge Apartments are subject to a deed of trust securing a
mortgage note of $5.8 million.
(9) Community is pledged as additional security under ATLANTIC's 30-year
credit enhancement agreement with FNMA. For a discussion of the FNMA
credit enhancement agreement, see "Business--ATLANTIC's Operating
System--Capital Markets/Finance/Legal".
(10) The tax-exempt bond issue associated with this community is included in
ATLANTIC's credit enhancement agreement with FNMA.
(11) Azalea Park Apartments are subject to a deed of trust securing a mortgage
note related to $15.5 million of tax-exempt bonds.
(12) Cameron Brook Apartments are subject to a deed of trust securing a
mortgage note related to $19.5 million of tax-exempt bonds.
(13) Cameron Station Apartments are subject to a deed of trust securing a
mortgage note related to $14.5 million of tax-exempt bonds.
(14) Clairmont Crest Apartments are subject to a deed of trust securing a
mortgage note related to $11.6 million of tax-exempt bonds.
(15) The Greens Apartments are subject to a deed of trust securing a mortgage
note related to $10.4 million of tax-exempt bonds.
(16) WintersCreek Apartments are subject to a deed of trust securing a
mortgage note related to $5.0 million of tax-exempt bonds.
(17) Community was classified as pre-stabilized in 1997 due to the effects of
lease-up activities at Phase II of this community.
(18) Cameron on the Cahaba Phase II Apartments, which consist of 250 units,
are subject to a deed of trust securing a mortgage note of $8.0 million.
(19) Cameron Cove Apartments are subject to a deed of trust securing a
mortgage note related to $8.5 million of tax-exempt bonds.
(20) Parrot's Landing Phase I Apartments are subject to a deed of trust
securing a mortgage note related to $15.8 million of tax-exempt bonds.
(21) Forestwood Apartments are subject to a deed of trust securing a mortgage
note related to $11.5 million of tax-exempt bonds.
(22) Community is in lease-up, therefore, the percentage leased is not given
because it is not representative of a fully operational community.
(23) Park Hill Apartments were being held for sale at March 31, 1997 and were
disposed of in April 1997.
(24) Cameron Villas I Apartments are subject to a deed of trust securing a
mortgage note of $6.3 million.
(25) Country Place Village Phase I Apartments, which consist of 88 units, are
subject to a deed of trust securing a mortgage note of $2.0 million.
(26) Foxbridge on the Bay Apartments are subject to a deed of trust securing a
mortgage note related to $10.4 million of tax-exempt bonds.
(27) Community was disposed of in June 1997.
(28) Community was leasing completed units at May 31, 1997.
(29) Community was completed in April 1997.
(30) Construction on this community commenced in May 1997.
63
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth the Pro Forma Financial Results as of and for
the three-month period ended March 31, 1997 and the year ended December 31,
1996, and the Historical Financial Results as of and for the three-month
period ended March 31, 1997 and the years ended December 31, 1996, 1995 and
1994 and the period from inception (October 26, 1993) through December 31,
1993. Such selected financial information is qualified in its entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and notes thereto included in this Prospectus. The Pro Forma Financial Results
are not necessarily indicative of what the actual financial position and
results of operations of ATLANTIC would have been as of and for the periods
indicated, nor do they purport to represent the financial position and results
of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA(1) HISTORICAL PRO FORMA(1) HISTORICAL
------------ ------------ ------------ ------------------------------------------
THREE-MONTH THREE-MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, ------------------------------------------
1997 1997 1996 1996 1995 1994 1993(2)
------------ ------------ ------------ ---------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental income.......... $ 39,715 $ 39,715 $ 148,361 $ 137,729 $ 103,634 $ 55,071 $ 156
Homestead Convertible
Mortgages interest
income................ 185 185 -- -- -- -- --
Property management
fees paid to
affiliate............. -- 1,280 -- 4,208 3,475 1,536 --
Property management
fees paid to third
parties............... 232 232 971 971 591 661 --
Interest expense....... 2,893 4,761 12,219 16,181 19,042 9,240 --
REIT management fee
paid to affiliate..... -- 3,029 -- 10,445 6,923 3,671 12
General and
administrative
expenses.............. 1,751 265 5,923 673 646 266 1
Net earnings before
extraordinary item.... 13,258 10,178 45,306 42,569 19,639 9,926 38
Extraordinary item--
loss on early
extinguishment of
debt.................. -- -- -- 3,940 -- -- --
Series A Preferred
Share dividends....... 1,125 -- 4,500 -- -- -- --
Net earnings
attributable to
Shares................ 12,133 10,178 40,806 38,629 19,639 9,926 38
Net earnings per Share
before extraordinary
item.................. 0.27 0.27 1.01 1.33 0.89 0.81 0.13
Net earnings
attributable to Shares
per Share............. 0.27 0.27 1.01 1.21 0.89 0.81 $ 0.13
Cash distributions
declared and paid..... 14,778 14,778 53,064 53,064 35,119 14,648 --
Cash distributions
declared and paid per
Share................. $ 0.39 $ 0.39 $ 1.65 $ 1.65 $ 1.60 $ 1.20 --
Weighted-average Shares
outstanding........... 44,241 37,892 40,246 32,028 21,944 12,227 286
<CAPTION>
PRO FORMA(3) HISTORICAL
------------ -------------------------------------------------------
DECEMBER 31,
MARCH 31, MARCH 31, ------------------------------------------
1997 1997 1996 1995 1994 1993
------------ ------------ ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real estate, at cost... $1,208,229 $1,208,229 $1,157,235 $ 888,928 $ 631,260 $ 31,005
Total assets........... 1,210,645 1,204,231 1,135,065 885,824 637,846 31,850
Line of credit(4)...... 21,020 295,250 228,000 190,000 153,000 --
Long-term debt......... 150,000 -- -- -- -- --
Mortgages payable...... 155,418 155,418 155,790 118,524 107,347 --
Total liabilities...... 367,043 489,511 436,423 328,886 271,216 178
Total shareholders'
equity................ $ 843,602 $ 714,720 $ 698,642 $ 556,938 $ 366,630 $ 31,672
Number of Shares
outstanding........... 44,241 37,892 37,892 27,763 18,567 1,582
<CAPTION>
PRO FORMA(1) HISTORICAL PRO FORMA(1) HISTORICAL
------------ ------------ ------------ ------------------------------------------
THREE-MONTH THREE-MONTH PERIOD ENDED
PERIOD ENDED PERIOD ENDED YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, DECEMBER 31, ------------------------------------------
1997 1997 1996 1996 1995 1994 1993(2)
------------ ------------ ------------ ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to
Shares................ $ 12,133 $ 10,178 $ 40,806 $ 38,629 $ 19,639 $ 9,926 $ 38
Add (Deduct):
Real estate
depreciation.......... 6,132 6,132 22,534 20,824 15,925 8,770 28
Amortization related to
Homestead Convertible
Mortgages............. (20) (20) -- -- -- -- --
Gain on disposition of
real estate........... -- -- -- (6,732) -- -- --
Gain on sale of
Homestead Assets...... -- -- -- (2,839) -- -- --
Provision for possible
loss on investments... 200 200 2,500 2,500 -- -- --
Extraordinary item--
loss on early
extinguishment of
debt.................. -- -- -- 3,940 -- -- --
-------- ---------- ---------- ---------- --------- --------- --------
Funds from
operations(5)......... $ 18,445 $ 16,490 $ 65,840 $ 56,322 $ 35,564 $ 18,696 $ 66
-------- ---------- ---------- ---------- --------- --------- --------
Net cash provided
(used) by operating
activities............ $ 19,804 $ 16,913 $ 69,685 $ 54,356 $ 39,732 $ 23,564 $ (492)
Net cash used by
investing activities.. (70,486) (69,354) (291,476) (287,418) (235,149) (390,077) (31,005)
Net cash provided by
financing activities.. $ 50,733 $ 52,055 $ 226,026 $ 230,907 $ 195,649 $ 372,638 $ 31,634
</TABLE>
64
<PAGE>
- --------
(1) The pro forma condensed statements of earnings reflect: (i) the Merger,
(ii) the sale of the Homestead Village properties and subsequent
distribution of Homestead securities on November 12, 1996, (iii) the
acquisition and disposition of communities acquired or disposed of
subsequent to January 1, 1996 and related assumptions of mortgage debt and
(iv) the sale of Shares subsequent to January 1, 1996 (including the sale
of Shares on April 10, 1997) and the proposed Note Offering and Preferred
Share Offering and the related repayments on ATLANTIC's $350 million
unsecured line of credit as if all of these transactions had occurred on
January 1, 1996.
(2) For the period from inception (October 26, 1993) to December 31, 1993.
(3) The pro forma condensed balance sheet reflects: (i) the Merger, (ii) the
sale of Shares on April 10, 1997 and (iii) the proposed Note Offering and
Preferred Share Offering and the related repayments on ATLANTIC's $350
million unsecured line of credit as if all of these transactions had
occurred as of March 31, 1997.
(4) At June 27, ATLANTIC had $278.8 million of outstanding borrowings under
its $350 million unsecured line of credit and such outstanding borrowings
are expected to be approximately $ million at the closing of the
Offering.
(5) Funds from operations represents net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions,
provisions for possible losses, extraordinary items and real estate
depreciation. ATLANTIC believes that funds from operations is helpful to
the reader in understanding the performance of an equity REIT and will
enhance the reader's comprehension of ATLANTIC's results of operations and
cash flows presented in the financial statements and other data in this
document. Funds from operations should not be considered as an alternative
to net earnings or any other GAAP measurement of performance as an
indicator of ATLANTIC's operating performance or as an alternative to cash
flows from operating, investing or financing activities as a measure of
liquidity. On January 1, 1996, ATLANTIC adopted NAREIT's revised
definition of funds from operations. Under this more conservative
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. For comparability, funds from
operations for the periods prior to January 1, 1996 give effect to the
revised definition. The funds from operations measure presented by
ATLANTIC, while consistent with the NAREIT definition, will not be
comparable to similarly titled measures of other REITs which do not
compute funds from operations in a manner consistent with ATLANTIC. Funds
from operations is not intended to represent cash made available to
shareholders. Cash distributions paid to shareholders is presented in the
table above.
65
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with ATLANTIC's
financial statements and the notes thereto included in this Prospectus.
The statements contained in this discussion and elsewhere in this Prospectus
that are not historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These forward-looking statements are based on current expectations,
estimates and projections about the industry and markets in which ATLANTIC
operates, management's beliefs and assumptions made by management. Words such
as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. ATLANTIC's operating results depend primarily on income from
multifamily communities, which is substantially influenced by (i) the demand
for and supply of multifamily units in ATLANTIC's primary target market and
submarkets, (ii) operating expense levels, (iii) the effectiveness of
property-level operations and (iv) the pace and price at which ATLANTIC can
acquire and develop additional multifamily communities. Capital and credit
market conditions which affect ATLANTIC's cost of capital also influence
operating results.
OVERVIEW
Since its inception on October 26, 1993 and through March 31, 1997, ATLANTIC
has amassed a portfolio of 25,808 multifamily units with a total expected
investment cost of $1.38 billion located in the southeastern United States.
Additionally, at March 31, 1997, ATLANTIC had land in planning and under
control for the development of 2,332 units with a total budgeted development
cost of $137.5 million. ATLANTIC's investment in real estate has been financed
through both debt and equity. From inception through March 31, 1997, ATLANTIC
has raised approximately $806.2 million in net equity, primarily through
private and public sales of Shares. Additionally, ATLANTIC had long-term
mortgage debt at March 31, 1997 of approximately $155.4 million which is
secured by certain of the communities acquired. ATLANTIC's $350 million
unsecured line of credit provided the remaining investment capital.
The following table summarizes ATLANTIC's multifamily investment activity
for the three-month period ended March 31, 1997 and for the years ended
December 31, 1996, 1995 and 1994 (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE-MONTH YEAR ENDED DECEMBER 31,
PERIOD ENDED --------------------------
MARCH 31, 1997 1996 1995 1994
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING COMMUNITIES:
Communities......................... 70 70 58 43
Units............................... 19,241 19,241 15,823 11,990
Total expected investment(1)........ $968,081 $959,860 $783,448 $600,880
Cost per unit....................... $50.3 $49.9 $49.5 $50.1
DEVELOPMENT COMMUNITIES:
Starts During Period:
Communities......................... 2 9 6 4
Units............................... 668 2,815 2,214 1,212
Total expected investment(1)........ $42,910 $164,442 $143,822 $64,054
Cost per unit....................... $64.2 $58.4 $65.0 $52.8
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
THREE-MONTH YEAR ENDED DECEMBER 31,
PERIOD ENDED --------------------------
MARCH 31, 1997 1996 1995 1994
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Completions During Period:
Communities ....................... -- 3 2 --
Units.............................. -- 1,046 468 --
Total expected investment(1)....... -- $56,370 $25,462 --
Cost per unit...................... -- $53.9 $54.4 --
Stabilizations During Period:
Communities........................ 1 3 -- --
Units.............................. 408 804 -- --
Total expected investment(1)....... $20,799 $43,004 -- --
Cost per unit...................... $51.0 $53.5 -- --
Under Construction at Period End:
Communities........................ 16 14 8 4
Units.............................. 5,395 4,727 2,958 1,212
Total expected investment(1)....... $335,591 $290,486 $176,740 $63,006
Cost per unit...................... $62.2 $61.5 $59.7 $52.0
Investment to date................. $238,176 $194,587 $94,094 $20,741
ACQUISITIONS:
Communities........................ -- 13 15 40
Units.............................. -- 3,556 3,961 11,307
Total expected investment(1)....... -- $171,731 $182,242 $582,077
Cost per unit...................... -- $48.3 $46.0 $51.5
DISPOSITIONS:
Communities........................ -- 4 2 --
Units.............................. -- 1,184 596 --
Proceeds........................... -- $64,150 $30,934 --
Gain............................... -- $6,732 -- --
</TABLE>
- --------
(1) For operating communities, represents cost through the period end plus
budgeted renovations, if any, as of the period end. For communities under
construction, represents cost through the period end plus additional
budgeted development expenditures as of the period end, which include the
cost of land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period.
In addition to its multifamily investment activity, ATLANTIC developed
extended-stay lodging facilities known as Homestead Village that were sold to
Homestead, a newly formed company, in 1996, as discussed below in "--Liquidity
and Capital Resources--Investing and Financing Activities--Homestead
Transaction". ATLANTIC's investment, at cost, in Homestead Village properties
was $2.6 million at December 31, 1995. ATLANTIC did not begin developing
Homestead Village properties until 1995.
At May 31, 1997, 96.1% of ATLANTIC's portfolio, based upon total expected
investment, was located in ATLANTIC's primary target market cities. These
primary target market cities and submarkets have benefitted substantially in
recent periods from demographic trends, in particular population and job
growth. From July 1993 to July 1995, the population growth rate in ATLANTIC's
primary target market cities (3.8%) exceeded the population growth rate in the
United States as a whole (2.0%), based upon U. S. Census Bureau information.
From 1993 to 1996, the job growth rate in ATLANTIC's primary target market
cities (10.7%) exceeded the job growth rate in the United States as a whole
(8.0%), based upon U. S. Department of Labor Statistics information. As a
result, the demand for multifamily units in ATLANTIC's primary target market
cities has increased. The strong demand for multifamily units has resulted in
an increase in ATLANTIC's rental rates in each multifamily product type in
ATLANTIC's portfolio, even though the shift in ATLANTIC's portfolio
composition to a higher
67
<PAGE>
percentage of moderate income product resulted in a slight overall decrease in
average rental rate per unit. The increase in rental rates has had a favorable
impact on ATLANTIC's operating results. Additionally, ATLANTIC's operating
results have been, and will continue to be, impacted by rental expense levels.
Over the past two years, rental expenses (other than real estate taxes) as a
percentage of rental revenues for ATLANTIC's multifamily communities have
generally remained flat, primarily due to a continual effort by ATLANTIC to
reduce resident turnover, thereby reducing the costs associated with re-
leasing vacated units. Over the next few years, ATLANTIC expects rental
expenses to increase at a rate slightly lower than the expected increases in
rental revenue.
ATLANTIC believes that development of multifamily communities from the
ground up, which are built for long-term ownership and designed to meet broad
renter preferences and demographic trends, will provide a greater source of
long-term cash flow growth in the future than acquisitions. Therefore, while
land prices are favorable, ATLANTIC has acquired and will continue to acquire,
on an unleveraged basis, prudent amounts of land zoned for multifamily
development. ATLANTIC believes its ability to compete is significantly
enhanced relative to other companies because of the REIT Manager's depth of
development and acquisition personnel and presence in local markets combined
with ATLANTIC's access to investment capital.
ATLANTIC's overall results of operations and financial condition for the
first three months of 1997 and for 1996, 1995 and 1994 have been significantly
influenced by this investment activity. Detailed information about this
investment activity, which will significantly influence future operations, is
provided below.
Current Development Activity
At March 31, 1997, ATLANTIC had 5,395 units under construction, representing
a total expected investment cost of $335.6 million. These development
communities are summarized below (dollar amounts in thousands):
<TABLE>
<CAPTION>
TOTAL
NUMBER INVESTMENT EXPECTED AVERAGE
OF UNITS COST TO DATE INVESTMENT(1) % LEASED(2)
-------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Communities under construction
and in lease-up(3)............ 2,628 $162,964 $168,355 55.8%
Other communities under
construction.................. 2,767 75,212 167,236 N/A
----- -------- --------
Total communities under
construction.............. 5,395 $238,176 $335,591
===== ======== ========
</TABLE>
- --------
(1) Represents cost through March 31, 1997 plus additional budgeted
development expenditures as of March 31, 1997, which include the cost of
land, fees, permits, payments to contractors, architectural and
engineering fees and interest and property taxes to be capitalized during
the construction period.
(2) The percentage leased is based on total units upon completion.
(3) A development community is considered in "lease-up" once ATLANTIC begins
leasing completed units.
There are risks associated with ATLANTIC's development and construction
activities which include: development and acquisition opportunities explored
by ATLANTIC may be abandoned; construction costs of a community may exceed
original estimates due to increased materials, labor or other expenses, which
could make completion of the community uneconomical; occupancy rates and rents
at a newly completed community are dependent on a number of factors, including
market and general economic conditions, and may not be sufficient to make the
community profitable; financing may not be available on favorable terms for
the development of a community; and construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs. Development activities are also subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary land-use,
building, occupancy and other required governmental permits and
authorizations. The occurrence of any of the events described above could
adversely affect ATLANTIC's ability to achieve its projected yields on
communities under development or redevelopment.
68
<PAGE>
Acquisition Activity
ATLANTIC completed the acquisition of $171.7 million of operating
communities, representing a total of 3,556 units, during the fifteen-month
period ended March 31, 1997. These acquisitions are summarized below (dollar
amounts in thousands):
<TABLE>
<CAPTION>
TOTAL
EXPECTED ACQUISITION
UNITS INVESTMENT(1) DATE
----- ------------- -----------
<S> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Carolina:
Cameron at Hickory Grove...................... 202 $ 8,392 04/10/96
Greenville, South Carolina:
Cameron Court................................. 234 11,060 04/22/96
Memphis, Tennessee:
Cameron Century Center........................ 420 15,928 10/18/96
Country Oaks.................................. 200 8,484 09/05/96
Raleigh, North Carolina:
Cameron Lake.................................. 196 9,293 11/13/96
Cameron Ridge................................. 228 10,131 10/17/96
Emerald Forest................................ 320 14,680 12/19/96
Washington, D.C.:
West Springfield Terrace...................... 244 16,210 09/30/96
----- --------
Total Mid-Atlantic.......................... 2,044 $ 94,178
----- --------
SOUTH ATLANTIC:
Atlanta, Georgia:
Balmoral Village.............................. 312 $ 19,215 10/22/96
Cameron Pointe................................ 214 14,891 05/30/96
Ft. Lauderdale/West Palm Beach, Florida:
Park Place at Turtle Run...................... 350 15,714 04/22/96
The Pointe at Bayberry Lake................... 308 17,021 05/29/96
Tampa, Florida:
Cameron Bayshore.............................. 328 10,712 12/20/96
----- --------
Total South Atlantic........................ 1,512 $ 77,553
----- --------
Total..................................... 3,556 $171,731
===== ========
</TABLE>
- --------
(1) Represents the initial acquisition cost plus budgeted renovations
identified as of the date of acquisition.
Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the cost of
improvements to bring an acquired community up to standards established for
the market position intended for that community will prove inaccurate, as well
as general investment risks associated with any new real estate investment.
Although ATLANTIC undertakes an evaluation of the physical condition of each
new community before it is acquired, certain defects or necessary repairs may
not be detected until after the community is acquired, which could
significantly increase ATLANTIC's total acquisition costs.
RESULTS OF OPERATIONS
Net earnings for the three-month periods ended March 31, 1997 and 1996 were
$10.2 million and $6.7 million, respectively. Net earnings increased $3.5
million in the three-month period ended March 31, 1997 over the three-month
period ended March 31, 1996. Net earnings for the years ended December 31,
1996, 1995 and 1994 were $38.6 million, $19.6 million and $9.9 million,
respectively. Net earnings increased $19.0 million in 1996 over 1995 and $9.7
million in 1995 over 1994.
69
<PAGE>
Property Operations--Three-Month Period Ended March 31, 1997
At March 31, 1997, ATLANTIC had 19,241 operating multifamily units as
compared to 16,159 operating multifamily units at March 31, 1996. The
increased number of communities in operation resulted in increases in rental
income ($8.9 million in 1997 over 1996), rental expenses ($1.5 million in 1997
over 1996), real estate taxes ($0.7 million in 1997 over 1996), property
management fees ($0.4 million in 1997 over 1996) and depreciation ($1.3
million in 1997 over 1996).
During the period prior to a community being stabilized, the REIT Manager
and the property managers begin implementing expense controls, reconfiguring
the resident mix, supervising renovations and implementing a strategy to
increase rental income. The full benefits of the changes are not reflected
until the communities are stabilized. At March 31, 1997, 19.0% of ATLANTIC's
operating multifamily communities, based on total expected investment cost,
were classified as pre-stabilized as compared to 30.0% at March 31, 1996.
Because ATLANTIC will be completing construction on its current development
portfolio and acquiring additional operating communities in its target market,
ATLANTIC anticipates increases in rental income and property-level expenses in
subsequent periods.
Net cash flow provided by operating activities increased by $4.6 million for
the three-month period ended March 31, 1997 as compared to the same period in
1996 principally due to the increased number of communities in operation.
Property Operations--Years Ended December 31, 1996, 1995 and 1994
At December 31, 1996, ATLANTIC had 19,241 operating multifamily units as
compared to 15,823 operating multifamily units at December 31, 1995 and 11,990
operating multifamily units at December 31, 1994. The increased number of
communities in operation resulted in increases in rental income ($34.1 million
in 1996 over 1995 and $48.6 million in 1995 over 1994), rental expenses ($9.0
million in 1996 over 1995 and $12.6 million in 1995 over 1994), real estate
taxes ($2.7 million in 1996 over 1995 and $4.0 million in 1995 over 1994),
property management fees ($1.1 million in 1996 over 1995 and $1.9 million in
1995 over 1994) and depreciation ($4.9 million in 1996 over 1995 and $7.2
million in 1995 over 1994).
As a result of high levels of acquisitions of operating communities since
inception, 26.7% of ATLANTIC's operating multifamily communities, based on
total expected investment cost, were classified as pre-stabilized at December
31, 1996 as compared to 25.7% at December 31, 1995 and 94.7% at December 31,
1994.
Cash provided by operating activities was $54.4 million in 1996, an increase
of $14.6 million from the 1995 level of $39.7 million. Cash provided by
operating activities in 1995 increased by $16.2 million from the 1994 level.
These increases are primarily the result of the increased number of
communities in operation.
Communities Fully Operating Throughout Both Periods
The following table presents the operating performance of ATLANTIC's 50
"same store" communities that were fully operational throughout the first
three months of 1997 and 1996 and the 34 "same store" communities that were
fully operational throughout 1996 and 1995. Operating expenses and net
operating income have been adjusted for pre-stabilized versus stabilized
accounting differences that result from capitalizing certain costs during the
period after acquisition when a community is being repositioned and is
classified as pre-stabilized and
70
<PAGE>
expensing those costs once repositioning is completed and the community is
classified as stabilized. A summary of the same store communities is as
follows:
<TABLE>
<CAPTION>
1997 COMPARED 1996 COMPARED
TO 1996(1) TO 1995
-------------- -----------------
<S> <C> <C>
PORTFOLIO:
Number of communities.................... 50 34
Number of units.......................... 13,503 9,458
Total expected investment cost (in mil-
lions).................................. $679.1 $496.5
Percentage of ATLANTIC's total portfolio. 70.2% 38.1%
OPERATING PERFORMANCE:
Collections growth....................... 2.42% 2.76%
Operating expense decrease, as adjusted.. -2.43% -0.97%
Net operating income growth, as adjust-
ed...................................... 5.72% 4.88%
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Average physical occupancy................. 94.36% 95.32%
Property operating expense ratio........... 40.05% 39.68%
Average rental rate per unit............... $711 $719
Recurring capital expenditures per unit.... $38 $209
</TABLE>
<TABLE>
<CAPTION>
FIRST THREE MONTHS OF 1997 COMPARED TO FIRST THREE MONTHS
OF 1996
----------------------------------------------------------
AVERAGE AVERAGE COLLECTIONS TOTAL
PHYSICAL PHYSICAL GROWTH SAME STORE ATLANTIC
OCCUPANCY OCCUPANCY (1997 COMPARED COMMUNITIES PORTFOLIO
1997 1996 TO 1996)(1) % BY MARKET % BY MARKET
--------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Caroli-
na..................... 92.69% 96.36% -2.85% 2.27% 5.72%
Greenville, South Caro-
lina(2)................ -- -- -- -- 0.85
Memphis, Tennessee(2)... 91.84 93.40 -4.27 2.58 3.28
Nashville, Tennessee.... 94.42 94.70 0.31 5.09 4.48
Raleigh, North Caroli-
na..................... 95.32 94.40 2.46 2.37 7.88
Richmond, Virginia...... 95.12 97.28 2.53 4.39 5.86
Washington, D.C. ....... 95.51 92.84 4.90 6.83 10.13
----- ----- ----- ------ ------
Total Mid-Atlantic.... 94.27% 94.69% 1.29% 23.53% 38.20%
----- ----- ----- ------ ------
SOUTH ATLANTIC:
Atlanta, Georgia........ 93.20% 93.91% 2.87% 40.78% 28.99%
Birmingham, Alabama..... 93.22 92.31 -1.28 5.77 5.54
Ft. Lauderdale/West Palm
Beach, Florida......... 95.86 95.35 2.49 9.70 10.66
Jacksonville, Florida... 92.20 98.44 -3.96 1.81 6.14
Orlando, Florida........ 95.91 95.65 4.64 6.16 3.21
Tampa/Ft.
Myers/Sarasota,
Florida................ 96.55 95.86 4.25 12.25 7.26
----- ----- ----- ------ ------
Total South Atlantic.. 94.38% 94.62% 2.75% 76.47% 61.80%
----- ----- ----- ------ ------
Totals.............. 94.36% 94.63% 2.42% 100.00% 100.00%
===== ===== ===== ====== ======
</TABLE>
- --------
(1) Compares the three-month period ended March 31, 1997 to the same period in
1996.
(2) ATLANTIC entered this market subsequent to January 1, 1996; therefore,
there are no communities for the same store comparison.
71
<PAGE>
<TABLE>
<CAPTION>
1996 COMPARED TO 1995
-------------------------------------------------------
AVERAGE AVERAGE ANNUAL
ANNUAL ANNUAL COLLECTIONS TOTAL
PHYSICAL PHYSICAL GROWTH SAME STORE ATLANTIC
OCCUPANCY OCCUPANCY (1996 OVER COMMUNITIES PORTFOLIO
1996 1995 1995)(1) % BY MARKET % BY MARKET
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MID-ATLANTIC:
Charlotte, North Caroli-
na..................... 95.92% 95.96% 4.54% 3.09% 6.08%
Greenville, South Caro-
lina(2)................ -- -- -- -- 0.88
Memphis, Tennessee(2)... -- -- -- -- 3.33
Nashville, Tennessee.... 94.62 95.68 1.10 3.66 4.65
Raleigh, North Caroli-
na..................... 95.72 94.64 -0.94 3.22 8.16
Richmond, Virginia...... 94.71 96.17 2.90 3.93 6.10
Washington, D.C. ....... 94.62 94.38 0.37 6.18 10.46
----- ----- ----- ------ ------
Total Mid-Atlantic.... 95.02% 95.32% 1.42% 20.08% 39.66%
----- ----- ----- ------ ------
SOUTH ATLANTIC:
Atlanta, Georgia........ 95.77% 96.31% 4.36% 42.21% 28.22%
Birmingham, Alabama..... 92.25 95.40 -3.06 4.03 5.75
Ft. Lauderdale/West Palm
Beach,
Florida................ 94.72 95.00 0.15 11.35 9.29
Jacksonville, Florida... 97.04 96.25 5.12 2.46 6.35
Orlando, Florida........ 95.06 95.05 3.64 6.72 3.29
Tampa/Ft.
Myers/Sarasota,
Florida................ 95.78 95.24 3.21 13.15 7.44
----- ----- ----- ------ ------
Total South Atlantic.. 95.39% 95.72% 3.06% 79.92% 60.34%
----- ----- ----- ------ ------
Totals.............. 95.32% 95.65% 2.76% 100.00% 100.00%
===== ===== ===== ====== ======
</TABLE>
- --------
(1) Compares the year ended December 31, 1996 to the year ended December 31,
1995.
(2) ATLANTIC entered this market subsequent to January 1, 1995; therefore,
there are no communities for the same store comparison.
At January 1, 1994, ATLANTIC's portfolio consisted of only three pre-
stabilized operating communities and, consequently, comparisons for fully
operational communities between 1995 and 1994 are not meaningful.
Development Dilution
ATLANTIC's development activity is dilutive to net earnings and funds from
operations in the short term, but is expected to add significantly to
ATLANTIC's long-term performance as the developments reach stabilization in
1997 and subsequent years.
During the construction period, the reduction to interest expense resulting
from the capitalization of interest on units under construction is less than
the operating income which could be earned on those expenditures if the
community were complete and earning a stabilized return, thus resulting in
dilution. Essentially, the return on investment during the construction period
is equivalent to ATLANTIC's cost of funds.
The lease-up phase commences when units are placed in service. During the
lease-up phase, ATLANTIC's policy is to expense operating expenses (including
pre-opening marketing expenses) and interest expense which during the
construction period is capitalized. The operating expenses and the interest
expense on such completed units will typically exceed rental revenues, due to
less than break-even occupancy, thus resulting in dilution in the form of a
"lease-up" deficit. These deficits are typically experienced for a period of
two to four months after "first units" are placed in service.
Development dilution begins to decline once occupancy increases and revenues
from completed units exceed the operating expenses and interest expense
associated with such completed units. However, the net
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operating income generated during this pre-stabilized period is less than the
net operating income which would be earned if the community were stabilized.
The time required to achieve stabilization generally ranges from six to twelve
months after completion of construction.
Homestead Convertible Mortgages Interest Income
ATLANTIC began funding the Homestead convertible mortgages in 1997. At March
31, 1997 ATLANTIC had funded $20.0 million of its total funding commitment to
Homestead of $111.1 million. For the three-month
period ended March 31, 1997 ATLANTIC recognized interest income related to
these mortgages of $185,000. The interest income will increase as ATLANTIC
funds the remaining Homestead convertible mortgages in 1997 and early 1998.
The aggregate income recognized on the Homestead convertible mortgages
consists of (i) the interest income recognized at 9% per annum, (ii) the
amortization of the original issue premium which reduces income, (iii) the
amortization of the discount on the conversion feature which increases income,
and (iv) the amortization of the deferred commitment fee which increases
income. ATLANTIC uses the effective interest method to calculate the
amortization of all items associated with the Homestead convertible mortgages.
The effective interest rate on the funded amount is 8.46% per annum for
purposes of calculating net earnings. The amortization of the discount on the
conversion feature and the amortization of the deferred commitment fee are
deducted from net earnings in calculating funds from operations. The effective
interest rate on the funded amount is 7.09% per annum for purposes of
calculating funds from operations.
Interest Expense
The following summarizes ATLANTIC's interest expense (in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Mortgage........................... $ 2,650 $ 2,041 $ 9,484 $ 7,662 $3,363
Line of credit..................... 4,664 4,337 16,947 15,784 6,670
Capitalized interest............... (2,553) (2,036) (10,250) (4,404) (793)
------- ------- -------- ------- ------
Total interest expense......... $ 4,761 $ 4,342 $ 16,181 $19,042 $9,240
======= ======= ======== ======= ======
</TABLE>
Mortgage interest expense increased $0.6 million in the three-month period
ended March 31, 1997 as compared to the same period in 1996. Mortgage interest
expense increased $1.8 million in 1996 as compared to 1995 and $4.3 million in
1995 as compared to 1994. These increases are the result of additional
weighted-average mortgage debt outstanding.
Line of credit interest expense increased $0.3 million in the three-month
period ended March 31, 1997 over the same period in 1996. This increase is
primarily a function of an increase in the average outstanding balance ($260.9
million in 1997 as compared to $203.3 million in 1996), partially offset by a
lower weighted-average daily interest rate (7.10% in 1997 as compared to 7.61%
in 1996). The increase is further offset by a decrease in amortization of debt
issuance costs and other loan-related costs as a result of the write-off of
loan-related costs in the fourth quarter of 1996. Line of credit interest
expense increased $1.2 million in 1996 over 1995 and $9.1 million in 1995 over
1994. The increase in 1996 is primarily a function of an increase in the
average outstanding balance ($204.3 million in 1996 as compared to $178.3
million in 1995) partially offset by a lower weighted-average daily interest
rate (7.39% in 1996 as compared to 7.92% in 1995). The increase in 1995 is
primarily a function of an increase in the average outstanding balance ($178.3
million in 1995 as compared to $65.6 million in 1994) and a higher weighted-
average daily interest rate (7.92% in 1995 as compared to 7.34% in 1994). The
increases were also affected by amortization of issuance costs and other loan-
related costs.
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<PAGE>
The increase in interest expense in the three-month period ended March 31,
1997 over the same period in 1996 was offset by increases in capitalized
interest of $0.5 million. The increases in interest expense in 1996 and 1995
were offset by increases in capitalized interest of $5.8 million in 1996 over
1995 and $3.6 million in 1995 over 1994. These increases in capitalized
interest are the result of ATLANTIC's increased development activity.
REIT Management Fee Paid to Affiliate
The REIT management fee paid by ATLANTIC increased by $0.9 million in the
three-month period ended March 31, 1997 as compared to the same period in
1996. The REIT Management fee paid by ATLANTIC increased by $3.5 million in
1996 over 1995 and $3.2 million in 1995 over 1994. Because the REIT Management
fee fluctuates with the level of ATLANTIC's cash flow calculated before the
REIT Management fee, these increases are expected based upon the larger
increases in revenues than expenses experienced by ATLANTIC. In the future,
interest income recognized on the convertible mortgage notes received by
ATLANTIC pursuant to the funding commitment agreement entered into as part of
the Homestead transaction will not be included in the calculation of the REIT
Management fee to be paid by ATLANTIC. Because this interest income is not
included in cash flow for purposes of calculating the REIT Management fee, the
REIT Management fee calculated as a percentage of ATLANTIC's funds from
operations will decline as the convertible mortgage notes are funded and the
related interest income increases. See "The Merger Transaction" for
information regarding a proposed merger transaction which would result in
ATLANTIC becoming an internally managed REIT with Security Capital remaining
as ATLANTIC's largest shareholder.
Gains on Dispositions and Valuation of Long-Lived Investments
ATLANTIC's strategy is to build its asset base through the development and
acquisition of multifamily communities that will provide long-term growth in
cash flow. ATLANTIC's real estate investments have been made with a view to
effective long-term operation and ownership. ATLANTIC's "asset optimization
strategy" is based on market research and is aimed at optimizing its portfolio
composition. Under this strategy, ATLANTIC may from time to time dispose of
assets that no longer meet its long-term investment objectives and redeploy
the proceeds therefrom, preferably through tax-deferred exchanges, into assets
with better prospects for growth. As a result of this asset optimization
strategy, ATLANTIC disposed of four operating communities aggregating 1,184
units in 1996. A gain was recognized on each disposition with the total gain
aggregating $6.7 million on total proceeds of $67.2 million. ATLANTIC did not
dispose of any communities in the three-month period ended March 31, 1997.
The four communities that were disposed of in 1996 accounted for $3.6
million and $5.2 million of net operating income during 1996 and 1995,
respectively. Each disposition was included in a tax-deferred exchange. At
December 31, 1996, ATLANTIC held a portion of the proceeds from one of these
dispositions aggregating $1.7 million in an interest-bearing escrow account.
These funds were used in the acquisition of a land parcel in January 1997,
completing the tax-deferred exchange. Two communities that ATLANTIC disposed
of in 1995 accounted for $2.4 million of net operating income during 1995.
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by ATLANTIC effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. ATLANTIC did not recognize any losses on the date it adopted
SFAS No. 121.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. As of
March 31, 1997, such investments are carried at cost, which is not in excess
of fair market value and no provisions for possible losses have been made.
ATLANTIC recognized a provision for possible loss of $0.2 million in the
three-month period ended March 31, 1997 and $2.5 million in 1996
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<PAGE>
associated with a community that was being held for sale. ATLANTIC disposed of
this community in April 1997. The sales price approximated ATLANTIC's carrying
value at March 31, 1997. This community accounted for $0.2 million of net
operating income for each of the three-month periods ended March 31, 1997 and
1996. This community accounted for $1.0 million, $1.0 million and $0.5 million
of net operating income for 1996, 1995 and 1994, respectively. This income is
included in ATLANTIC's earnings from operations in those years.
Homestead Transaction
As more fully described under "--Liquidity and Capital Resources--Homestead
Transaction" and "Certain Relationships and Transactions--Homestead
Transaction", ATLANTIC sold its Homestead Village properties (one operating
property and 25 properties under construction or in planning (or the rights to
acquire such properties)) and paid $16.6 million in cash to Homestead on
October 17, 1996 in exchange for 4,201,220 shares of Homestead common stock.
ATLANTIC recognized a gain on the transaction of $2.8 million, net of expenses
of $1.3 million. The Homestead transaction was treated as a sale for financial
accounting purposes, but was treated as a contribution for tax purposes.
Extraordinary Item--Loss on Early Extinguishment of Debt
In December 1996, ATLANTIC replaced its existing secured line of credit with
an unsecured line of credit. Such early extinguishment of debt resulted in the
write-off of unamortized loan costs of $3.9 million and is reflected as an
extraordinary item in the statement of earnings for the year ended December
31, 1996.
ENVIRONMENTAL MATTERS
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each community prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on ATLANTIC's
financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
ATLANTIC considers its liquidity and ability to generate cash from
operations and financings to be adequate and expects it to continue to be
adequate to meet ATLANTIC's development, acquisition, operating, debt service,
Homestead commitment and shareholder distribution requirements.
Investing and Financing Activities
Overview. ATLANTIC's investment activities, which consisted primarily of
acquiring and developing multifamily communities, used approximately $69.4
million and $41.5 million of cash during the first three months of 1997 and
1996, respectively. ATLANTIC's investment activities used approximately $287.4
million, $235.1 million and $390.1 million of cash for 1996, 1995 and 1994,
respectively.
ATLANTIC's financing activities provided net cash flow of $52.1 million and
$29.2 million for the first three months of 1997 and 1996, respectively.
ATLANTIC's financing activities provided net cash flow of $230.9 million,
$195.6 million and $372.6 million for 1996, 1995 and 1994, respectively. No
equity offerings were conducted in the three-month period ended March 31,
1997. Proceeds of $0.4 million were received in the three-month period ended
March 31, 1996. Combined proceeds from equity offerings of $229.1 million in
1996, $205.8 million in 1995 (net of Share repurchases) and $239.7 million in
1994 were the primary source of financing funds. Proceeds from line of credit
borrowings, net of repayments, were $67.3 million and $36.0 million for the
first three months of 1997 and 1996, respectively, and such proceeds were
$38.0 million in 1996, $37.0 million in 1995 and $153.0 million in 1994.
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<PAGE>
1994 Investing and Financing Activities. ATLANTIC's investment strategy in
1994 focused on two components: the acquisition of a substantial base of
existing operating communities to provide operating cash flow and the creation
of an internal development process. During 1994, ATLANTIC acquired 40
operating communities, 31 of which were obtained in two large portfolio
acquisitions. These 40 communities, located in 14 metropolitan areas, added
11,307 units to the portfolio for a total of 11,990 operating units. See the
table of investment activity under "--Overview" above.
ATLANTIC's investment in real estate during 1994 of approximately $600.3
million was financed through a combination of debt and equity. As partial
payment for one of the portfolio acquisitions, ATLANTIC issued $100.0 million
in Shares to the seller of the portfolio and subsequently repurchased certain
of these Shares with proceeds from later equity offerings. Sales of Shares
through a private placement raised an additional $239.7 million. Existing debt
of $107.5 million associated with certain of the communities acquired was
assumed by ATLANTIC. Additionally, ATLANTIC had net borrowings on its line of
credit during 1994 of $153.0 million.
1995 Investing and Financing Activities. In 1995, ATLANTIC acquired existing
communities aggregating 3,961 units and disposed of two communities
aggregating 596 units. Also in 1995, ATLANTIC began construction on 2,214
multifamily units. In the fourth quarter ATLANTIC completed construction on
its first two internally developed multifamily communities, a 270-unit
property in Charlotte, North Carolina and a 198-unit property in Birmingham,
Alabama. See the table of investment activity under "--Overview" above.
During 1995, ATLANTIC's net additional investment in real estate was $257.7
million bringing its total real estate investment at December 31, 1995 to
$888.9 million. Sales of Shares generated the largest source of capital in
1995. ATLANTIC sold $205.8 million of Shares, net of Share repurchases,
through two private placements. In connection with the acquisition of certain
communities in 1995, ATLANTIC assumed $24.7 million in existing debt.
Additional borrowings on its line of credit during 1995 aggregated $37.0
million.
1996 Investing and Financing Activities. In 1996, ATLANTIC acquired
operating communities aggregating 3,556 units and disposed of four communities
aggregating 1,184 units. Also in 1996, ATLANTIC began construction on 2,815
multifamily units. In 1996, ATLANTIC completed construction on three
internally developed multifamily communities (1,046 units), bringing the total
of completed internally developed multifamily communities to five (1,514
units). See the table of investment activity under "--Overview" above.
During 1996, ATLANTIC's net additional investment in real estate was $268.3
million bringing its total real estate investment at December 31, 1996 to
$1.16 billion. Sales of Shares generated the largest source of capital in
1996.
In 1996, ATLANTIC raised net proceeds of $119.1 million from a private
placement of Shares. The private placement, which began in 1995, raised a
total of $249.3 million, net of commissions and other expenses.
ATLANTIC's initial public offering of Shares was completed on October 18,
1996. The proceeds from the sale, net of the underwriters' commissions and
other expenses, were $110.0 million.
In connection with the acquisition of certain communities in 1996, ATLANTIC
assumed $17.9 million in existing debt. Additional borrowings on the line of
credit during 1996 aggregated $38.0 million.
First Quarter 1997 Investing and Financing Activities
ATLANTIC's investment activities during the three-month period ended March
31, 1997, which consisted primarily of acquiring and developing multifamily
communities, used $69.4 million of cash, an increase of $27.8 million over the
three-month period ended March 31, 1996.
ATLANTIC began construction on 668 multifamily units during the three-month
period ended March 31, 1997. ATLANTIC's net additional investment in real
estate at March 31, 1997 was $51.0 million bringing its
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<PAGE>
total real estate investment at cost to $1.21 billion. During the three-month
period ended March 31, 1997, ATLANTIC funded $20.0 million under its funding
commitment agreement with Homestead.
ATLANTIC's financing activities provided net cash flow of $52.1 million for
the three-month period ended March 31, 1997 and $29.2 million for the three-
month period ended March 31, 1996. In 1997, ATLANTIC's financing activities
consisted primarily of borrowings on its line of credit of $67.3 million, net
of repayments. In 1996, borrowings on the line of credit of $36.0 million net
of repayments were the primary source of financing funds.
ATLANTIC completed an underwritten public offering of 4,000,000 Shares on
April 10, 1997 which generated $80.5 million of proceeds, net of commissions
and offering expenses and closed on the overallotment option on May 14, 1997,
raising additional net proceeds of $1.5 million from the sale of 77,200
Shares.
Homestead Transaction. On October 17, 1996, ATLANTIC sold its moderate-
priced, purpose-built, extended-stay lodging facilities known as Homestead
Village properties to Homestead. In the transaction, ATLANTIC sold one
operating property and 25 properties under construction or in planning (or the
rights to acquire such properties) and paid $16.6 million in cash (the
"Homestead Assets"). In addition, ATLANTIC entered into a funding commitment
agreement to provide secured financing of up to $111.1 million to Homestead
for purposes of completing the development and construction of the properties
sold in the transaction. The Homestead transaction was treated as a sale for
financial accounting purposes, but was treated as a contribution for tax
purposes.
The transaction resulted in ATLANTIC receiving 4,201,220 shares of common
stock of Homestead in exchange for the Homestead Assets and 2,818,517
warrants, each to purchase one share of Homestead common stock at $10.00 per
share, in exchange for entering into the funding commitment agreement. On
November 12, 1996, ATLANTIC distributed the Homestead common stock and
warrants to its shareholders of record on October 29, 1996. ATLANTIC
shareholders received 0.110875 shares of Homestead common stock and 0.074384
Homestead warrants per Share. ATLANTIC will receive up to $98.0 million of
convertible mortgage notes from Homestead in exchange for funding up to $111.1
million under the funding commitment agreement. The difference between the
amounts funded and the convertible mortgage notes received of $13.1 million
(assuming full funding of the funding commitment) represents a mortgage note
premium that will be amortized as a reduction to interest income over the term
of the convertible mortgage notes.
ATLANTIC realized a gain of $2.8 million, after deducting expenses
associated with the transaction, representing the excess of the value of the
Homestead common stock received over the recorded basis of the Homestead
Assets. The Homestead warrants received represent a funding commitment fee
which has been valued at $6.5 million. The conversion feature of the
convertible mortgage notes has been valued at $6.9 million (assuming full
funding of the funding commitment). These deferred credits will be amortized
as an increase to interest income over the term of the convertible mortgage
notes. ATLANTIC intends to fund this commitment through cash on hand,
borrowings on its line of credit and sales of securities.
The convertible mortgage notes received from Homestead will bear interest at
9.0% per annum, will be due October 2006, will not be callable until 2001 and
will be convertible commencing March 31, 1997 at the option of the holder into
one share of Homestead common stock for every $11.50 of principal amount
outstanding. Upon full funding of ATLANTIC's convertible mortgage notes, its
conversion rights would represent a 15.35% ownership in Homestead (assuming no
further equity offerings by Homestead, conversion of all convertible mortgage
notes and exercise of all outstanding warrants). The effective yield on the
convertible mortgage notes, assuming conversion of all convertible mortgage
notes and exercise of all outstanding warrants, is estimated to be
approximately 8.46%, after giving effect to the mortgage note premium, the
funding commitment fee and the conversion value of the convertible mortgage
notes. At December 31, 1996, no funds had been advanced pursuant to the
funding commitment agreement and there were no convertible mortgage notes
outstanding. ATLANTIC advanced $52.0 million under the funding commitment
agreement through June 27, 1997 and $45.9 million of mortgage notes was
outstanding on such date.
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<PAGE>
ATLANTIC will deduct from net earnings the accretion of both the funding
commitment fee and the conversion value of the convertible mortgage notes in
calculating funds from operations. Therefore, the effective yield on the
convertible mortgage notes for purposes of calculating funds from operations
will be approximately 7.09% as compared to 8.46% for purposes of calculating
net earnings.
Line of Credit. ATLANTIC obtained a $200 million secured line of credit from
MGT, as agent for a group of lenders, in June 1994. In June 1996, the line of
credit was increased to $350 million. On December 18, 1996, ATLANTIC obtained
a $350 million unsecured line of credit agreement from MGT that replaced the
previous secured line of credit. Borrowings on the unsecured line of credit
bear interest at prime or, at ATLANTIC's option, LIBOR plus a margin ranging
from 1.0% to 1.375% (currently 1.375% as compared to 1.5% under the previous
agreement) depending on ATLANTIC's debt rating. ATLANTIC currently pays a
commitment fee on the average unfunded line of credit balance of 0.1875%. The
commitment fee on the average unfunded line of credit balance will range from
0.125% to 0.25% per annum, depending on the amount of undrawn commitments. The
line of credit matures December 1998 and may be extended for one year with the
approval of MGT and the other participating lenders. The line of credit
agreement contains cross-default provisions with respect to defaults relating
to in excess of $25.0 million of ATLANTIC's outstanding debt.
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit, effectively mitigating a portion of its variable interest rate
exposure. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed interest rate of 7.46% on the $100 million of
borrowings through December 17, 1996 and 7.335% thereafter. A swap agreement
with MGT took effect upon the expiration of the prior swap agreement on
February 5, 1997 and provides for an interest rate of 7.325% on $100 million
of borrowings through February 5, 1998. ATLANTIC paid $0.1 million and $0.3
million more in interest than it received under the swap agreement during the
three-month period ended March 31, 1997 and the year ended December 31, 1996,
respectively. ATLANTIC is exposed to credit loss in the event of non-
performance by the swap counterparty; however, ATLANTIC believes the risk of
loss is minimal.
All debt incurrences under the line of credit are subject to certain
covenants as more fully described in the loan agreement. Specifically,
distributions for the preceding four quarters, excluding the Homestead
Distribution, may not exceed 95% (97% for distributions made before December
31, 1996) of ATLANTIC's funds from operations (as defined in the credit
agreement) for the preceding four quarters. ATLANTIC is in compliance with all
such covenants.
As of June 27, 1997, $278.8 million of borrowings were outstanding under the
line of credit.
Mortgage Debt. At March 31, 1997, ATLANTIC had approximately $155.4 million
of mortgages payable consisting of approximately $34.0 million of fixed rate
conventional mortgage debt and approximately $121.4 million of mortgages that
secure ten tax-exempt bond issues. This long-term mortgage debt, which is
substantially fully amortizing, has a weighted-average interest rate of 6.97%
and maturity dates ranging from September 1998 to March 2029, with an average
maturity of 24.2 years. This long-term mortgage debt provides ATLANTIC with
favorable and conservative financial leverage on its investment in communities
associated with such debt.
Nine of ATLANTIC's ten tax-exempt bond issues have variable interest rates.
All of the tax-exempt bond issues are included in a credit enhancement
agreement with FNMA. Under the agreement with FNMA, ATLANTIC makes monthly
principal payments, based upon a 30-year amortization, into a principal
reserve account. To mitigate the variable interest rate exposure associated
with these bond issues, ATLANTIC has entered into swap agreements. Under these
swap agreements, ATLANTIC pays and receives interest on the aggregate
principal amount of the underlying bonds outstanding, net of the amount held
in the principal reserve account. These swap agreements effectively result in
ATLANTIC paying interest at a fixed rate of 6.63% on these nine tax-exempt
bond issues.
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<PAGE>
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS OF FIXED
BONDS TERM INTEREST RATE(1) ISSUER
---------- ---- ---------------- ------
<S> <C> <C> <C>
$23.1 million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6 million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of New York
5.0 million March 1996 to March 2006 6.21 Morgan Guaranty Trust Company of New York
15.5 million August 1996 to August 2006 6.50 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate.......... 6.63%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
To the extent the deposits in the principal reserve account with FNMA have
not been used to redeem any of the outstanding bonds, ATLANTIC pays interest
at the variable rates as provided by the mortgage agreements on that portion
of bonds outstanding which is equivalent to the balance in the principal
reserve fund ($1.4 million at March 31, 1997).
The credit enhancement agreement with FNMA is effectively cross-
collateralized with respect to the $207.5 million of communities pledged under
the agreement at March 31, 1997.
ATLANTIC's mortgages payable generally contain covenants common to this type
of borrowing. ATLANTIC was in compliance with all such covenants at March 31,
1997.
Scheduled Debt Maturities
As of March 31, 1997, approximate principal payments due during each of the
years in the five-year period ending December 31, 2001 and thereafter are as
follows (in thousands):
<TABLE>
<CAPTION>
MORTGAGES LINE OF
PAYABLE CREDIT TOTAL
--------- -------- --------
<S> <C> <C> <C>
1997.......................................... $ 1,165 $ -- $ 1,165
1998.......................................... 7,136 295,250 302,386
1999.......................................... 1,577 -- 1,577
2000.......................................... 3,554 -- 3,554
2001.......................................... 1,812 -- 1,812
Thereafter.................................... 140,174 -- 140,174
-------- -------- --------
$155,418 $295,250 $450,668
======== ======== ========
</TABLE>
ATLANTIC has balloon payments of $5,539,000 and $5,556,000 due in 2002 and
2003, respectively.
Commitments
At May 31, 1997, ATLANTIC had 5,079 units under construction with a total
budgeted development cost of $320.8 million of which $85.6 million was
unfunded. In addition, ATLANTIC owned multifamily developments in planning at
May 31, 1997 aggregating 1,224 units located in various target market cities
with a total budgeted development cost of $80.4 million. ATLANTIC's
multifamily developments under control at May 31, 1997 aggregated 3,830 units
with a total budgeted development cost of $249.2 million. The foregoing
developments are subject to a number of conditions and ATLANTIC cannot predict
with certainty that any of them will be consummated.
At May 31, 1997, ATLANTIC had $6.1 million of budgeted capital expenditures
(major renovations, replacements or improvements with a substantial expected
economic life) for the remainder of 1997. At June 27, 1997, ATLANTIC had $59.1
million remaining to be funded under its funding commitment agreement with
Homestead.
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ATLANTIC expects to finance construction, development and acquisition of
multifamily communities primarily with cash on hand, borrowings under its line
of credit and cash from future securities offerings. At June 27, 1997,
ATLANTIC had $278.8 million of borrowings outstanding on its $350 million
unsecured line of credit. After it has achieved a substantial equity base,
ATLANTIC intends to arrange fully amortizing, fixed rate, 15-year to 25-year
unsecured debt, such as the Notes, to finance additional acquisitions and
developments. ATLANTIC believes that its current conservative ratio of long-
term debt to total long-term undepreciated book capitalization (which was
16.9% at March 31, 1997 on an historical basis and 25.5% on a pro forma basis)
provides considerable flexibility to prudently increase its capital base by
utilizing long-term debt as a financing tool in the future. Long-term
undepreciated book capitalization is defined as the sum of long-term debt and
shareholders' equity after adding back accumulated depreciation.
Distributions
ATLANTIC's current distribution policy is to pay quarterly cash
distributions to shareholders based upon what it considers to be a reasonable
percentage of cash flow. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, quarterly cash distributions will be higher than quarterly
earnings, resulting in a reduction to shareholders' equity.
Cash distributions paid on Shares in the three-month period ended March 31,
1997 and the years ended December 31, 1996, 1995 and 1994 were $0.39 per
Share, $1.65 per Share, $1.60 per Share and $1.20 per Share, respectively.
Additionally in 1996, ATLANTIC made the Homestead Distribution, which was
valued at $58.2 million.
ATLANTIC paid a quarterly cash distribution of $0.42 per Share in each of
the first three quarters of 1996. On November 12, 1996, the Homestead
Distribution was made to shareholders of record on October 29, 1996. On
December 16, 1996, in light of the Homestead transaction and ATLANTIC's
initial public offering, ATLANTIC paid a reduced fourth quarter cash
distribution of $0.39 per Share to shareholders of record on December 2, 1996.
ATLANTIC announces the following year's projected annual distribution level
after the Board's annual budget review and approval in December of each year.
At its December 19, 1996 meeting, the Board announced a projected annual
distribution level of $1.56 per Share for 1997 and declared a distribution of
$0.39 per Share for the first quarter of 1997, which was paid on February 19,
1997. On April 22, 1997, the Board declared a distribution of $0.39 per Share
which was paid on May 27, 1997. The payment of distributions is subject to the
discretion of the Board and is dependent upon the financial condition and
operating results of ATLANTIC.
Funds from Operations
Funds from operations represents ATLANTIC's net earnings computed in
accordance with GAAP, excluding gains (or losses) from real estate
transactions, provisions for possible losses, extraordinary items and real
estate depreciation. On January 1, 1996, ATLANTIC adopted NAREIT's revised
definition of funds from operations. Under this more conservative definition,
loan cost amortization is not added back to net earnings in determining funds
from operations. For comparability, funds from operations for the periods
prior to January 1, 1996 give effect to the revised definition.
In 1996, ATLANTIC sold its Homestead Assets to Homestead, as more fully
described above under "--Homestead Transaction". Management believes that
funds from operations for 1996 and 1995 should be adjusted to reflect the
effects of the Homestead transaction on results of operations in order to be
comparable. Accordingly, the table below also presents pro forma funds from
operations, which have been calculated as if the Homestead transaction had
occurred on January 1, 1995. ATLANTIC did not own any Homestead properties in
1994 and, therefore, 1994 funds from operations have not been adjusted.
Management believes that the pro forma funds from operations information
presented below provides a more meaningful comparison of 1996 and
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1995; however, the pro forma funds from operations information is unaudited,
does not give effect to or adjust for any other events (such as subsequent
acquisitions and dispositions of communities or subsequent sales of Shares),
and is not necessarily indicative of what actual funds from operations would
have been if the Homestead transaction had occurred on January 1, 1995.
Funds from operations and pro forma funds from operations were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings................. $ 10,178 $ 6,650 $ 38,629 $ 19,639 $ 9,926
Add (Deduct):
Depreciation............... 6,132 4,804 20,824 15,925 8,770
Gain on disposition of real
estate.................... -- -- (6,732) -- --
Gain on sale of Homestead
Assets.................... -- -- (2,839) -- --
Provision for possible loss
on investments............ 200 -- 2,500 -- --
Amortization of discount on
conversion feature and
deferred commitment fee
related to the Homestead
Convertible Mortgages..... (20) -- -- -- --
Extraordinary item-loss on
early extinguishment of
debt...................... -- -- 3,940 -- --
-------- -------- -------- -------- --------
Funds from operations........ 16,490 11,454 56,322 35,564 18,696
-------- -------- -------- -------- --------
Add (deduct) pro forma
adjustments relating to the
sale of Homestead:
Reduction in rental
income(1)................. -- -- (424) -- --
Reduction in rental
expenses(1)............... -- -- 173 -- --
Increase in interest
expense(2)................ -- (850) (2,739) (3,448) --
Other, net................. -- 12 34 59 --
REIT Management fee
effect(3)................. -- 134 475 542 --
-------- -------- -------- -------- --------
Total pro forma
adjustments............. -- (704) (2,481) (2,847) --
-------- -------- -------- -------- --------
Pro forma funds from
operations.................. 16,490 10,750 53,841 32,717 18,696
Cash distributions paid...... (14,778) (11,667) (53,064) (35,119) (14,648)
-------- -------- -------- -------- --------
Excess (deficit) of pro forma
funds from operations over
cash distributions.......... $ 1,712 $ (917) $ 777 $ (2,402) $ 4,048
======== ======== ======== ======== ========
Weighted-average Shares
outstanding (as adjusted for
reverse Share split)........ 37,892 27,777 32,028 21,944 12,227
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Represents the reduction in rental income and rental expenses that would
have occurred had the Homestead property that commenced operations in 1996
been sold as of January 1, 1995.
(2) Represents the increase in interest expense due to (i) the reduction in
capitalized interest that would have resulted from the sale of the
Homestead Village properties under development and (ii) the increased
borrowings necessary to fund the cash payment to Homestead upon closing of
the Homestead transaction, as if these two items had occurred on January
1, 1995.
(3) Represents the decrease in REIT Management fee that would have resulted
from the pro forma adjustments.
Funds from operations represents net earnings computed in accordance with
GAAP, excluding gains (or losses) from real estate transactions, provisions
for possible losses, extraordinary items and real estate depreciation.
ATLANTIC believes that funds from operations is helpful to the reader in
understanding the performance of an equity REIT and will enhance the reader's
comprehension of ATLANTIC's results of operations and cash flows presented in
the financial statements and other data in this document. Funds from
operations should not be considered as an alternative to net earnings or any
other GAAP measurement of performance as an indicator of ATLANTIC's operating
performance or as an alternative to cash flows from
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operating, investing or financing activities as a measure of liquidity. On
January 1, 1996, ATLANTIC adopted NAREIT's revised definition of funds from
operations. Under this more conservative definition, loan cost amortization is
not added back to net earnings in determining funds from operations. For
comparability, funds from operations for the periods prior to January 1, 1996
give effect to the revised definition. The funds from operations measure
presented by ATLANTIC, while consistent with the NAREIT definition, will not
be comparable to similarly titled measures of other REITs which do not compute
funds from operations in a manner consistent with ATLANTIC. Funds from
operations is not intended to represent cash made available to shareholders.
Cash distributions paid to shareholders is presented in the table above.
REIT Management Agreement
ATLANTIC has a REIT management agreement (the "REIT Management Agreement")
pursuant to which the REIT Manager provides management services to ATLANTIC.
All officers of ATLANTIC are employees of the REIT Manager and ATLANTIC
currently has no employees. The REIT Manager provides both strategic and day-
to-day management of ATLANTIC, including research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, legal and accounting services.
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow as defined in the REIT Management Agreement, payable monthly.
Cash flow is calculated by reference to ATLANTIC's cash flow from operations
plus (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred
at the request of the independent Directors of ATLANTIC (of which there were
none in the periods reported), and (iii) 33% of any interest paid by ATLANTIC
on convertible subordinated debentures (of which there were none in the
periods reported); and after deducting (i) regularly scheduled principal
payments (excluding prepayments or balloon payments) for debt with
commercially reasonable amortization schedules, (ii) assumed principal and
interest payments on senior unsecured debt treated as having regularly
scheduled principal and interest payments like a 20-year level-payment, fully
amortizing mortgage (of which there were none in the periods reported) and
(iii) distributions actually paid with respect to any non-convertible
preferred stock (of which there were none in the periods reported). Cash flow
does not include (i) realized gains or losses from dispositions of
investments, (ii) interest income from cash equivalent investments and the
Homestead convertible mortgage notes and dividend and interest income from
Atlantic Development Services, (iii) provisions for possible losses on
investments and (iv) extraordinary items.
The REIT Manager also receives a fee of 0.20% per year on the average daily
balance of cash equivalent investments. The REIT Management fee aggregated
$3.0 million for the three-month period ended March 31, 1997 and $10.4
million, $6.9 million and $3.7 million for the years ended December 31, 1996,
1995 and 1994, respectively.
Total real estate operating, interest, general and administrative costs will
increase due to ATLANTIC's larger asset size, as well as unforeseen changes
that may occur. REIT Management fees paid by ATLANTIC will increase if cash
flow of ATLANTIC, as defined in the REIT Management Agreement, increases,
including such increases that may relate to increases in ATLANTIC's assets.
ATLANTIC does not expect its other operating costs and expenses to increase
except as a result of inflation, market conditions or other factors over which
the REIT Manager has no control. Operating costs for particular items,
however, may be increased if they are expected to result in greater decreases
in other expenses or increases in revenues from ATLANTIC's assets.
ATLANTIC must reimburse the REIT Manager for third-party and out-of-pocket
expenses relating to travel, transaction costs and similar costs relating to
the acquisition, development or disposition of assets or the obtaining of
financing for ATLANTIC and its operations. The REIT Manager will pay all of
its own salary and other overhead expenses. ATLANTIC will not have any
employee expense; however, it will pay all of the third-party costs related to
its normal operations, including legal, accounting, travel, architectural,
engineering, shareholder relations, independent Director fees and similar
expenses, property management and similar fees paid on behalf of ATLANTIC, and
travel expenses incurred in seeking financing, community acquisitions,
community
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sales and similar activities on behalf of ATLANTIC and in attending ATLANTIC
Board, committee and shareholder meetings. Under the REIT Management
Agreement, the REIT Manager or any of its affiliates are not precluded from
rendering services to other investors, including REITs, even if such investors
compete with ATLANTIC. The REIT Manager is owned by ATLANTIC's largest
shareholder and, consequently, the REIT Manager has no intention of rendering
services to investors who compete with ATLANTIC.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to
a determination by the independent Directors that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. Each of ATLANTIC and the REIT Manager may terminate the
REIT Management Agreement on 60 days' notice. Because of the year-to-year
nature of the agreement, its maximum effect on ATLANTIC's results of
operations cannot be predicted, other than that REIT Management fees will
generally increase or decrease in proportion to cash flow increases or
decreases.
On March 24, 1997, Security Capital and ATLANTIC entered into the Merger
Agreement. Pursuant to the Merger Agreement, Security Capital will cause the
REIT Manager and SCG Realty Services to be merged into a newly formed
subsidiary of ATLANTIC. The REIT Management Agreement will be terminated upon
closing of the Merger. As a result of the Merger, the employees of the REIT
Manager and SCG Realty Services will become employees of ATLANTIC. See "The
Merger Transaction" for a more complete description of the Merger.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following policies are in effect for ATLANTIC and the REIT Manager.
These policies will continue in effect after the consummation of the Merger.
To the extent these policies refer to the REIT Manager, they will be changed
to include ATLANTIC or eliminated, as appropriate.
The Board reserves the right to make exceptions to ATLANTIC's policies
described below for transactions when it believes that the transaction is in
the best long-term interests of ATLANTIC and its shareholders. The Board may
amend or revise ATLANTIC's policies from time to time without a vote of the
shareholders of ATLANTIC.
INVESTMENT POLICIES
Prospective community investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for long-term growth in cash flow. ATLANTIC's
investment decisions are based upon the expected contribution of the community
to long-term cash flow growth on an unleveraged basis. The expected economic
contribution is based on an evaluation of a community's stabilized operations,
including an estimate of all cash revenues from leases and other revenue
sources, minus expenses incurred in operating the community (including real
estate taxes, insurance, maintenance, turnover costs (such as carpet and
appliance replacement), personnel costs and utility charges, but excluding
depreciation, debt service and amortization of loan costs) and a reserve for
capital expenditures.
It is ATLANTIC's policy to generally limit its investments such that (i) no
more than 10% of its assets are invested in land held for development other
than land under development or where development is in planning, (ii) ATLANTIC
will not be treated as an investment company under the Investment Company Act
of 1940 and (iii) ATLANTIC will not invest in mortgage loans, other than
mortgage loans to third-party owner/developers in connection with the
development of multifamily communities that are contractually required to be
sold to ATLANTIC upon completion or convertible mortgage loans to Homestead or
mortgage loans to entities in which ATLANTIC owns a substantial majority of
the economic interest and other than convertible mortgage loans where the
Board believes that such loans are in the best long-term interests of ATLANTIC
and its shareholders.
ATLANTIC's strategy includes the development of industry-leading, moderate
income multifamily communities designed for the largest renter groups. Over
the long term, ATLANTIC believes that development will contribute as much, or
more, to its earnings growth than acquisitions.
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While the current policy of ATLANTIC is to make equity investments in
multifamily communities exclusively, ATLANTIC may invest in other real estate
interests consistent with its qualification as a REIT. A change in this policy
could occur, for example, if ATLANTIC concludes that it may benefit from the
cash flow or any appreciation in the value of the community arising through
convertible mortgage investment.
Subject to the gross income and asset tests necessary for REIT
qualification, ATLANTIC may also invest in securities of other entities
engaged in real estate activities or securities of other issuers. See "Federal
Income Tax Considerations--Taxation of ATLANTIC". ATLANTIC does not currently
intend to invest in the securities of other issuers except in connection with
acquisitions of indirect interests in communities (normally, general or
limited partnership interests in special purpose partnerships controlled by
ATLANTIC and owning multifamily communities and except for preferred stock of
entities in which ATLANTIC has a substantial majority of the economic
interest).
FINANCING POLICIES
ATLANTIC does not intend to incur long-term, floating rate debt other than
in connection with property acquisitions in which the debt assumed is
impracticable to prepay or is tax-exempt debt. Because its assets are largely
long-term, ATLANTIC's debt is expected to be unsecured long-term, fixed rate,
fully amortizing debt, such as the Notes. ATLANTIC has an unsecured line of
credit for the purpose of facilitating investment in developments and
acquisitions as well as for working capital. ATLANTIC may also determine to
issue securities senior to the Shares, including preferred stock and debt
securities (either of which may be convertible into Shares or be accompanied
by warrants to purchase Shares), such as the Notes and the Series A Preferred
Shares. ATLANTIC's financing policies are to replace line of credit borrowings
with the proceeds of equity offerings or unsecured long-term, fixed rate,
fully amortizing debt.
The proceeds of any borrowings by ATLANTIC may be used to pay distributions,
to provide working capital, to pay existing indebtedness or to finance
acquisitions, expansions or development of new multifamily communities.
CONFLICT OF INTEREST POLICIES
ATLANTIC does not intend to engage in principal transactions with officers
and Directors or to engage independent Directors to provide services to
ATLANTIC. In addition, transactions with the REIT Manager and its affiliates
are significantly restricted and must be reviewed and approved by a majority
of independent Directors. Transactions with the REIT Manager and SCG Realty
Services present a potential conflict of interest due to Security Capital's
ownership of 51.3% of ATLANTIC's outstanding Shares. In addition, future
services provided pursuant to the Administrative Services Agreement present a
similar potential conflict of interest. See "The Merger Transaction--
Relationship with Security Capital After the Merger--Administrative Services
Agreement". ATLANTIC will not borrow from or make loans to affiliates, other
than mortgage loans to entities in which ATLANTIC owns a substantial majority
of the economic interest, convertible mortgage loans to Homestead or
convertible mortgage loans where the Board believes that such loans are in the
best long-term interests of ATLANTIC and its shareholders. With a view to
resolving potential conflicts of interest and protecting the interests of
ATLANTIC's shareholders against such possible conflicts, ATLANTIC's Charter
requires that a majority of the Board be independent Directors.
POLICIES APPLICABLE TO THE REIT MANAGER AND OFFICERS AND DIRECTORS OF ATLANTIC
The REIT Manager has agreed in writing not to engage in any principal
transaction with ATLANTIC, including but not limited to purchases, sales or
leases of communities or borrowing or lending of funds, except for
transactions approved by a majority of the independent Directors not otherwise
interested in such transaction as being fair and reasonable to ATLANTIC and on
terms and conditions not less favorable to ATLANTIC than those available from
unaffiliated third parties. The REIT Manager and ATLANTIC have agreed to waive
this
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prohibition as it relates to the Merger. In addition to the requirements
described above, ATLANTIC will not engage in such transactions unless the
independent Directors believe that any such transaction is in the long-term
best interests of ATLANTIC and its shareholders. The sole activity of the REIT
Manager is advising ATLANTIC.
The REIT Management Agreement permits affiliates of the REIT Manager to
provide property management and other services to ATLANTIC for compensation.
The fees charged for such services must be comparable to fees that would be
charged by unaffiliated, qualified third parties. Any property management fees
are reviewed annually by the Board and must be approved by a majority of the
independent Directors.
ATLANTIC does not intend to issue options or warrants to the REIT Manager or
its employees; however, in the event that the Merger is approved, ATLANTIC
intends to adopt an employee incentive plan under which options may be granted
to employees, subject to Board and shareholder approval. See "The Merger
Transaction--Long-Term Incentive Plan".
Under Maryland law (where ATLANTIC is incorporated), each Director is
obligated to offer to ATLANTIC any opportunity (with certain limited
exceptions) which comes to him or her and which ATLANTIC could reasonably be
expected to have an interest in developing. In addition, under Maryland law, a
contract or other transaction between ATLANTIC and a Director or between
ATLANTIC and another corporation or entity in which a Director of ATLANTIC is
a director or has a material financial interest is not void or voidable solely
because of such interest or the presence of the Director at the meeting at
which the contract or transaction is approved or the Director's vote in favor
thereof, if (a) the contract or transaction is approved or ratified, after
disclosure of the common directorship or interest, by the affirmative vote of
a majority of disinterested Directors, even if the disinterested Directors
constitute less than a quorum, or by a majority of the votes cast by
disinterested stockholders, or (b) the contract or transaction is fair and
reasonable to ATLANTIC.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
ATLANTIC may, but does not presently intend to, make investments other than
as previously described. All investments will be primarily related to
multifamily communities and the management and development thereof. The Board
has authority to reclassify unissued Shares into senior securities, to offer
Shares or other securities and, subject to certain restrictions, to repurchase
or otherwise reacquire Shares or any other securities and may engage in such
activities in the future. ATLANTIC's policy is not to make loans to its
officers or directors or to the REIT Manager; however, in the event that the
Merger is approved, ATLANTIC may (i) adopt an employee incentive plan, under
which loans may be made to employees to purchase Shares, subject to Board and
shareholder approval, and (ii) make relocation and other loans to employees,
subject to Board approval. See "The Merger Transaction--Long-Term Incentive
Plan". ATLANTIC may in the future make loans to partnerships and joint
ventures in which it participates in order to meet working capital needs.
ATLANTIC has not engaged in trading, underwriting or agency distribution or
sale of securities of other issuers and does not intend to do so. ATLANTIC
does not intend to engage in the purchase or sale of investments (other than
acquisition or disposition of communities in accordance with the REIT rules
and ATLANTIC's investment policies) and may on a selected basis in the future
offer securities in exchange for communities. ATLANTIC intends to make annual
and quarterly reports to shareholders. The annual reports will contain audited
financial statements.
At all times, ATLANTIC intends to make investments in such a manner as to be
consistent with the requirements of the Code for ATLANTIC to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Board determines that it is no longer in the best
interests of ATLANTIC to qualify as a REIT.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
In addition to the transactions with affiliates described elsewhere in this
Prospectus, ATLANTIC has entered into the following transactions:
REIT MANAGEMENT AGREEMENT
Pursuant to the REIT Management Agreement, the REIT Manager assumed the day-
to-day management of ATLANTIC. The REIT Manager is owned by Security Capital,
which currently beneficially owns 51.3% of the outstanding Shares. The REIT
Manager's sole business and principal occupation since its formation in
October 1993 is advising ATLANTIC. The services provided or coordinated by the
REIT Manager include strategic and day-to-day management, research, investment
analysis, acquisition and due diligence, multifamily community development,
asset management, capital markets, asset disposition, legal and accounting
services. All such services are included in the REIT Management fee, including
capital markets and development services, which most REITs capitalize (or, in
the case of capital markets, deduct from proceeds). The REIT Management fee is
paid monthly and was $3.0 million for the three-month period ended March 31,
1997 and $10.4 million for the year ended December 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--REIT
Management Agreement". See "The Merger Transaction" for a description of an
agreement that ATLANTIC has entered into with Security Capital to merge the
REIT Manager and SCG Realty Services into a newly formed subsidiary of
ATLANTIC in exchange for Shares. The REIT Management Agreement will be
terminated upon closing of the Merger.
SECURITY CAPITAL INVESTOR AGREEMENT
ATLANTIC and Security Capital are parties to an Investor Agreement, which
required Security Capital to purchase $21.5 million of Shares, subject to
certain conditions. The Investor Agreement, among other things, requires
ATLANTIC to obtain Security Capital's approval of (i) the annual operating
budget and substantial deviations therefrom, (ii) contracts for investment
management, property management or leasing services or that contemplate annual
payments in excess of $100,000 and (iii) acquisitions or dispositions in a
single transaction or a group of related transactions where the purchase or
sale price exceeds $5.0 million. The Investor Agreement also provides that, so
long as Security Capital beneficially owns at least 10% of the outstanding
Shares, ATLANTIC is prohibited from increasing the number of members of the
Board to more than seven. Security Capital is entitled to designate one or
more persons to be nominated for election to the Board, and ATLANTIC is
obligated to use its best efforts to cause the election of such persons, as
follows: (i) so long as Security Capital Group owns at least 10%, but less
than 20%, of the outstanding Shares, it is entitled to nominate two persons;
and (ii) so long as Security Capital owns at least 20% of the outstanding
Shares, it is entitled to nominate three persons. See "The Merger
Transaction--Relationship with Security Capital After the Merger" for a
description of the Amended and Restated Investor Agreement which will replace
the current Investor Agreement upon closing of the Merger.
SHAREHOLDERS' AGREEMENT
To facilitate ATLANTIC's acquisition of certain communities from Laing,
Security Capital granted Laing certain rights to require Security Capital to
purchase Laing's Shares at pre-agreed prices. ATLANTIC assumed Security
Capital's first put obligation for 2,500,000 Shares and on March 31, 1995
purchased such Shares from Laing at $22.00 per Share. In exchange for
ATLANTIC's assumption of the first put obligation, Security Capital purchased
$94.8 million of Shares at $22.00 per Share from ATLANTIC in a private
offering. In November 1995, ATLANTIC assumed Security Capital's second put
obligation for 1,250,000 Shares at $23.136 per Share. In exchange for
ATLANTIC's assumption of the second put obligation, Security Capital purchased
1,250,000 Shares at a price of $23.136 per Share and purchased an additional
$21.1 million of Shares at $23.00 per Share in a private offering. Security
Capital's purchase under the third put obligation of 1,250,000 Shares
(representing all Shares owned by Laing) at $24.53 per Share occurred on July
1, 1996.
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PROPERTY MANAGEMENT COMPANY
Commencing May 12, 1994, SCG Realty Services, an affiliate of the REIT
Manager, began providing property management services for certain of
ATLANTIC's communities. The agreements terminate September 30, 1997, subject
to earlier termination by ATLANTIC on 30 days' notice, is renewable annually
upon approval of ATLANTIC's independent Directors and contemplates a fee to
SCG Realty Services of 3.5% of community revenues for communities located in
Atlanta and Washington, D.C. markets and 3.75% of community revenues for all
other communities, paid monthly, which was $1.3 million for the three-month
period ended March 31, 1997 and $4.2 million for the year ended December 31,
1996. The REIT Manager anticipates that SCG Realty Services will manage
additional ATLANTIC properties in the future. Any management contracts
executed with SCG Realty Services are expected to be at market rates. See
"Business--ATLANTIC's Operating System--Property Management". See "The Merger
Transaction" for a description of an agreement that ATLANTIC has entered into
with Security Capital to merge the REIT Manager and SCG Realty Services into a
newly formed subsidiary of ATLANTIC in exchange for Shares. The management
agreements between ATLANTIC and SCG Realty Services will be terminated upon
closing of the Merger.
HOMESTEAD TRANSACTION
In March 1996, the Board began considering ways for ATLANTIC to maximize
shareholder value with respect to its Homestead Village properties. In May
1996, ATLANTIC, PTR, Security Capital and Homestead entered into a merger
agreement, pursuant to which each of ATLANTIC, PTR and Security Capital agreed
to sell, through a series of merger transactions, all of their respective
assets relating to Homestead Village properties to Homestead, and ATLANTIC and
PTR agreed to enter into funding commitment agreements (see "--Funding
Commitment Agreement"). ATLANTIC's and PTR's respective shareholders approved
the Homestead transaction on September 13, 1996 and September 12, 1996,
respectively, and the closing of the Homestead transaction occurred on October
17, 1996, which resulted in ATLANTIC (a) owning 4,201,220 shares of Homestead
common stock, (b) owning 2,818,517 warrants to purchase one share of Homestead
common stock at $10.00 per share, (c) owning up to $98.0 million in
convertible mortgage notes as described below (see "--Funding Commitment
Agreement") and (d) providing a cash payment of $16.6 million to Homestead on
the closing date. The $16.6 million payment was required because ATLANTIC's
Homestead Village properties, only one of which was operating, were in earlier
stages of development than PTR's Homestead Village properties, therefore,
ATLANTIC had not funded the same percentage of total costs as PTR. The payment
also assured that ATLANTIC received all of its shares of Homestead common
stock at the closing of the transaction rather than in smaller increments over
time as funds are expended to complete the properties contributed by ATLANTIC.
ATLANTIC distributed the Homestead common stock and warrants which it received
to its shareholders pro rata in the Homestead Distribution on November 12,
1996. Each holder of record of a Share on October 29, 1996 received 0.110875
shares of Homestead common stock and warrants to purchase 0.074384 shares of
Homestead common stock.
FUNDING COMMITMENT AGREEMENT
Pursuant to a funding commitment agreement entered into at the closing of
the Homestead transaction, ATLANTIC agreed to make mortgage loans to Homestead
of up to $111.1 million, which amount was anticipated to be sufficient to
complete the development of the Homestead Village facilities contributed by
ATLANTIC. ATLANTIC received 2,818,517 warrants, each to purchase one share of
Homestead common stock, in exchange for its entering into the funding
commitment agreement, which ATLANTIC subsequently distributed pro rata to its
shareholders in the Homestead Distribution. Each Homestead warrant is
exercisable at $10.00 per share and expires October 27, 1997. The exercise
price was determined based on the overall structure of the Homestead
transaction and, in particular, consideration of Homestead's future capital
needs and a desire to provide liquidity to ATLANTIC's shareholders with
respect to their warrants. ATLANTIC will receive convertible mortgage notes in
respect of fundings under the funding commitment agreement in stated amounts
of up to $98.0 million. The effect of these provisions of the funding
commitment agreement is that ATLANTIC will fund $1,133,535 for each $1,000,000
principal amount of convertible mortgage loans. The convertible
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mortgage loans will be recorded for financial reporting purposes at a premium
of approximately $13.1 million which will be amortized and recorded as an
adjustment to interest income over the ten-year term of the mortgage loans
using the effective interest method. The relative ownership percentages of
ATLANTIC, PTR and Security Capital in Homestead were determined based upon the
relative value of the contributed assets assuming that all of the properties
to be contributed had been developed and were fully operational. ATLANTIC
agreed to fund convertible mortgages to provide for the development of the
Homestead Village properties and to achieve its ownership allocations. The
funded amount of ATLANTIC under the convertible mortgages therefore was in an
amount that was anticipated, pursuant to development budgets, to be sufficient
to complete the development of the Homestead Village properties contributed by
ATLANTIC. The difference between the funded amount and the stated amount of
the convertible mortgage loans arose because the rate of return on the
existing Homestead Village facilities contributed by PTR was projected to
exceed the rate of return on the Homestead Village facilities contributed by
ATLANTIC and PTR to Homestead which were under construction or in pre-
development planning. This expected difference in the rates of return arose
because, as of July 1, 1996, PTR was expected to have 28 Homestead Village
facilities in operation and generating income, while ATLANTIC was expected to
have none and the average property development costs for the existing PTR
Homestead Village properties, on balance, were expected to be less than those
for the ATLANTIC and PTR Homestead Village properties projected to be built in
the future because a large portion of the existing PTR Homestead Village
properties were in planning or under development during 1992 and 1993 when
land prices and construction costs were less than they were when the
transaction was negotiated and were anticipated to be over the next 18 months.
Because of the foregoing factors, and as a result of Homestead's desire to
issue a single class of convertible mortgage notes bearing a 9% per annum
interest rate, the stated amounts of the convertible mortgage notes were
adjusted to provide an effective yield (after giving effect to the premium due
to the issuance of the Homestead warrants and the convertibility of the
mortgage notes) to each of ATLANTIC (8.46% on a fully funded basis) and PTR
(12.42% on a fully funded basis) that was reflective of the relative rates of
return anticipated to be realized on all of the facilities contributed by
ATLANTIC and PTR, respectively. The obligation of ATLANTIC is limited to a
specific dollar amount for each property identified in the funding commitment
agreement. Upon any determination by Homestead to commence development of a
property identified in the funding commitment agreement, Homestead is required
to notify ATLANTIC and ATLANTIC is required to fund up to the full amount of
its obligation with respect to such property. Homestead is required to
endeavor in good faith to complete the development of such property consistent
with the development plans for such property. Each mortgage note issued by
Homestead pursuant to the funding commitment agreement is convertible into
shares of Homestead common stock on the basis of one share of Homestead common
stock for every $11.50 of principal outstanding on the mortgage loan. The
obligation of Homestead to call for funding of, and the obligation of ATLANTIC
to provide funding for, the mortgage loans expire on March 31, 1998, except
with respect to properties for which Homestead has given notice that it
intends to develop. Interest on the mortgage notes accrues at the rate of 9%
per annum on the unpaid principal balance, payable every six months. The
mortgage notes are scheduled to mature on October 31, 2006, and are not
callable until October 27, 2001. Homestead has pledged the assets being
contributed by ATLANTIC as collateral for the mortgage loans being made by
ATLANTIC. At December 31, 1996, no funds had been advanced pursuant to the
funding commitment agreement and there were no convertible mortgage notes
outstanding. ATLANTIC advanced $52.0 million under the funding commitment
agreement through June 27, 1997 and $45.9 million of mortgage notes was
outstanding on such date.
PROTECTION OF BUSINESS AGREEMENT
ATLANTIC entered into a protection of business agreement with Homestead at
the closing of the Homestead transaction which prohibits ATLANTIC and its
affiliates from engaging, directly or indirectly, in the extended-stay lodging
business except through Homestead and its subsidiaries. The agreement also
prohibits Homestead from, directly or indirectly, engaging in the ownership,
operation, development, management or leasing of multifamily properties. The
agreement does not prohibit ATLANTIC from: (i) owning securities of Homestead;
(ii) owning up to 5% of the outstanding securities of another person engaged
in owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as it does not actively participate in
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the business of such person; (iii) owning the outstanding securities of
another person, a majority-owned subsidiary, division, group, franchise or
segment of which is engaged in owning, operating, developing, managing or
leasing extended-stay lodging properties, so long as not more than 5% of such
person's consolidated revenues are derived from such properties; and (iv)
owning securities of another person primarily engaged in a business other than
owning, operating, developing, managing or leasing extended-stay lodging
properties, including a person primarily engaged in business as an owner,
operator or developer of hotel properties, whether or not such person owns,
operates, develops, manages or leases extended-stay lodging properties. The
agreement does not prohibit Homestead from: (i) owning securities of ATLANTIC,
PTR or Security Capital; (ii) owning up to 5% of the outstanding securities of
another person engaged in owning, operating, developing, managing or leasing
garden-style multifamily properties; and (iii) owning the outstanding
securities of another person, a majority-owned subsidiary, division, group,
franchise or segment of which is engaged in owning, operating, developing,
managing or leasing garden-style multifamily properties, so long as not more
than 5% of such person's consolidated revenues are derived from such
properties. The agreement will terminate in the event of an acquisition,
directly or indirectly (other than by purchase from ATLANTIC, PTR or Security
Capital or any of their respective affiliates), by any person (or group of
associated persons acting in concert), other than ATLANTIC, PTR or Security
Capital or their respective affiliates, of 25% or more of the outstanding
voting stock of Homestead, without the prior written consent of Homestead's
board of directors. Subject to earlier termination pursuant to the preceding
sentence, the protection of business agreement will terminate on October 17,
2006.
HOMESTEAD INVESTOR AGREEMENT
ATLANTIC entered into an investor and registration rights agreement with
Homestead at the closing of the Homestead transaction pursuant to which
ATLANTIC is entitled to designate one person for nomination to the Homestead
board of directors, and Homestead will use its best efforts to cause the
election of such nominee, until March 31, 1998 and for so long thereafter as
ATLANTIC has the right to convert in excess of $20.0 million in principal
amount of loans made pursuant to its funding commitment agreement. Such
nominee may, but need not, include the same person(s) nominated by Security
Capital pursuant to Security Capital's investor agreement with Homestead. In
addition, Homestead has granted to ATLANTIC registration rights with respect
to the distribution of all of the shares of Homestead common stock issuable
upon conversion of the convertible mortgage notes. Prior to October 22, 1997,
ATLANTIC may request one registration of those shares of Homestead common
stock which are issued upon conversion of any or all of the convertible
mortgage notes during such one-year period and which it intends to distribute
to its stockholders. After such one-year anniversary, ATLANTIC may request
three additional registrations pursuant to Rule 415 promulgated under the
Securities Act of all shares of Homestead common stock issued or issuable upon
conversion of the convertible mortgage notes. Such registration, except for
the fees and disbursements of counsel to ATLANTIC, shall be at the expense of
Homestead.
DEVELOPMENT AGREEMENT
ATLANTIC and Hanover Realty Services Inc. ("Hanover") are parties to several
development agreements, in connection with the acquisition and development of
six communities. In consideration for Hanover's development of these
communities the development agreements provide that ATLANTIC will make certain
earnout payments to Hanover either in the form of cash, Shares or shares of
Security Capital's common stock, as determined in the sole discretion of
Hanover. The amount of such payments shall be determined on a per site basis
and shall be a percentage of the amount by which annualized net operating
income, capitalized at a rate as provided by the agreement, exceeds the total
actual project costs. In February 1997, Hanover was paid $0.8 million with
respect to one community. The aggregate amount of such earnout amounts for the
six remaining communities cannot exceed $6.5 million. Hanover was not entitled
to receive any earnout payments at May 31, 1997 on the six remaining
communities.
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OTHER TRANSACTIONS WITH AFFILIATES
In ATLANTIC's March through June 1995 private offering, Security Capital
purchased $94.8 million of Shares at $22.00 per Share. In ATLANTIC's December
1995 through May 1996 private offering, Security Capital purchased an
aggregate of $50.0 million of Shares, $21.1 million of which were purchased at
$23.00 per Share (which was the price per Share paid by other investors in the
offering) and $28.9 million of which were purchased at $23.136 per Share. See
"--Shareholders' Agreement". In ATLANTIC's October 1996 initial public
offering, Security Capital purchased $10.0 million of Shares at $24.00 per
Share. Except as described above, all subscriptions were made on the same
terms and at the same times as made available to other investors.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of June 27, 1997, the beneficial
ownership of Shares for (i) each person known to ATLANTIC to be the beneficial
owner of more than 5% of ATLANTIC's Shares, (ii) each Director of ATLANTIC and
(iii) all Directors and executive officers of ATLANTIC as a group. Unless
otherwise indicated in the footnotes, all of such interests are owned
directly, and the indicated person or entity has sole voting and investment
power.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED ALL SHARES
------------------- ------------------ ----------
<S> <C> <C>
Security Capital Group Incorporated ...... 21,545,669(1) 51.3%
125 Lincoln Avenue
Santa Fe, NM 87501
Ameritech Pension Trust .................. 2,223,320(2) 5.3
Ameritech Corporation
225 West Randolph Street
HQ-13A
Chicago, IL 60606
General Motors Investment Management
Corporation.............................. 2,173,913(3) 5.2
767 Fifth Avenue
New York, NY 10153
Manuel A. Garcia III...................... 12,000(4) *
P.O. Box 2066
Davgar Restaurants, Inc.
Winter Park, FL 32790
Ned S. Holmes ............................ 59,500(4)(5) *
Parkway Investments/Texas, Inc.
55 Waugh Drive
Houston, TX 77007
Constance B. Moore........................ 11,600 *
Six Piedmont Center
Atlanta, GA 30305
James C. Potts............................ 13,050 *
Six Piedmont Center
Atlanta, GA 30305
John M. Richman........................... 12,000(4) *
Wachtell, Lipton, Rosen & Katz
227 West Monroe Street, Suite 4825
Chicago, IL 60606
All Directors and executive officers as a
group
(9 persons).............................. 108,150 *
</TABLE>
- --------
* Less than 1%
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(1) These Shares are owned of record by SC Realty Incorporated, a wholly owned
subsidiary of Security Capital, and are pledged to secure Security
Capital's $300 million revolving line of credit facility with a syndicate
of banks. As of June 27, 1997, there were $62.5 million of outstanding
borrowings under the line of credit. The line of credit is also secured by
securities owned by Security Capital of PTR, SCI, Homestead and Security
Capital U.S. Realty, a publicly traded entity based in Luxembourg which
invests in real estate operating companies in the United States. Security
Capital estimates that the aggregate market value of the pledged
securities exceeded $2.9 billion as of June 27, 1997. Security Capital was
in compliance with all covenants under the line of credit at March 31,
1997.
(2) This information is based on a Schedule 13G dated February 14, 1997.
According to the Schedule 13G, the Shares were not acquired for the
purpose of changing or influencing the control of ATLANTIC.
(3) 1,956,522 of these Shares are owned by the General Motors Hourly-Rate
Employees Pension Trust and 217,391 of these Shares are owned by the
General Motors Salaried Employees Pension Trust.
(4) Includes 2,000 Shares each for Messrs. Garcia, Holmes and Richman which
are issuable upon exercise of Options granted under the Outside Directors
Plan. See "REIT Management--Outside Directors Plan".
(5) Mr. Holmes directly owns 2,500 of these Shares. Mr. Holmes may be deemed
to beneficially own 55,000 of these Shares which are owned by Mr. Holmes'
wife and children and by Holmes Family Venture Ltd., a family entity with
respect to which Mr. Holmes shares voting and dispositive power.
DESCRIPTION OF STOCK
The following summary of the terms of the stock of ATLANTIC does not purport
to be complete and is subject to and qualified in its entirety by reference to
ATLANTIC's Charter and Bylaws, copies of which have been filed as exhibits to
the registration statement of which this Prospectus forms a part.
GENERAL
The authorized stock of ATLANTIC consists of 250,000,000 Shares. The Board
may classify or reclassify any unissued Shares from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption. No holder of any class
of stock of ATLANTIC will have any preemptive right to subscribe to any
securities of ATLANTIC except as may be granted by the Board pursuant to an
agreement between ATLANTIC and a shareholder. Under Maryland law, shareholders
are generally not liable for ATLANTIC's debts or obligations solely as a
result of their status as shareholders. For a description of certain
provisions that could have the effect of delaying, deferring or preventing a
change in control, see "Risk Factors--Limitations on Acquisition of Shares and
Change in Control", "Certain Relationships and Transactions--Security Capital
Investor Agreement" and "Certain Provisions of Maryland Law and of ATLANTIC's
Charter and Bylaws".
The transfer agent and registrar for the Shares is The First National Bank
of Boston, 150 Royall Street, Canton, Massachusetts 02021.
COMMON STOCK
The outstanding Shares are fully paid and nonassessable. Each Share entitles
the holder to one vote on all matters requiring a vote of shareholders,
including the election of Directors. Shareholders do not have the right to
cumulate their votes in the election of Directors, which means that the
holders of a majority of the outstanding Shares can elect all of the Directors
then standing for election. Shareholders are entitled to such distributions as
may be authorized from time to time by the Directors out of assets legally
available therefor. ATLANTIC's current distribution policy is to pay quarterly
distributions to shareholders based on a reasonable percentage of funds from
operations. ATLANTIC paid no distributions in 1993. ATLANTIC has paid
consecutive distributions of $0.30 per Share for 1994 quarters, $0.40 per
Share for 1995 quarters and $0.42 per Share for the first three quarters of
1996.
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On November 12, 1996, the Homestead Distribution was made to holders of
record of Shares on October 29, 1996. On December 16, 1996, in light of the
Homestead transaction and ATLANTIC's initial public offering, ATLANTIC paid a
fourth quarter 1996 distribution of $0.39 per Share. On February 19, 1997,
ATLANTIC paid a distribution of $0.39 per Share. On April 22, 1997, the Board
declared a distribution of $0.39 per Share which was paid on May 27, 1997. See
"Price Range of ATLANTIC Shares and Distributions".
In the event of any liquidation, dissolution or winding-up of the affairs of
ATLANTIC, holders of Shares will be entitled, subject to the preferential
rights of holders of preferred stock, if any, to share ratably in the assets
of ATLANTIC remaining after provision for payment of liabilities to creditors.
Subject to the provisions of ATLANTIC's Charter regarding the restriction on
transfers of Shares, all Shares have equal distribution, liquidation and other
rights, and shall have no preference, preemptive, conversion or exchange
rights.
PREFERRED STOCK
The Board is empowered by ATLANTIC's Charter, without the approval of
shareholders, to classify or reclassify any unissued shares of ATLANTIC's
stock from time to time. Prior to the issuance of any such stock, the Board is
required to set, subject to the provisions of ATLANTIC's Charter regarding the
restriction on transfers of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for such
stock. The issuance of preferred stock could have the effect of delaying or
preventing a change in control of ATLANTIC and may adversely affect the voting
and other rights of shareholders. No shares of preferred stock are outstanding
and ATLANTIC has no present plans to issue any preferred stock except for the
Series A Preferred Shares (see "Preferred Share Offering") and other than as
contemplated by the Rights Agreement (as defined below).
PURCHASE RIGHTS
On March 12, 1996, the Board declared a dividend of one Purchase Right for
each Share outstanding at the close of business on March 12, 1996 (the "Rights
Record Date") to the holders of Shares of record as of the Rights Record Date.
The dividend was paid on the Rights Record Date. The holders of any additional
Shares issued after the Rights Record Date and before the redemption or
expiration of the Purchase Rights will also be entitled to one Purchase Right
for each such additional Share. Each Purchase Right entitles the registered
holder under certain circumstances to purchase from ATLANTIC two one-
hundredths of a Participating Preferred Share of ATLANTIC at a price of $40
per one one-hundredth of a Participating Preferred Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Purchase
Rights are set forth in the Rights Agreement dated as of March 12, 1996
between ATLANTIC and The First National Bank of Boston, as rights agent (the
"Rights Agreement").
The Purchase Rights will be exercisable and will be evidenced by separate
certificates only after the earliest to occur of: (1) 10 business days
following a public announcement that a person or group of affiliated or
associated persons (except for Security Capital and certain other affiliates
of ATLANTIC) has acquired beneficial ownership of 20% or more of the
outstanding Shares (thereby becoming an "Acquiring Person"), (2) 15 business
days (or such later date as may be determined by action of the Board prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of persons (except for
Security Capital and certain other affiliates of ATLANTIC) of 25% or more of
the outstanding Shares or (3) 10 business days (or such later date as may be
determined by action of the Board prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) after the date of filing by
any person of, or the first public announcement of the intention of any person
to file, any application, request, submission or other document with any
federal or state regulatory authority seeking approval of, attempting to rebut
any presumption of control upon, or otherwise indicating an intention to enter
into, any transaction or series of transactions the consummation of which
would result in any person (except for Security Capital and certain other
affiliates of ATLANTIC) becoming the beneficial owner of
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25% or more of the outstanding Shares, other than a transaction in which newly
issued Shares are issued directly by ATLANTIC to such person (the first to
occur of such dates being called the "Rights Distribution Date"). With respect
to any of the Share certificates outstanding as of the Rights Record Date,
until the Rights Distribution Date, the Purchase Rights will be evidenced by
such Share certificate. Until the Rights Distribution Date (or earlier
redemption or expiration of the Purchase Rights), new Share certificates
issued after the Rights Record Date upon transfer or new issuance of Shares
will contain a notation incorporating the Rights Agreement by reference.
Notwithstanding the foregoing, if the Board in good faith determines that a
person who would otherwise be an Acquiring Person under the Rights Agreement
has become such inadvertently, and such person divests as promptly as
practicable a sufficient number of Shares so that such person would no longer
be an Acquiring Person, then such person shall not be deemed to be an
Acquiring Person for purposes of the Rights Agreement.
The Purchase Rights will expire on March 12, 2006 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by ATLANTIC, in each case as described below.
The Purchase Price payable, and the number of Participating Preferred Shares
or other securities or property issuable, upon exercise of the Purchase Rights
are subject to adjustment under certain circumstances from time to time to
prevent dilution. With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at
least 1% in such Purchase Price.
Participating Preferred Shares purchasable upon exercise of the Purchase
Rights will not be redeemable. Each Participating Preferred Share will be
entitled to a minimum preferential quarterly distribution payment of $1.00 per
share but will be entitled to an aggregate distribution of 50 times the
distribution declared per Share. Each Participating Preferred Share will have
50 votes, voting together with the Shares. In the event of liquidation, the
holders of the Participating Preferred Shares will be entitled to a minimum
preferential liquidation payment of $1 per share, plus an amount equal to all
accrued and unpaid dividends thereon, but will be entitled to an aggregate
payment of 50 times the payment made per Share. In the event of any merger,
consolidation or other transaction in which Shares are exchanged, each
Participating Preferred Share will be entitled to receive 50 times the amount
received per Share. In the event of issuance of Participating Preferred Shares
upon exercise of the Purchase Rights, in order to facilitate trading, a
depositary receipt may be issued for each one one-hundredth of a Participating
Preferred Share. The Participating Preferred Shares will be protected by
customary antidilution provisions.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Purchase Right, other than Purchase Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise a number of Shares having a market value
(determined in accordance with the Rights Agreement) of twice the Purchase
Price. In lieu of the issuance of Shares upon exercise of Purchase Rights, the
Board may, under certain circumstances, and if there is an insufficient number
of Shares authorized but unissued to permit the exercise in full of the
Purchase Rights, the Board is required to, take such action as may be
necessary to cause ATLANTIC to issue or pay upon the exercise of Purchase
Rights, cash (including by way of a reduction of purchase price), property,
other securities or any combination of the foregoing having an aggregate value
equal to that of the Shares which otherwise would have been issuable upon
exercise of Purchase Rights.
In the event that, after any person or group becomes an Acquiring Person,
ATLANTIC is acquired in a merger or other business combination transaction or
50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Purchase Right will thereafter
have the right to receive, upon the exercise thereof at the then-current
Purchase Price, a number of shares of common stock of the acquiring company
having a market value (determined in accordance with the Rights Agreement) of
twice the Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by that person or group of 50% or more of the outstanding
Shares, the Board may exchange the Purchase Rights (other
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than Purchase Rights owned by that person or group which will have become
void), in whole or in part, at an exchange ratio of one Share (or one one-
hundredth of a Participating Preferred Share) per Purchase Right (subject to
adjustment).
As soon as practicable after a Rights Distribution Date, ATLANTIC is
obligated to use its best efforts to file a registration statement under the
Securities Act relating to the securities issuable upon exercise of Purchase
Rights and to cause such registration statement to become effective as soon as
practicable.
At any time prior to the time a person or group of persons becomes an
Acquiring Person, the Board may redeem the Purchase Rights in whole, but not
in part, at a price of $0.01 per Purchase Right (the "Redemption Price")
payable in cash, Shares or any other form of consideration deemed appropriate
by the Board. The redemption of the Purchase Rights may be made effective at
such time, on such basis and with such conditions as the Board in its sole
discretion may establish. Immediately upon the effectiveness of any redemption
of the Purchase Rights, the right to exercise the Purchase Rights will
terminate and the only right of the holders of Purchase Rights will be to
receive the Redemption Price.
The terms of the Purchase Rights may be amended by the Board without the
consent of the holders of the Purchase Rights, except that from and after the
time any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Purchase Rights.
The Purchase Rights have certain anti-takeover effects. The Purchase Rights
will cause substantial dilution to a person or group that attempts to acquire
ATLANTIC on terms not approved by its Board, except pursuant to an offer
conditioned on a substantial number of Purchase Rights being acquired. The
Purchase Rights should not interfere with any merger or other business
combination approved by the Board since the Purchase Rights may be redeemed by
ATLANTIC at the Redemption Price prior to the time that a person or group has
acquired beneficial ownership of 20% or more of the Shares. The form of Rights
Agreement specifying the terms of the Purchase Rights has been incorporated by
reference into the registration statement of which this Prospectus forms a
part and is incorporated herein by reference. The foregoing description of the
Purchase Rights does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Rights Agreement, including the
definitions therein of certain terms.
RESTRICTION ON SIZE OF HOLDINGS OF SHARES
ATLANTIC's Charter contains certain restrictions on the number of shares of
ATLANTIC's stock that individual shareholders may own. For ATLANTIC to qualify
as a REIT under the Code, no more than 50% in value of the shares of
ATLANTIC's stock (after taking into account options to acquire shares) may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a short taxable year. The
shares of ATLANTIC's stock must also be beneficially owned (other than during
the first taxable year) by 100 or more persons during at least 335 days of a
taxable year or during a proportionate part of a shorter taxable year. Because
ATLANTIC is a REIT, its Charter contains restrictions on the acquisition of
shares of ATLANTIC's stock intended to ensure compliance with these
requirements.
Subject to certain exceptions specified in ATLANTIC's 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") of the number or value of the issued
and outstanding shares of ATLANTIC's stock. The Board, upon receipt of a
ruling from the IRS or an opinion of counsel or other evidence satisfactory to
the Board and upon such other conditions as the Board may direct, may also
exempt a proposed transferee from the Ownership Limit. The proposed transferee
must give written notice to ATLANTIC of the proposed transfer no later than
the fifteenth day prior to any transfer which, if consummated, would result in
the intended transferee owning shares of ATLANTIC's stock in excess of the
Ownership Limit. The Board may require such opinions of counsel, affidavits,
undertakings or
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agreements as it may deem necessary or advisable in order to determine or
ensure ATLANTIC's status as a REIT. Any transfer of shares of ATLANTIC's stock
that would (i) create a direct or indirect ownership of shares of ATLANTIC's
stock in excess of the Ownership Limit, (ii) result in the shares of
ATLANTIC's stock being beneficially owned by fewer than 100 persons
(determined without reference to any rules of attribution) as provided in
Section 856(a) of the Code or (iii) result in ATLANTIC being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void ab
initio, and the intended transferee will acquire no rights to the shares of
ATLANTIC's stock. The foregoing restrictions on transferability and ownership
will not apply if the Board determines, which determination must be approved
by the shareholders, that it is no longer in the best interests of ATLANTIC to
attempt to qualify, or to continue to qualify, as a REIT. ATLANTIC's Charter
excludes Security Capital (and its transferees) from the foregoing ownership
restriction.
Any shares the purported transfer of which would result in a person owning
shares of ATLANTIC's stock in excess of the Ownership Limit or cause ATLANTIC
to become "closely held" under Section 856(h) of the Code that is not
otherwise permitted as provided above will constitute excess shares ("Excess
Shares"), which will be transferred pursuant to ATLANTIC's Charter to a party
not affiliated with ATLANTIC designated by ATLANTIC as the trustee of a trust
for the exclusive benefit of an organization or organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code and identified by the Board as
the beneficiary or beneficiaries of the trust (the "Charitable Beneficiary"),
until such time as the Excess Shares are transferred to a person whose
ownership will not violate the restrictions on ownership. While these Excess
Shares are held in trust, distributions on such Excess Shares will be paid to
the trust for the benefit of the Charitable Beneficiary and may only be voted
by the trustee for the benefit of the Charitable Beneficiary. Subject to the
Ownership Limit, the Excess Shares shall be transferred by the trustee at the
direction of ATLANTIC to any person (if the Excess Shares would not be Excess
Shares in the hands of such person). The purported transferee will receive the
lesser of (i) the price paid by the purported transferee for the Excess Shares
(or, if no consideration was paid, fair market value on the day of the event
causing the Excess Shares to be held in trust) and (ii) the price received
from the sale or other disposition of the Excess Shares held in trust. Any
proceeds in excess of the amount payable to the purported transferee will be
paid to the Charitable Beneficiary. In addition, such Excess Shares held in
trust are subject to purchase by ATLANTIC for a 90-day period at a purchase
price equal to the lesser of (i) the price paid for the Excess Shares by the
purported transferee (or, if no consideration was paid, fair market value at
the time of the event causing the shares to be held in trust) and (ii) the
fair market value of the Excess Shares on the date ATLANTIC elects to
purchase. Fair market value, for these purposes, means the last reported sales
price reported on the NYSE on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales
price on the trading day immediately preceding the relevant date as reported
on any exchange or quotation system over or through which the relevant class
of shares of stock may be traded, or if not then traded over or through any
exchange or quotation system, then the market price on the relevant date as
determined in good faith by the Board.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee shall cease to be entitled to
distributions (other than liquidating distributions), voting rights and other
benefits with respect to the Excess Shares except the right to payment on the
transfer of the Excess Shares as described above. Any distribution paid to a
purported transferee on Excess Shares prior to the discovery by ATLANTIC that
such Excess Shares have been transferred in violation of the provisions of the
Charter shall be repaid, upon demand, to ATLANTIC, which shall pay any such
amounts to the trust for the benefit of the Charitable Beneficiary. If the
foregoing transfer restrictions are determined to be void, invalid or
unenforceable by any court of competent jurisdiction, then the purported
transferee of any Excess Shares may be deemed, at the option of ATLANTIC, to
have acted as an agent on behalf of ATLANTIC in acquiring such Excess Shares
and to hold such Excess Shares on behalf of ATLANTIC.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding shares of ATLANTIC's stock must give a
written notice containing
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certain information to ATLANTIC by January 31 of each year. In addition, each
shareholder shall upon demand be required to disclose to ATLANTIC in writing
such information with respect to the direct, indirect and constructive
ownership of shares of ATLANTIC's stock as the Board deems reasonably
necessary to comply with the provisions of the Code applicable to a REIT, to
determine ATLANTIC's status as a REIT, to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the Shares
might receive a premium for their Shares over the then-prevailing market price
or which such holders might believe to be otherwise in their best interest.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF ATLANTIC'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
ATLANTIC's Charter and Bylaws. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to Maryland law and
ATLANTIC's Charter and Bylaws, copies of which have been incorporated by
reference as exhibits to the Registration Statement of which this Prospectus
forms a part.
CLASSIFICATION OF THE BOARD
ATLANTIC's Charter provides that the number of Directors may be increased or
decreased from time to time by the vote of a majority of the Board but may not
be less than three. Pursuant to ATLANTIC's Charter, the Directors are divided
into three classes. One class will hold office initially for a term expiring
at the annual meeting of shareholders to be held in 1997, another class will
hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1998 and another class will hold office initially
for a term expiring at the annual meeting of shareholders to be held in 1999.
As the term of each class expires, Directors in that class will be elected for
a term of three years and until their successors are duly elected and qualify.
ATLANTIC believes that classification of the Board will help to assure the
continuity and stability of ATLANTIC's business strategies and policies as
determined by the Board.
The classified Director provision could have the effect of making the
removal of incumbent Directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of ATLANTIC, even though such an attempt might be beneficial to
ATLANTIC and its shareholders. At least two annual meetings of shareholders,
instead of one, will generally be required to effect a change in a majority of
the Board. Thus, the classified board provision could increase the likelihood
that incumbent Directors will retain their positions.
DIRECTOR LIABILITY LIMITATION AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. ATLANTIC's Charter
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
ATLANTIC's officers and Directors are and will be indemnified under
ATLANTIC's Charter against certain liabilities. ATLANTIC's Charter provides
that ATLANTIC will, to the maximum extent permitted by Maryland law in effect
from time to time, indemnify and pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any individual who is a
present or former Director or officer of ATLANTIC or (b) any individual who,
while a Director of ATLANTIC and at the request of ATLANTIC, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. ATLANTIC's Charter authorizes ATLANTIC, with
the approval of the Board, to
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provide such indemnification and advancement of expenses to a person who
served a predecessor of ATLANTIC in any of the capacities described in (a) or
(b) above and to any employee or agent of ATLANTIC or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which ATLANTIC's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding
to which he or she is made a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits ATLANTIC to advance
reasonable expenses to a director or officer upon ATLANTIC's receipt of (a) a
written affirmation by the Director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification
by ATLANTIC as authorized by ATLANTIC's Bylaws and (b) a written statement by
or on his or her behalf to repay the amount paid or reimbursed by ATLANTIC if
it shall ultimately be determined that the standard of conduct was not met.
Additionally, ATLANTIC has entered into indemnity agreements with each of
its officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Exchange Act or (c) relating to
judicially determined criminal violations.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers or persons controlling ATLANTIC
pursuant to the foregoing provisions, ATLANTIC has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
BUSINESS COMBINATIONS
Under Maryland law, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of outstanding voting shares of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
things, the corporation's stockholders receive a minimum price (as defined
under Maryland law) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Board has exempted from these provisions of
Maryland law any business combination with
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Security Capital and its affiliates and successors. As a result, Security
Capital and its affiliates and successors may be able to enter into business
combinations with ATLANTIC that may not be in the best interests of ATLANTIC's
shareholders without compliance by ATLANTIC with the super-majority vote
requirements and other provisions of the statute.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "Control Shares" of a Maryland corporation
acquired in a "Control Share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on
the matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control Shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror, or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more
but less than a majority or (iii) a majority of all voting power. Control
Shares do not include shares the acquiring person is then entitled to vote as
a result of having previously obtained stockholder approval. A "Control Share
acquisition" means the acquisition of Control Shares, subject to certain
exceptions.
A person who has made or proposes to make a Control Share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the Control Shares, as of the date of the
last Control Share acquisition or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for Control Shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the Control Share acquisition.
The Control Share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws
of the corporation.
ATLANTIC's Bylaws contain a provision exempting any and all acquisitions by
Security Capital and its affiliates and successors from the provisions of the
Control Share acquisition statute.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
For nominations or other business to be properly brought before an annual
meeting of shareholders by a stockholder, ATLANTIC's Bylaws require such
shareholder to deliver a notice to the Secretary, absent specified
circumstances, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting setting forth: (i) as to
each person whom the shareholder proposes to nominate for election or
reelection as a Director, all information relating to such person that is
required to be disclosed in solicitations of proxies for the election of
directors, pursuant to Regulation 14A of the Exchange Act; (ii) as to any
other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such shareholder and of the beneficial owner, if
any, on whose behalf the proposal is made;
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and (iii) as to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made, (a) the name and
address of such shareholder as they appear on ATLANTIC's books, and of such
beneficial owner and (b) the number of Shares which are owned beneficially and
of record by such shareholder and such beneficial owner, if any.
SHARES AVAILABLE FOR FUTURE SALE
As of June 27, 1997, ATLANTIC had 41,968,780 Shares issued and outstanding,
which were held of record by approximately 300 shareholders. Upon completion
of the Offering, ATLANTIC will have Shares issued and outstanding
and 6,000 Shares reserved for issuance upon exercise of outstanding Options.
ATLANTIC has reserved an additional 94,000 Shares for future issuance upon
exercise of Options under the Outside Directors Plan. See "REIT Management--
Outside Directors Plan". All of the Shares to be issued by ATLANTIC
in the Offering (other than any Shares purchased by affiliates) will be
tradeable without restriction under the Securities Act, along with the
9,017,200 Shares issued in ATLANTIC's October 1996 initial public offering and
April 1997 public offering of Shares (other than the 416,666 Shares which were
purchased by Security Capital in the initial public offering and any other
Shares which were purchased by affiliates). The rest of the Shares currently
issued and outstanding or reserved for issuance upon exercise of options will
be eligible for sale, subject to the volume resale, manner of sale and notice
limitations of Rule 144 of the Securities Act.
In general, under Rule 144, a person (or persons whose Shares are aggregated
in accordance with the Rule) who has beneficially owned his or her Shares for
at least one year, including any such persons who may be deemed "affiliates"
of ATLANTIC (as defined in the Securities Act), would be entitled to sell
within any three-month period a number of Shares that does not exceed the
greater of 1% of the then outstanding number of Shares or the average weekly
trading volume of the Shares during the four calendar weeks preceding each
such sale. After Shares are held for two years, a person who is not deemed an
"affiliate" of ATLANTIC is entitled to sell such Shares under Rule 144 without
regard to the volume limitations described above. Sales of Shares by
affiliates will continue to be subject to the volume limitations. As defined
in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly, through the use of one or more intermediaries, controls, is
controlled by, or is under common control with, such issuer.
ATLANTIC has granted Security Capital, which beneficially owns 21,545,669
Shares, the right to demand, at any time, registration of all or any part of
the Shares owned by Security Capital pursuant to Rule 415 of the Securities
Act. In addition, ATLANTIC has agreed to file a registration statement (in
October 1997) pursuant to Rule 415 of the Securities Act for up to $50.0
million of Shares on behalf of certain investors who purchased Shares in
ATLANTIC's last private offering. The persons entitled to register their
securities are responsible for all costs and expenses (other than ATLANTIC's
legal, audit and certain accounting fees) incident to any registration of the
type discussed in this paragraph.
No prediction can be made as to the effect, if any, that future sales of
Shares or the availability of Shares for future sale will have on the market
price prevailing from time to time. Sales of substantial amounts of Shares
(including Shares issued upon the exercise of options), or the perception that
such sales could occur, could adversely affect the prevailing market price of
the Shares.
FEDERAL INCOME TAX CONSIDERATIONS
ATLANTIC intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of all material federal income tax consequences
to ATLANTIC and its shareholders of the treatment of ATLANTIC as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser
of ATLANTIC's Shares is urged to consult his or her own tax advisor with
respect to the federal, state, local, foreign and other tax consequences of
the purchase, ownership and disposition of the Shares.
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Based upon certain representations of ATLANTIC with respect to the facts as
set forth and explained in the discussion below, in the opinion of Mayer,
Brown & Platt, counsel to ATLANTIC, ATLANTIC has been organized in conformity
with the requirements for qualification as a REIT beginning with its taxable
year ended December 31, 1994, and its proposed method of operation described
in this Prospectus and as represented by management will enable it to satisfy
the requirements for such qualification.
This opinion is conditioned upon certain representations made by ATLANTIC as
to certain factual matters relating to ATLANTIC's organization and intended or
expected manner of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof. ATLANTIC's qualification and
taxation as a REIT will depend upon ATLANTIC's ability to meet on a continuing
basis, through actual operating results, asset composition, distribution
levels and diversity of stock ownership, the various qualification tests
imposed under the Code discussed below. Mayer, Brown & Platt will not review
compliance with these tests on a continuing basis. No assurance can be given
that ATLANTIC will satisfy such tests on a continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as ATLANTIC, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporations.
If ATLANTIC fails to qualify as a REIT in any year, however, it will be
subject to federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, ATLANTIC could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
ATLANTIC elected REIT status effective for the taxable year ended December
31, 1994 and the Board currently intends that ATLANTIC will operate in a
manner that permits it to qualify as a REIT in each taxable year thereafter.
There can be no assurance, however, that this expectation will be fulfilled,
since qualification as a REIT depends on ATLANTIC continuing to satisfy
numerous asset, income and distribution tests described below, which in turn
will be dependent in part on ATLANTIC's operating results.
The following summary is based on the Code, its legislative history,
administrative pronouncements, judicial decisions and Treasury regulations,
subsequent changes to any of which may affect the tax consequences described
herein, possibly on a retroactive basis. The following summary is not
exhaustive of all possible tax considerations and does not give 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 his or her particular circumstances or
to certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws.
TAXATION OF ATLANTIC
General
In any year in which ATLANTIC qualifies as a REIT, in general it will not be
subject to federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. ATLANTIC may, however, be
subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed.
Notwithstanding its qualification as a REIT, ATLANTIC may also be subject to
taxation in certain other circumstances. If ATLANTIC should fail to satisfy
either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which ATLANTIC fails to satisfy either the 75% test or the 95% test,
multiplied by a fraction intended to reflect ATLANTIC's profitability.
ATLANTIC will also be
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subject to a tax of 100% on net income from any "prohibited transaction", as
described below, and if ATLANTIC has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax on such income
from foreclosure property at the highest corporate rate. In addition, if
ATLANTIC should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year and (iii) any undistributed taxable
income from prior years, ATLANTIC would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
ATLANTIC may also be subject to the corporate "alternative minimum tax", as
well as tax in certain situations and on certain transactions not presently
contemplated. ATLANTIC will use the calendar year both for federal income tax
purposes and for financial reporting purposes.
In order to qualify as a REIT, ATLANTIC must meet, among others, the
following requirements:
Share Ownership Test
ATLANTIC's shares of stock must be held by a minimum of 100 persons for at
least 335 days in each taxable year (or a proportional number of days in any
short taxable year). In addition, at all times during the second half of each
taxable year, no more than 50% in value of the stock of ATLANTIC may be owned,
directly or indirectly and by applying certain constructive ownership rules,
by five or fewer individuals, which for this purpose includes certain tax-
exempt entities. Any stock held by a qualified domestic pension or other
retirement trust will be treated as held directly by its beneficiaries in
proportion to their actuarial interest in such trust rather than by such
trust. Pursuant to the constructive ownership rules, Security Capital's
ownership of shares is attributed to its shareholders for purposes of the 50%
test.
In order to ensure compliance with the 50% test, ATLANTIC has placed certain
restrictions on the transfer of the shares of its stock to prevent additional
concentration of ownership. Moreover, to evidence compliance with these
requirements under United States Treasury Department ("Treasury") regulations,
ATLANTIC must maintain records which disclose the actual ownership of its
outstanding shares of stock. In fulfilling its obligations to maintain
records, ATLANTIC must and will demand written statements each year from the
record holders of designated percentages of shares of its stock disclosing the
actual owners of such shares (as prescribed by Treasury regulations). A list
of those persons failing or refusing to comply with such demand must be
maintained as a part of ATLANTIC's records. A shareholder failing or refusing
to comply with ATLANTIC's written demand must submit with his or her tax
returns a similar statement disclosing the actual ownership of shares of
ATLANTIC's stock and certain other information. In addition, ATLANTIC's
Charter provides restrictions regarding the transfer of shares of its stock
that are intended to assist ATLANTIC in continuing to satisfy the share
ownership requirements. See "Description of Stock--Restriction on Size of
Holdings of Shares". ATLANTIC intends to enforce the 9.8% limitation on
ownership of shares of its stock to assure that its qualification as a REIT
will not be compromised.
Asset Tests
At the close of each quarter of ATLANTIC's taxable year, ATLANTIC must
satisfy certain tests relating to the nature of its assets (determined in
accordance with GAAP). First, at least 75% of the value of ATLANTIC's total
assets must be represented by interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items, and
government securities (including certain government guaranteed securities) and
qualified temporary investments. Second, although the remaining 25% of
ATLANTIC's assets generally may be invested without restriction, securities in
this class may not exceed either (i) in the case of securities of any one non-
government issuer, 5% of the value of ATLANTIC's total assets or (ii) 10% of
the outstanding voting securities of any one such issuer. Where ATLANTIC
invests in a partnership, it will be deemed to own a proportionate share of
the partnership's assets.
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Gross Income Tests
There are three separate percentage tests relating to the sources of
ATLANTIC's gross income which must be satisfied for each taxable year. For
purposes of these tests, where ATLANTIC invests in a partnership, ATLANTIC
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of ATLANTIC as it has in the hands of the partnership.
The three tests are as follows:
1. The 75% Test. At least 75% of ATLANTIC's gross income for the taxable
year must be "qualifying income". Qualifying income generally includes: (i)
rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of ATLANTIC's trade
or business ("dealer property"); (iv) dividends or other distributions on
shares in other REITs, as well as gain from the sale of such shares; (v)
abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage collateralized by such property ("foreclosure
property"); and (vii) commitment fees received for agreeing to make loans
collateralized by mortgages on real property or to purchase or lease real
property.
Rents received from a resident will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if ATLANTIC, or an owner of 10% or more of ATLANTIC,
directly or constructively owns 10% or more of such resident. In addition,
if rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will
not qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based
in whole or in part on the income or profits of any person, although an
amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, ATLANTIC generally must not operate or manage the
property or furnish or render services to residents, other than through an
"independent contractor" from whom ATLANTIC derives no income, except that
the "independent contractor" requirement does not apply to the extent that
the services provided by ATLANTIC are "usually or customarily rendered" in
connection with the rental of multifamily units for occupancy only, or are
not otherwise considered "rendered to the occupant for his convenience".
2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of ATLANTIC's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest or gains from the sale or disposition of stock or
other securities that are not dealer property. Dividends (other than on
REIT shares) and interest on any obligations not collateralized by an
interest in real property are included for purposes of the 95% test, but
not for purposes of the 75% test.
For purposes of determining whether ATLANTIC complies with the 75% and
95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property
(excluding foreclosure property) unless such property is held by ATLANTIC
for at least four years and certain other requirements (relating to the
number of properties sold in a year, their tax bases, and the cost of
improvements made thereto) are satisfied. See "--Taxation of ATLANTIC--
General".
Even if ATLANTIC fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) ATLANTIC's
failure to comply was due to reasonable cause and not to willful neglect;
(ii) ATLANTIC reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and (iii)
any incorrect information on this schedule is not due to fraud with intent
to evade tax. If these relief provisions apply, however, ATLANTIC will
nonetheless be subject to a special tax upon the greater of the amount by
which it fails either the 75% or 95% gross income test for that year.
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3. The 30% Test. ATLANTIC must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of: (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities held for less than one
year; and (iii) property in a prohibited transaction. ATLANTIC does not
anticipate that it will have any substantial difficulty in complying with
this test.
Annual Distribution Requirements
In order to qualify as a REIT, ATLANTIC is required to make distributions
(other than capital gain dividends) to its shareholders each year in an amount
at least equal to (i) the sum of (a) 95% of ATLANTIC's REIT taxable income
(computed without regard to the dividends paid deduction and the REIT's net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before ATLANTIC timely files its tax
return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that ATLANTIC does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax
on the undistributed amount at regular capital gains or ordinary corporate tax
rates, as the case may be.
ATLANTIC intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that ATLANTIC may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to timing differences between the actual receipt of income
and actual payment of expenses on the one hand, and the inclusion of such
income and deduction of such expenses in computing ATLANTIC's REIT taxable
income on the other hand. To avoid any problem with the 95% distribution
requirement, ATLANTIC will closely monitor the relationship between its REIT
taxable income and cash flow and, if necessary, intends to borrow funds in
order to satisfy the distribution requirement. However, there can be no
assurance that such borrowing would be available at such time.
If ATLANTIC fails to meet the 95% distribution requirement as a result of an
adjustment to ATLANTIC's tax return by the IRS, ATLANTIC may retroactively
cure the failure by paying a "deficiency dividend" (plus applicable penalties
and interest) within a specified period.
Failure to Qualify
If ATLANTIC fails to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, ATLANTIC will be subject to applicable
federal and state tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to shareholders
in any year in which ATLANTIC fails to qualify will not be deductible by
ATLANTIC, nor generally will they be required to be made under the Code. In
such event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, ATLANTIC also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
Homestead Mortgages
ATLANTIC holds mortgage notes of Homestead which are convertible into shares
of Homestead common stock. See "Certain Relationships and Transactions--
Funding Commitment Agreement". Pursuant to the terms of the funding commitment
agreement, ATLANTIC funded $1,133,535 for each $1,000,000 of convertible
mortgage loans. Accordingly, ATLANTIC is treated as having acquired the
convertible mortgage loans at a premium which ATLANTIC is entitled to amortize
as an offset to interest income (with a corresponding reduction in ATLANTIC's
tax basis) under a constant yield method over the terms of the convertible
mortgage notes if (as ATLANTIC intends) an election under Section 171 of the
Code is made. Interest paid by Homestead to ATLANTIC on the mortgage notes
constitutes qualified income for purposes of determining whether ATLANTIC
meets the gross income requirements for REIT qualification.
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The terms of the mortgages provide for adjustment of the price for
conversion of the mortgages into the Homestead common stock if Homestead makes
certain distributions of stock, cash or other property to its shareholders. If
Homestead makes a distribution of cash or property resulting in an adjustment
to the conversion price, ATLANTIC, as a holder of such convertible mortgages,
may be viewed as receiving a "deemed distribution" under Section 305 of the
Code, even if ATLANTIC does not hold any Homestead common stock at such time.
The deemed distribution would constitute a taxable dividend, taxable as
ordinary income, to the extent that the earnings and profits of Homestead were
allocable to the deemed distribution. The amount of the deemed distribution
which exceeded the allocated earnings and profits of Homestead would be
considered a return of capital and would reduce ATLANTIC's tax basis in the
convertible mortgages (but not below zero) by the value of the deemed
distribution. To the extent that the value of the deemed distribution exceeds
ATLANTIC's tax basis in the convertible mortgages, the deemed distribution
would result in gain to ATLANTIC. ATLANTIC's tax basis in the convertible
mortgages would then immediately be increased by the value of the property
deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares of Homestead common stock, ATLANTIC will not recognize gain
or loss upon the exercise of the conversion right. ATLANTIC's tax basis in the
Homestead common stock received upon the conversion will be equal to
ATLANTIC's tax basis in the mortgages converted. Upon conversion of the
mortgages, ATLANTIC will receive cash in lieu of any fractional shares of
Homestead common stock and will recognize gain to the extent that the cash
received exceeds ATLANTIC's tax basis in the portion of the mortgages
converted for cash in lieu of fractional shares. In the event that ATLANTIC
exercises its conversion right, it is expected that ATLANTIC, consistent with
its status as a REIT, will shortly thereafter distribute to its shareholders
or sell in the open market the Homestead common stock received. ATLANTIC will
recognize gain upon such distribution or sale of the Homestead common stock
received upon conversion in an amount equal to the excess of the fair market
value of the Homestead common stock over ATLANTIC's tax basis therein, and the
earnings and profits of ATLANTIC will be increased by the amount of any such
gain recognized. In computing its taxable income for the year in which any
Homestead common stock is distributed, ATLANTIC will be allowed a dividends-
paid deduction in an amount equal to the fair market value at the time of
distribution of the Homestead common stock distributed, but in no event in
excess of the earnings and profits of ATLANTIC.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders
As long as ATLANTIC qualifies as a REIT, distributions made to ATLANTIC's
taxable domestic shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends-
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed ATLANTIC's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that ATLANTIC makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's Shares by the amount of
such distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the Shares are held as a
capital asset). In addition, any dividend declared by ATLANTIC in October,
November or December of any year and payable to a shareholder of record on a
specific date in any such month shall be treated as both paid by ATLANTIC and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by ATLANTIC during January of the following calendar
year. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of ATLANTIC. Federal income tax rules
may also require that certain minimum tax adjustments and preferences be
apportioned to ATLANTIC shareholders.
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In general, any loss upon a sale or exchange of Shares by a shareholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from ATLANTIC required to be treated by such shareholder as
long-term capital gains.
Backup Withholding
ATLANTIC will report to its domestic shareholders and to the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld,
if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at applicable rates with
respect to dividends paid unless such shareholder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that
does not provide ATLANTIC with its correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be credited against the shareholder's income tax liability.
In addition, ATLANTIC may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their nonforeign
status to ATLANTIC. See "--Taxation of Foreign Shareholders" below.
Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt employees' pension trust do not
constitute unrelated business taxable income ("UBTI"). Subject to the
discussion below regarding a "pension-held REIT", based upon the ruling, the
analysis therein and the statutory framework of the Code, distributions by
ATLANTIC to a shareholder that is a tax-exempt entity should also not
constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its Shares with "acquisition indebtedness" within the meaning
of the Code, and that the Shares are not otherwise used in an unrelated trade
or business of the tax-exempt entity, and that ATLANTIC, consistent with its
present intent, does not hold a residual interest in a real estate mortgage
investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of stock of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or
one or more qualified pension trusts (each owning more than a 10% interest by
value in the REIT) hold in the aggregate more than 50% by value of the
interests in such REIT.
Taxation of Foreign Shareholders
ATLANTIC will qualify as a "domestically-controlled REIT" so long as less
than 50% in value of its Shares is held by foreign persons (i.e., nonresident
aliens and foreign corporations, partnerships, trusts and estates). It is
currently anticipated that ATLANTIC will qualify as a domestically controlled
REIT. Under these circumstances, gain from the sale of the Shares by a foreign
person should not be subject to U.S. taxation, unless such gain is effectively
connected with such person's U.S. business or, in the case of an individual
foreign person, such person is present within the U.S. for more than 182 days
in such taxable year.
Distributions of cash generated by ATLANTIC's real estate operations (but
not by its sale or exchange of such communities) that are paid to foreign
persons generally will be subject to U.S. withholding tax at a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign
shareholder files with ATLANTIC the required form evidencing such lower rate
or (ii) the foreign shareholder files an IRS Form 4224 with ATLANTIC claiming
that the distribution is "effectively connected" income. Treasury Regulations
proposed in 1996, which
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have not yet been adopted, and are therefore not currently effective, would,
if and when they become effective, revise in certain respects the rules
applicable to foreign shareholders with respect to payments made after
December 31, 1997.
Distributions of proceeds attributable to the sale or exchange by ATLANTIC
of U.S. real property interests are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), and may be subject to branch profits tax in the hands of a
shareholder which is a foreign corporation if it is not entitled to treaty
relief or exemption. ATLANTIC is required by applicable Treasury Regulations
to withhold 35% of any distribution to a foreign person that could be
designated by ATLANTIC as a capital gain dividend; this amount is creditable
against the foreign shareholder's FIRPTA tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in ATLANTIC should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investment in
ATLANTIC.
TAX EFFECTS OF THE MERGER
General
The following discussion summarizes the material U.S. federal income tax
considerations of the Merger and the Warrant Issuance to ATLANTIC and its
shareholders. The following discussion is based upon the current provisions of
the Code, its legislative history, administrative pronouncements, judicial
decisions and Treasury regulations, all of which are subject to change,
possibly with retroactive effect. The following discussion does not purport to
be a complete discussion of all U.S. federal income tax considerations. The
following discussion does not address the tax consequences of the Merger and
the Warrant Issuance under state, local or non-U.S. tax laws. In addition, the
following discussion may not apply, in whole or in part, to particular
categories of ATLANTIC shareholders, such as dealers in securities, insurance
companies, foreign persons, financial institutions and tax-exempt
organizations (except with regard to "unrelated business taxable income"). THE
FOLLOWING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL ATLANTIC
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER OR WARRANT ISSUANCE, INCLUDING ANY STATE, LOCAL
AND NON-U.S. TAX CONSEQUENCES.
The Merger
In the opinion of Mayer, Brown & Platt, based on certain representations of
Security Capital and ATLANTIC, the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. Accordingly, ATLANTIC will not recognize income, gain or loss upon the
consummation of the Merger (assuming that ATLANTIC makes the election
described under "--Built-in Gain Rules" below). In addition, the Merger will
not result in a taxable event to the ATLANTIC shareholders. Nonetheless, such
opinion is not binding on the IRS nor will it preclude the IRS from adopting a
contrary position. Moreover, since no ruling from the IRS will be sought with
respect to the federal income tax consequences of the Merger, there can be no
complete assurance that the IRS will agree with the conclusions set forth
herein. The discussion below assumes that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code.
Basis and Holding Period. Immediately following the closing date of the
Merger, the assets of the REIT Manager and SCG Realty Services in the hands of
ATLANTIC will have the same adjusted tax basis as they had in the hands of the
REIT Manager and SCG Realty Services immediately prior to the closing date of
the Merger. The holding period for each of the assets of the REIT Manager and
SCG Realty Services in the hands of ATLANTIC following the closing date of the
Merger will include the period each asset was held by the REIT Manager and SCG
Realty Services immediately prior to the closing date of the Merger.
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Built-in Gain Rules. Under the "Built-in Gain Rules" of IRS Notice 88-19,
1988-1 C.B. 486, ATLANTIC will be subject to a corporate level tax if it
disposes of any of the assets acquired from Security Capital in the Merger at
any time during the 10-year period beginning on the closing date of the Merger
(the "Restriction Period"). This tax would be imposed on ATLANTIC at the top
regular corporate rate (currently 35%) in effect at the time of the
disposition on the excess of (i) the lesser of (a) the fair market value on
the closing date of the assets disposed of or (b) the selling price of such
assets over (ii) ATLANTIC's adjusted basis on the closing date in such assets
(such excess being referred to as the "Built-in Gain"). ATLANTIC currently
does not intend to dispose of any of the assets acquired in the Merger during
the Restriction Period, but there can be no assurance that one or more of such
dispositions will not occur. The results described above with respect to the
recognition of Built-in Gain assume that ATLANTIC will make the appropriate
election pursuant to the Built-in Gain Rules or applicable future
administrative rules or Treasury regulations. Under the Merger Agreement,
ATLANTIC has covenanted to make this election.
Liability for Other Taxes. Pursuant to the Merger Agreement, Security
Capital will be responsible for income tax liabilities attributable to the
operations of the REIT Manager and SCG Realty Services through the
consummation of the Merger. However, ATLANTIC, as successor to the REIT
Manager and SCG Realty Services in the Merger, will be severally liable
(together with Security Capital and the members of its "affiliated group"
within the meaning of Section 1502 of the Code) for income tax liabilities of
Security Capital and the members of its "affiliated group" for periods prior
to and including the year in which the consummation of the Merger occurs.
Security Capital, however, has agreed to indemnify and hold harmless ATLANTIC
from and against any income tax liabilities of the REIT Manager and SCG Realty
Services for all periods prior to the closing date of the Merger and any
income tax liabilities of Security Capital and the members of its "affiliated
group".
Consequences of the Merger on ATLANTIC's Qualification as a REIT. In light
of the unique federal income tax requirements applicable to REITs, the Merger
could have adverse consequences on ATLANTIC's continued qualification as a
REIT. In the opinion of Mayer, Brown & Platt, based upon certain
representations of Security Capital and ATLANTIC, the consummation of the
Merger will not jeopardize the status of ATLANTIC as a REIT under the Code.
The Warrant Issuance
Receipt of Warrants. ATLANTIC believes that a shareholder should be treated
as having ordinary income upon receipt of a warrant pursuant to the Warrant
Issuance in an amount equal to the fair market value of the warrants received
on the issuance date. Security Capital and ATLANTIC each intend to report the
Warrant Issuance in a manner consistent with this treatment. Accordingly, a
shareholder's tax basis in the warrants received will equal the fair market
value of the warrants received on the issuance date. A shareholder's holding
period for the warrants received will begin on the issuance date.
Fractional Warrants. If a shareholder receives cash in lieu of a fractional
warrant, such shareholder will recognize gain or loss measured by the
difference between the tax basis of such fractional warrant (i.e. the fair
market value of such fractional warrant on the issuance date) and the amount
of cash received. Such gain or loss will constitute capital gain or loss if
the shareholder holds the warrants as a capital asset on the issuance date,
and will be short-term capital gain or loss since the holding period for such
fractional warrants will be less than one year.
Disposition of Shares Prior to the Warrant Issuance Record Date. While a
shareholder generally would not recognize ordinary income on the disposition
of his or her Shares, a shareholder disposing of his or her Shares on or after
the closing date of the Merger and prior to the record date for the Warrant
Issuance may recognize ordinary income in an amount equal to the fair market
value of the right of a holder of the Shares to receive the warrants, measured
as of the time of disposition of the Shares. A shareholder would not be able
to offset any portion of such ordinary income with his or her tax basis in his
or her Shares. To the extent a shareholder recognizes ordinary income, the
amount realized for purposes of calculating capital gain or loss on such
disposition will be reduced by the amount of such ordinary income.
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Tax-Exempt Shareholders. Section 511 of the Code imposes on organizations
exempt from federal income tax under Section 501(a) of the Code a tax at
corporate income tax rates on such organizations' "unrelated business taxable
income." Although not free from doubt, the receipt by tax-exempt shareholders
of ATLANTIC of the warrants pursuant to the Warrant Issuance should be treated
as unrelated business taxable income.
Backup Withholding. Under the backup withholding rules of the Code (which
generally impose a 31% withholding tax on certain persons who fail to furnish
the information required under the United States tax reporting requirements),
an ATLANTIC shareholder may be subject to backup withholding with respect to
the receipt of the warrants unless such shareholder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number and
certifies under penalties of perjury that the taxpayer identification number
is correct and that the holder is not currently subject to backup withholding
because of a failure to report all dividend and interest income. Any amount
withheld under these rules will be credited against the shareholder's Federal
income tax liability.
Information Reporting. Security Capital is required to report to the
ATLANTIC shareholders receiving warrants and the IRS the value of the warrants
issued pursuant to the Warrant Issuance on Form 1099-MISC.
Sale, Disposition, Exercise or Expiration of Warrants. In general, upon a
sale or other disposition of a warrant, a holder of warrants will recognize
gain or loss measured by the difference between the amount realized on the
sale or other disposition and the warrant holder's tax basis in the warrant.
In general, such gain or loss will be a capital gain or loss if the stock into
which the warrants are exercisable would be a capital asset in the warrant
holder's hands and will be a short-term capital gain or loss because the
warrants will expire in one year from the date of issuance.
Exercise of Warrants. Except as discussed below with respect to cash
received in lieu of fractional Class B Stock, a warrant holder will not
recognize gain or loss upon the exercise of a warrant. A warrant holder's tax
basis in the Class B Stock received upon exercise of a warrant will be equal
to the sum of (1) the warrant holder's tax basis in the warrant exercised and
(2) the exercise price paid. The holding period of the Class B Stock received
upon the exercise of a warrant will begin on the date of exercise. Holders
receiving cash in lieu of fractional Class B Stock upon exercise of a warrant
will recognize gain to the extent that the cash received exceeds the warrant
holder's tax basis in the portion of the warrant exercised for cash in lieu of
fractional Class B Stock.
Expiration of the Warrants. If a warrant holder's warrants expire without
being exercised, the warrant holder will recognize a loss equal to its tax
basis in the expired warrants. In general, such loss will be a capital loss if
the stock into which the warrants were exercisable would be a capital asset in
the warrant holder's hands and will be a short-term loss because the warrants
will expire in one year from the date of issuance.
Adjustment of Conversion Ratio. The terms of the warrants distributed
pursuant to the Merger Agreement provide for adjustment of the price for
exercise if Security Capital makes certain distributions of stock, cash or
other property to its shareholders. While Security Capital does not presently
contemplate making such a distribution, if Security Capital makes a
distribution of cash or property resulting in an adjustment to the exercise
price, the holders of the warrants may be viewed as receiving a "deemed
distribution" under Section 305 of the Code, even if such warrant holder does
not hold any Class B Stock at such time. The deemed distribution would
constitute a taxable dividend, taxable as ordinary income, to the extent that
the earnings and profits of Security Capital were allocable to the deemed
distribution. The amount of the deemed distribution which exceeded the
allocated earnings and profits of Security Capital would be considered a
return of capital, and would reduce the warrant holder's tax basis in the
warrants (but not below zero) by the value of the deemed distribution. To the
extent that the value of the deemed distribution exceeds the warrant holder's
tax basis in its warrants, the deemed distribution would result in gain to
such warrant holder. In any event, the warrant holder's tax basis in its
warrants would then immediately be increased by the value of the property
deemed to have been distributed.
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OTHER TAX CONSIDERATIONS
Tax on Built-in Gain
Pursuant to I.R.S. Notice 88-19, 1988-1 C.B. 486, a "C" corporation that
elects to be taxed as a REIT has to recognize any gain that would have been
realized if the "C" corporation had sold all of its assets for their
respective fair market values at the end of its last taxable year before the
taxable year in which it qualifies to be taxed as a REIT and immediately
liquidated unless the REIT elects to be taxed under rules similar to the rules
of Section 1374 of the Code.
Since ATLANTIC has made this election, if during the 10-year period
beginning on the first day of the first taxable year for which ATLANTIC
qualifies as a REIT (the "Recognition Period"), ATLANTIC recognizes gain on
the disposition of any asset held by ATLANTIC as of the beginning of such
Recognition Period, then, to the extent of the excess of (a) the fair market
value of such asset as of the beginning of such Recognition Period over (b)
ATLANTIC's adjusted basis in such asset as of the beginning of such
Recognition Period, such gain will be subject to tax at the highest regular
corporate rate. Because ATLANTIC acquired many of its communities in fully
taxable transactions and presently expects to hold each community beyond the
Recognition Period, it is not anticipated that ATLANTIC will pay a substantial
corporate level tax on its built-in gain.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in ATLANTIC may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the Treasury, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in federal tax laws and interpretations thereof
could adversely affect the tax consequences of an investment in ATLANTIC.
State and Local Taxes
ATLANTIC and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of ATLANTIC and its 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 the
Shares of ATLANTIC.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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THE OFFERING
RIGHTS
ATLANTIC is issuing as a dividend, at no cost, to each holder of Shares of
record as of the close of business on the Record Date, one Right for each
Share held by such holder on such Record Date. Rights entitle the
holder thereof to purchase one Share at the Subscription Price. The Rights are
evidenced by transferable Rights certificates, which shareholders will receive
with the delivery of this Prospectus. A holder of Rights may (a) subscribe for
Shares through the exercise of all of his or her Rights, thereby preserving
approximately the same percentage ownership in ATLANTIC, (b) subscribe for
Shares through the exercise of part of his or her Rights and transfer or sell
the remainder of his or her Rights, (c) transfer or sell all of his or her
Rights or (d) allow part or all of his or her Rights to expire unexercised. In
any of the latter three cases, the shareholder would own a smaller relative
equity ownership and voting interest in ATLANTIC after the Offering and the
Merger.
SUBSCRIPTION PRICE
The Subscription Price for one Share, which may be purchased upon the
exercise of Rights, is $ .
EXPIRATION DATE
The Rights will expire and become void at 5:00 p.m., Eastern Daylight Time,
on , 1997 or such later date as ATLANTIC may determine in its
sole discretion. The Rights will thereafter have no value. Notice will be
given to shareholders of record on the Record Date, by mail or by publication
in a newspaper of national circulation, of a new Expiration Date in the event
ATLANTIC extends the period for the exercise of the Rights.
OVERSUBSCRIPTION PRIVILEGE
A holder of Shares on the Record Date who validly exercises all of the
Rights initially issued to such holder to the extent possible will have the
further right to exercise the Oversubscription Privilege for Unsubscribed
Shares at the Subscription Price. Only holders of Shares on the Record Date
will be entitled to the Oversubscription Privilege. Holders of Shares so
entitled to exercise the Oversubscription Privilege may oversubscribe for as
many Shares as desired (subject to the maximum number of Shares offered in the
Offering and certain other restrictions). See "--Limitation on Subscriptions".
If the demand for Shares pursuant to the Oversubscription Privilege exceeds
the number of Shares available, holders of Shares on the Record Date shall
participate in the Oversubscription Privilege (up to, but not exceeding, the
number of Shares oversubscribed for by each such holder) pro rata based upon
the number of Rights exercised by each such person (without regard to the
number of Shares oversubscribed for by each such person pursuant to the
Oversubscription Privilege), with fractional Shares adjusted in any manner
ATLANTIC deems appropriate. Promptly after the Expiration Date, ATLANTIC will
send each subscriber exercising the Oversubscription Privilege a written
confirmation of the number of Shares allocated to such subscriber under the
Oversubscription Privilege. Any amounts overpaid by the subscriber will be
refunded promptly together with a pro rata share of any net interest earned
thereon.
UNSUBSCRIBED SHARES AND THIRD PARTY SALES
ATLANTIC, with the assistance of Capital Markets Group (which will not
receive any compensation from ATLANTIC), will, simultaneously with the
offering of Shares to Rights holders, seek third-party investors to acquire
Unsubscribed Shares. Capital Markets Group will offer the Unsubscribed Shares,
at the Subscription Price, on a best-efforts basis in jurisdictions where it
is authorized to do so. ATLANTIC will not pay Capital Markets Group or any
other person any commission or fee in connection with the offer or sale of the
Shares. ATLANTIC will indemnify Capital Markets Group against certain civil
liabilities, including liabilities under the
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Securities Act. No person has committed to underwrite the sale of Unsubscribed
Shares to third parties. The REIT Manager will pay a fee of $250,000 to
Capital Markets Group. ATLANTIC has agreed to pay the expenses of Capital
Markets Group related to the Offering, which expenses are not expected to
exceed $25,000.
Third-party investors who desire to purchase Unsubscribed Shares should mail
or deliver the subscription form (the "Subscription Form") to the Subscription
Agent (as hereinafter defined) at the appropriate address set forth under "--
Subscription Agent". The Subscription Form must be properly completed and duly
executed. Subscription Forms may be obtained by contacting Capital Markets
Group at (505) 986-6506. Subscriptions for less than 1,000 Shares from third-
party investors will not be accepted. If subscriptions exceed available
Shares, ATLANTIC may allocate available Unsubscribed Shares in ATLANTIC's sole
discretion. Subscription Forms must be received by the Subscription Agent
prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date.
Subscription Forms received after such time will not be honored. On or
promptly after , 1997, the business day after the Expiration Date,
Capital Markets Group will send each third-party investor a written
confirmation of the number of Shares allocated to such investor. On or prior
to , 1997, the fourth business day after the Expiration Date,
third-party investors must deliver payment for the Shares subscribed for to
the Subscription Agent by wire transfer of immediately available funds, based
upon such investor's prorated allocation of Shares as notified by ATLANTIC or
Capital Markets Group.
Capital Markets Group is affiliated with ATLANTIC and, acting as placement
agent, may be deemed to be an "underwriter" under the Securities Act in
connection with this Offering.
LIMITATION ON SUBSCRIPTIONS
In its sole discretion, ATLANTIC may reduce subscriptions to ensure that no
shareholder (other than Security Capital) will beneficially own more than 9.8%
of the Shares following the Offering and the Merger. ATLANTIC's Charter limits
each shareholder's beneficial ownership to 9.8% of the outstanding shares of
ATLANTIC's stock without approval of the Board. The Board has the authority
pursuant to ATLANTIC's Charter to redeem any shares in excess of such 9.8%
limit. See "Description of Stock--Restriction on Size of Holdings of Shares".
CONDITION TO CLOSING
The closing of the Offering (and the offering of Unsubscribed Shares to
third parties) is conditioned upon the consummation of the Merger. The
consummation of the Merger is subject to certain customary conditions,
including the approval of ATLANTIC's shareholders. See "The Merger
Transaction". In the event that the Merger Agreement is terminated or the
Merger otherwise fails to occur for any reason on or prior to December 31,
1997 or the Offering otherwise fails to close for any reason on or prior to
such date, all funds received from subscribers in the Offering will be
refunded promptly, together with a pro rata share of any net interest earned
thereon. See "--Subscription Proceeds".
WITHDRAWAL
ATLANTIC reserves the right to withdraw the Offering (and the offering of
Unsubscribed Shares to third parties) at any time prior to or on the
Expiration Date and for any reason (including, without limitation, the market
price of the Shares), in which event all funds received from subscribers will
be refunded promptly, together with a pro rata share of any net interest
earned thereon. See "--Subscription Proceeds".
PRINCIPAL SHAREHOLDER
Security Capital, which owns 51.3% of the outstanding Shares prior to the
Offering and the Merger, has agreed that it will not exercise its Rights to
purchase additional Shares and that it will not sell its Rights. Also, Shares
underlying the Rights issued to Security Capital will not be available for
oversubscriptions or for sales to third parties. Security Capital's ownership
could increase from approximately 51.3% to approximately %, if no Shares
are purchased in the Offering. If the Offering is fully subscribed, Security
Capital will continue to
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own approximately 51.3% of the outstanding Shares after the Offering and the
Merger. Security Capital intends, over time, to allow its ownership interest
in ATLANTIC to fall to between 40% and 50% as ATLANTIC conducts equity
offerings, which is consistent with its ownership interests in the other
operating companies in which Security Capital invests.
SUBSCRIPTION AGENT
The Subscription Agent and escrow agent for the Offering is The First
National Bank of Boston (the "Subscription Agent"). The address to which
Rights Certificates, Subscription Forms, Notices of Guaranteed Delivery and
payments should be mailed or delivered is:
By Regular Mail: By Hand:
The First National Bank of Boston BancBoston Trust Company of New York
Corporate Reorganization 55 Broadway, Third Floor
P.O. Box 1889 New York, New York
Mail Stop 45-02-53
Boston, Massachusetts 02105 By Overnight Courier:
The First National Bank of Boston
By Facsimile Transmission: Corporate Reorganization
(617) 575-2232 Mail Stop 45-02-53
(617) 575-2233 150 Royall Street
(for Eligible Institutions only) Canton, Massachusetts 02021
Confirm by Telephone
(617) 575-3120
Delivery of Rights Certificates, Subscription Forms, Notices of Guaranteed
Delivery and payments (other than wire transfers) other than as set forth
above will not constitute a valid delivery.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF
SUBSCRIBING FOR SHARES OR FOR ADDITIONAL COPIES OF THIS PROSPECTUS SHOULD BE
DIRECTED TO ATLANTIC'S INFORMATION AGENT, GEORGESON & COMPANY, INC., AT 1-800-
223-2064.
FRACTIONAL SHARES
No fractional Shares will be issued, and ATLANTIC may adjust for fractional
Shares resulting from the exercise of the Oversubscription Privilege in any
manner it deems appropriate. Rights Certificates may not be divided in such a
manner as to create fractional Rights or permit holders to subscribe for a
greater number of Shares. Banks, trust companies, securities dealers and
brokers that hold Shares as nominees for more than one beneficial owner may
have a Rights Certificate divided by the Subscription Agent (see "--Method of
Transferring Rights"), or may, upon proper showing to the Subscription Agent,
exercise their Rights Certificates on the same basis as if the beneficial
owners were record holders on the Record Date. ATLANTIC reserves the right to
deny any division of Rights Certificates if in its opinion the result would be
inconsistent with the intent of this privilege.
METHOD OF EXERCISING RIGHTS AND OVERSUBSCRIPTION PRIVILEGE
Shares may be subscribed for pursuant to the exercise of the Rights and the
Oversubscription Privilege by properly completing and duly executing the
Rights Certificate accompanying this Prospectus and mailing or delivering the
Rights Certificate, together with payment of the full Subscription Price for
each Share subscribed for pursuant to the exercise of Rights and the
Oversubscription Privilege, to the Subscription Agent at the appropriate
address set forth above. Banks, trust companies, securities dealers and
brokers that hold Shares as nominee for more than one beneficial owner may
upon proper showing to the Subscription Agent, exercise their Rights and the
Oversubscription Privilege on the same basis as if the beneficial owners were
record holders on
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the Record Date. Payments must be made in United States currency by personal
check, cashier's check, bank draft or money order payable to the order of
"ATLANTIC Escrow Account". In the case of holders of Rights that are held of
record through The Depository Trust Company ("DTC"), such Rights may be
exercised by instructing DTC to transfer Rights from such holder's DTC account
to the Subscription Agent's DTC account, together with payment of the full
Subscription Price. Except as described under "--Late Delivery of Payment and
Rights Certificates", to be accepted, the properly completed and duly executed
Rights Certificate and the payment must be received by the Subscription Agent
prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date. Rights
Certificates received after such time will not be honored.
A holder of Rights who exercises fewer than all of the Rights represented by
his or her Rights Certificate will receive from the Subscription Agent a new
Rights Certificate representing such unexercised Rights. No new Rights
Certificates will be issued after , 1997. Neither ATLANTIC nor
the Subscription Agent shall incur any liability if a Rights Certificate,
furnished by the Subscription Agent or otherwise, is not received in time to
be exercised, transferred or sold.
The instruction letter accompanying the Rights Certificate should be read
carefully and strictly followed. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS
TO ATLANTIC. Except as described under the captions "--Unsubscribed Shares and
Third Party Sales" and "--Late Delivery of Payments and Rights Certificates",
no subscription will be deemed to have been received until the Subscription
Agent has received delivery of a properly completed and duly executed Rights
Certificate and payment of the full Subscription Price. The risk of delivery
of all documents and payments is on subscribers, not ATLANTIC or the
Subscription Agent. If the mail is used, it is recommended that insured,
registered mail, return receipt requested, be used and that a sufficient
number of days be allowed to ensure delivery to the Subscription Agent before
the Expiration Date.
LATE DELIVERY OF PAYMENTS AND RIGHTS CERTIFICATES
If, prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date, the
Subscription Agent has received a properly completed and duly executed Notice
of Guaranteed Delivery substantially in the form accompanying this Prospectus
(either by hand, mail, telegram or facsimile transmission) specifying the name
of the holder of Rights and the number of Shares subscribed for (stating
separately the number of Shares subscribed for pursuant to the exercise of
Rights and the Oversubscription Privilege) and guaranteeing that the properly
completed and duly executed Rights Certificate and payment of the full
Subscription Price for all Shares subscribed for will be delivered to the
Subscription Agent within three business days after the Expiration Date, such
subscription may be accepted, subject to the Subscription Agent's withholding
the certificates for the Shares until receipt of the properly completed and
duly executed Rights Certificate and payment of such amount within such time
period. In the case of holders of Rights that are held of record through DTC,
such Rights may be exercised by instructing DTC to transfer Rights from such
holder's DTC account to the Subscription Agent's DTC account, together with
payment of the full Subscription Price. The Notice of Guaranteed Delivery must
be guaranteed by a commercial bank, trust company or credit union having an
office, branch or agency in the United States or by a member of a Stock
Transfer Association approved medallion program such as STAMP, SEMP or MSP.
Notices of Guaranteed Delivery and Payments should be mailed or delivered to
the appropriate addresses set forth under "--Subscription Agent".
METHOD OF TRANSFERRING RIGHTS
Rights may be transferred, in whole or in part, to persons who are residents
of the United States. Rights may be transferred in whole by endorsing the
Rights Certificate for transfer. Rights may be transferred in part by
delivering to the Subscription Agent, at the appropriate address set forth
under "--Subscription Agent", a Rights Certificate that has been properly
endorsed for transfer, with instructions to reissue the Rights in part in the
name of the transferee and reissue the balance to the Rights holder. The
Rights Certificate must be received by the Subscription Agent by 5:00 p.m.,
Eastern Daylight Time, on , 1997 for new Rights Certificates to
be issued. Unless arrangements are made for return overnight delivery, new
Rights Certificates to be issued on or about , 1997 may not be
received prior to the Expiration Date. Any arrangements
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for, and the related expenses of, overnight delivery of new Rights
Certificates must be made by the individual holder. Any questions regarding
the transfer of Rights should be directed to ATLANTIC's information agent,
Georgeson & Company, Inc., at 1-800-223-2064.
All commissions, fees and other expenses (including brokerage commissions
and any transfer taxes) incurred in connection with the purchase, sale or
exercise of Rights are for the account of the transferor or the transferee of
the Rights, and none of such commissions, fees or expenses will be paid by
ATLANTIC.
Pursuant to a listing application for the underlying Shares, the Rights will
be traded on the NYSE under the symbol "SCA-RT". Pursuant to the rules of the
NYSE, the Rights will be traded only up to the close of the NYSE on
, 1997, the business day preceding the Expiration Date.
VALIDITY OF SUBSCRIPTIONS
All questions with respect to the validity and form of the exercise of any
Rights or the Oversubscription Privilege or third-party subscriptions for
Unsubscribed Shares (including time of receipt and eligibility to participate
in the Offering) will be determined solely by ATLANTIC, which determination
shall be final and binding. Once made, subscriptions and directions are
irrevocable, and no alternative, conditional or contingent subscriptions or
directions will be accepted. ATLANTIC reserves the absolute right to reject
any subscriptions or directions not properly submitted or the acceptance of
which, in the opinion of ATLANTIC's counsel, would be unlawful. Any
irregularities in connection with subscriptions must be cured prior to the
Expiration Date unless waived by ATLANTIC in its sole discretion. Neither
ATLANTIC nor the Subscription Agent shall be under any duty to give
notification of defects in such subscriptions or incur any liability for
failure to give such notification. A subscription will be deemed to have been
accepted (subject to ATLANTIC's right to withdraw or terminate the Offering)
only when a properly completed and duly executed Subscription Form or Rights
Certificate, any other required documents and payment of the full Subscription
Price with respect to such subscription have been received by the Subscription
Agent. ATLANTIC's interpretations of the terms and conditions of the Offering
shall be final and binding.
RIGHTS OF SUBSCRIBERS
Subscribers will have no rights as shareholders of ATLANTIC with respect to
Shares subscribed for until certificates representing such Shares are issued
to them. Subscribers will have no right to revoke their subscriptions after
delivery to the Subscription Agent of a completed Rights Certificate or
Subscription Form and any other required documents.
SUBSCRIPTION PROCEEDS
All proceeds received by the Subscription Agent with respect to the exercise
of Rights and the Oversubscription Privilege and with respect to third-party
subscriptions for Unsubscribed Shares will be held by the Subscription Agent
in trust in an escrow account. Such proceeds will be invested only in short-
term bank time deposits, short-term certificates of deposit, short-term
government securities or any other investment permitted by Rule 15c2-4 under
the Exchange Act. If the Offering is withdrawn or terminated for any reason,
the Subscription Agent will return promptly to each subscriber all funds
received from such subscriber, together with a pro rata share of any net
interest earned thereon.
FOREIGN SHAREHOLDERS
Rights Certificates will not be mailed to shareholders whose mailing address
is outside the United States or the Province of Ontario, Canada, but will
instead be held by the Subscription Agent for such shareholders' accounts
until transfer instructions are received. If no instructions are received
prior to 10:00 a.m., Eastern Daylight Time, on the fifth business day
preceding the Expiration Date, the Subscription Agent will endeavor to sell
the Rights of such shareholders for their respective accounts. The net
proceeds, if any, from such sales (based on the average price received during
such day) will be distributed to such foreign holders. No assurances can be
given that the Subscription Agent will be able to sell such Rights.
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The Rights issued pursuant to the Offering to residents of Ontario are not
transferable in Ontario and the Shares issued to residents of Ontario upon
exercise of Rights may not be sold or otherwise disposed of for value in
Ontario, except pursuant to either a prospectus or a statutory exemption
available only in specific and limited circumstances.
DELIVERY OF SHARES
Certificates for Shares purchased pursuant to the exercise of Rights, the
exercise of the Oversubscription Privilege or third-party subscriptions for
Unsubscribed Shares will be mailed as soon as practicable after the Expiration
Date and the receipt of all required documents and payment in full of the
Subscription Price due for such Shares. In the case of shareholders whose
Shares are held through DTC and third-party investors who arrange for delivery
and payment through DTC, the appropriate participant account will be credited.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING THE OFFERING
The following discussion summarizes all material U.S. federal income tax
considerations of the Offering to ATLANTIC and its shareholders. To the extent
such summary discusses matters of law, it is based upon the opinion of Mayer,
Brown & Platt. The following discussion is based upon the current provisions
of the Code, its legislative history, administrative pronouncements, judicial
decisions and Treasury regulations, all of which are subject to change,
possibly with retroactive effect. The following discussion does not purport to
be a complete discussion of all U.S. federal income tax considerations. The
following discussion does not address the tax consequences of the Offering
under state, local or non-U.S. tax laws. In addition, the following discussion
may not apply, in whole or in part, to particular categories of ATLANTIC
shareholders, such as dealers in securities, insurance companies, foreign
persons, tax-exempt organizations and financial institutions. The discussion
of U.S. federal income tax considerations of the Offering set forth below
assumes that the Shares owned by a shareholder and the Shares issued pursuant
to the Offering constitute capital assets in the hands of such shareholder. It
should be noted that under current law, net capital gains of individuals are,
under certain circumstances, taxed at lower rates than items of ordinary
income, and the deductibility of capital losses is subject to limitations. THE
FOLLOWING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL ATLANTIC
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC
TAX CONSEQUENCES OF THE OFFERING, INCLUDING ANY STATE, LOCAL AND NON-U.S. TAX
CONSEQUENCES.
Taxation of ATLANTIC's Shareholders
Receipt of Right. Although not free from doubt, ATLANTIC believes that a
shareholder (including a foreign shareholder) should not recognize any gain
or loss upon his or her receipt of a Right. ATLANTIC intends to report the
Offering in a manner consistent with this treatment. However, it is
possible that a Shareholder could be treated as having ordinary income upon
the receipt of a Right in an amount equal to the fair market value of such
Right. The discussion below assumes that a shareholder will not recognize
any gain or loss upon the receipt of a Right.
Tax Basis of Right. If a shareholder exercises or sells a Right, the tax
basis of such Right in the hands of the shareholder will be determined by
allocating the shareholder's existing tax basis of his or her Shares with
respect to which the Right was distributed ("Old Shares") between his or
her Old Shares and the Right, in proportion to their relative fair market
values on the date of distribution. If, however, the fair market value of
the Rights distributed to the shareholder (on the date of distribution) is
less than 15% of the fair market value of his or her Old Shares, the tax
basis of each Right will be deemed to be zero unless the shareholder
affirmatively elects, by attaching an election statement to his or her
federal income tax return for the year in which he or she receives his or
her Rights, to compute the tax basis of his or her Rights in accordance
with the preceding sentence. Once made, such an election is irrevocable. A
Right will not be treated as having any tax basis if it lapses and,
therefore, the holder of an expired Right will not recognize a loss for tax
purposes.
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Sale of Right. If a shareholder sells a Right, the shareholder will
generally recognize capital gain or loss in an amount equal to the
difference between the proceeds of the sale and the shareholder's tax basis
of such Right. Such gain or loss will be long-term capital gain or loss if
the shareholder's holding period for such Right (which will include the
shareholder's holding period for his or her Old Shares) is more than one
year on the date of sale.
Exercise of Right. No gain or loss will generally be recognized by a
shareholder (including a foreign shareholder) upon the purchase of a Share
pursuant to the exercise of a Right. The tax basis of the Shares purchased
pursuant to the exercise of Rights will be equal to the sum of (a) the
shareholder's tax basis of the Rights exercised and (b) the Subscription
Price paid for such Shares. The holding period of the Shares purchased
pursuant to the exercise of Rights will commence on the date of exercise.
Upon the subsequent sale of such Shares (other than to ATLANTIC pursuant to
a redemption), the shareholder will generally recognize capital gain or
loss in an amount equal to the difference between the proceeds of the sale
and the shareholder's tax basis of such Shares. Such gain or loss will be
long-term capital gain or loss if the shareholder's holding period for such
Shares is more than one year on the date of sale.
Foreign Persons. Assuming that ATLANTIC currently qualifies and has
qualified as a domestically controlled REIT (see "Federal Income Tax
Considerations--Taxation of Shareholders--Taxation of Foreign
Shareholders"), gain from the sale of the Shares and Rights by a foreign
person should not be subject to U.S. taxation, unless such gain is
effectively connected with such person's U.S. business or, in the case of
an individual foreign person, such person is present within the U.S. for
more than 182 days in such taxable year.
Taxation of ATLANTIC. ATLANTIC will generally not recognize any gain or
loss upon (a) the issuance of Rights, (b) the receipt of cash for Shares
pursuant to the exercise of Rights or (c) the lapse of Rights.
PREFERRED SHARE OFFERING
ATLANTIC may offer approximately $50 million (which may be increased or
decreased subject to market conditions) of its Series A Preferred Shares in
the Preferred Share Offering. Holders of the Series A Preferred Shares will be
entitled to receive cumulative preferential cash distributions at the rate
specified in the Articles Supplementary relating thereto. Such distributions
will accrue whether or not ATLANTIC has earnings, whether or not there are
funds legally available for the payment of such distributions and whether or
not such distributions are declared. ATLANTIC will be restricted from
declaring or paying distributions on, or redeeming, any securities ranking
junior to or on a parity with the Series A Preferred Shares unless full
cumulative distributions have been or are declared and paid or declared and
set apart for payment on the Series A Preferred Shares for all past and then
current distribution periods. Holders of Series A Preferred Shares will also
be entitled to receive preferential liquidating distributions in the amount of
the liquidation preference specified in the Articles Supplementary relating
thereto, plus an amount equal to all distributions accrued and unpaid thereon.
The Series A Preferred Shares will be redeemable after a specified date by
ATLANTIC for cash at the redemption price specified in the Articles
Supplementary relating thereto, plus all accrued and unpaid distributions. In
addition, the Series A Preferred Shares will be redeemable by ATLANTIC in
order to preserve ATLANTIC's status as a REIT.
The Holders of Series A Preferred Shares will have no voting rights, unless
distributions required to be paid on the Series A Preferred Shares have not
been paid for a specified time, in which case such holders will be entitled to
elect additional Directors to the Board. In addition, the holders of the
Series A Preferred Shares will be entitled to vote on proposals to (i) amend
the Charter, (ii) enter into a share exchange, consolidate with or merge into
another entity, or permit another entity to consolidate with or merge into
ATLANTIC or (iii) authorize, reclassify, create or increase the authorized
amount of any senior class of securities.
The Series A Preferred Shares will not be convertible into or exchangeable
for any other property or securities of ATLANTIC.
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NOTE OFFERING
At or about the same time as the Preferred Share Offering, ATLANTIC may
offer approximately $150 million (which may be increased or decreased subject
to market conditions) of the Notes in the Note Offering. The Notes will be
direct, senior unsecured obligations of ATLANTIC and will rank equally with
all other unsecured and unsubordinated indebtedness of ATLANTIC from time to
time outstanding. The Notes will bear interest at stated rates, payable
semiannually in arrears. Installments of equal principal amounts will be paid
in each year on the Notes beginning in a specified year, so that the Notes
will amortize beginning in such year.
The Notes will be redeemable at any time at the option of ATLANTIC, in whole
or in part, at a redemption price equal to the sum of (i) the principal amount
of the Notes being redeemed plus accrued interest thereon to the redemption
date and (ii) the make-whole amount, if any.
The Notes will be issued under an Indenture between ATLANTIC and the State
Street Bank and Trust Company, as Trustee. The Indenture will contain certain
covenants, including covenants which restrict the amount of additional
indebtedness which ATLANTIC and its subsidiaries may incur.
INDEPENDENT AUDITORS AND EXPERTS
The financial statements of ATLANTIC at December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 and related
schedule as of December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included herein.
Such financial statements are included herein in reliance on their report
given on their authority as experts in accounting and auditing.
With respect to the unaudited condensed interim financial information for
the three-month periods ended March 31, 1997 and March 31, 1996, included
herein, Ernst & Young LLP have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report states that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the review procedures applied.
The independent auditors are not subject to the liability provisions of
Section 11 of the Act for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by the auditors within the
meaning of Sections 7 and 11 of the Act.
VALIDITY OF SHARES
The validity of the issuance of the Shares offered pursuant to this
Prospectus will be passed upon for ATLANTIC by Mayer, Brown & Platt, Chicago,
Illinois. Mayer, Brown & Platt has in the past represented, and is currently
representing, ATLANTIC, Security Capital and certain of their affiliates. As
to certain matters of Maryland law, Mayer, Brown & Platt will rely upon the
opinion of Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
ADDITIONAL INFORMATION
ATLANTIC is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained
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from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements
and other information can also be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005. In addition, such reports, proxy
statements and other information can also be obtained from the Commission's
Web site at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement filed by
ATLANTIC with the Commission under the Securities Act. This Prospectus does
not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to
the content of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document incorporated by reference in, or filed as an exhibit to, the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules hereto. For further information
regarding ATLANTIC and the Shares offered hereby, reference is hereby made to
the Registration Statement and such exhibits and schedules.
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GLOSSARY
"Acquiring Person" means a person or group of affiliated or associated
persons (excluding certain affiliates of ATLANTIC and certain current
shareholders) that has acquired beneficial ownership of 20% or more of the
outstanding Shares.
"ADA" means the Americans with Disabilities Act of 1990.
"Administrative Services Agreement" means the administrative services
agreement to be entered into between ATLANTIC and Security Capital upon the
closing of the Merger.
"Administrator" means the Secretary of ATLANTIC as administrator of the
Outside Directors Plan.
"Amended and Restated Investor Agreement" means the Amended and Restated
Investor Agreement to be entered into between Security Capital and ATLANTIC
upon the closing of the Merger.
"ASE" means the American Stock Exchange.
"ATLANTIC" means, as the context may require, Security Capital Atlantic
Incorporated, a Maryland corporation formed in April 1994, and/or its
predecessor and its subsidiaries.
"Atlantic Development Services" means Atlantic Development Services
Incorporated, an entity in which ATLANTIC owns substantially all of the
economic interest.
"Board" means ATLANTIC's Board of Directors.
"Capital Markets Group" means Security Capital Markets Group Incorporated,
an affiliate of the REIT Manager and a registered broker-dealer.
"Charitable Beneficiary" means an organization or organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code and identified by the Board as
the beneficiary or beneficiaries of the Excess Shares trust.
"Charter" means the charter of ATLANTIC.
"Class A Stock" means shares of Security Capital's Class A common stock, par
value $.01 per share.
"Class B Stock" means shares of Security Capital's Class B common stock, par
value $.01 per share.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Control Share acquisition" means, under Maryland law, the acquisition of
Control Shares, subject to certain exceptions.
"Control Shares" means, under Maryland law, voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority or (iii)
a majority of all voting power.
"DTC" means the Depository Trust Company.
"Excess Shares" means shares of ATLANTIC's stock that would result in a
person owning shares of ATLANTIC's stock in excess of the Ownership Limit or
cause ATLANTIC to become "closely held" under Section 856(h) of the Code,
unless acquired in a permitted transfer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" means 5:00 p.m., Eastern Daylight Time, on , 1997
or such later date as ATLANTIC may determine in its sole discretion.
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"FHA" means the Fair Housing Amendments Act of 1988.
"Final Expiration Date" means March 12, 2006.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"FNMA" means the Federal National Mortgage Association.
"Funds from operations" means net earnings (computed in accordance with
GAAP), excluding gains (or losses) from real estate transactions, provisions
for losses, extraordinary items and depreciation, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures are calculated to reflect funds from
operations on the same basis.
"GAAP" means generally accepted accounting principles.
"Historical Financial Results" means selected financial information on an
historical basis for ATLANTIC as of and for the years ended December 31, 1996,
1995 and 1994 and the period from inception (October 26, 1993) through
December 31, 1993.
"Homestead" means Homestead Village Incorporated, a Maryland corporation.
"Homestead Assets" means the assets ATLANTIC sold to Homestead on October
17, 1996.
"Homestead Distribution" means the distribution on November 12, 1996 by
ATLANTIC of 0.110875 shares of Homestead common stock and warrants to purchase
0.074384 shares of Homestead common stock to each holder of a Share on October
29, 1996.
"Incentive Plan" means the 1997 Incentive Plan adopted by the Board, subject
to shareholder approval.
"In planning" means communities owned or under control by ATLANTIC (land
which is under control through contingent contract or letter of intent) with
construction anticipated to commence within 12 months.
"Interested Stockholder" means any person who beneficially owns 10% or more
of the voting power of a Maryland corporation's shares or an affiliate of a
Maryland corporation who, at any time within the two-year period prior to the
date in question, was the beneficial owner of 10% or more of the voting power
of the then outstanding voting stock of the corporation.
"Investor Agreement" means the Investor Agreement dated October 28, 1993
between Security Capital and ATLANTIC.
"IRS" means the Internal Revenue Service.
"Laing" means Laing Properties, Inc.
"License Agreement" means the license agreement to be entered into between
ATLANTIC and Security Capital upon the closing of the Merger.
"Merger" means the merger of the REIT Manager and SCG Realty Services into a
newly formed subsidiary of ATLANTIC.
"Merger Agreement" means the Merger and Issuance Agreement dated March 24,
1997 between Security Capital and ATLANTIC relating to the Merger.
"Named Executive Officers" means the Co-Chairmen and the three other most
highly compensated executive officers of ATLANTIC.
120
<PAGE>
"NAREIT" means the National Association of Real Estate Investment Trusts.
"Notes" mean the unsecured senior debt securities of ATLANTIC proposed to be
offered in the Note Offering.
"Note Offering" means the proposed offering of the Notes.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the offering of Shares to the public by ATLANTIC pursuant
to this Prospectus.
"Options" means options to acquire Shares granted pursuant to the Outside
Directors Plan.
"Outside Directors" means the Directors of ATLANTIC who are not employees or
officers of ATLANTIC or Security Capital or any of its affiliates.
"Outside Directors Plan" means the Security Capital Atlantic Incorporated
Share Option Plan for Outside Directors.
"Oversubscription Privilege" means the right of holders of Shares on the
Record Date who validly exercise all of their Rights to oversubscribe for
Unsubscribed Shares, at the Subscription Price.
"Ownership Limit" means 9.8% of the number or value of the issued and
outstanding shares of ATLANTIC's stock.
"Participating Preferred Shares" means the shares of Series A Junior
Participating Preferred Stock, $0.01 par value per share.
"Preferred Share Offering" means the proposed offering of Series A Preferred
Shares.
"Pro Forma Financial Results" means selected financial information on a pro
forma basis for ATLANTIC as of and for the three months ended March 31, 1997
and the year ended December 31, 1996.
"Protection of Business Agreement" means the protection of business
agreement to be entered into between ATLANTIC and Security Capital upon the
closing of the Merger.
"PTR" means Security Capital Pacific Trust, a publicly traded REIT managed
by an affiliate of Security Capital.
"Purchase Price" means $40 per one one-hundredth of a Participating
Preferred Share.
"Purchase Right" means a preferred share purchase right entitling the
holder, under certain circumstances, to purchase Participating Preferred
Shares or Shares pursuant to the Rights Agreement.
"Recognition Period" means the 10-year period beginning on the first day of
the first taxable year for which ATLANTIC qualifies as a REIT.
"Record Date" means , 1997, the record date for the Rights
dividend.
"Redemption Price" means $0.01 per Purchase Right.
"REIT" means a real estate investment trust as defined under the Code.
"REIT Management Agreement" means the REIT management agreement pursuant to
which the REIT Manager assumed the day-to-day management of ATLANTIC.
"REIT Manager" or "REIT Management" means Security Capital (Atlantic)
Incorporated, a wholly owned subsidiary of Security Capital.
"Rights" means the transferable rights to purchase Shares issued to holders
of Shares of record on the Record Date.
"Rights Agreement" means the Rights Agreement governing the terms upon which
the Purchase Rights will become exercisable.
"Rights Distribution Date" means the earlier to occur of (i) 10 days
following a public announcement that a person has become an Acquiring Person
or (ii) 15 business days (or such later date as may be determined by action of
the Board prior to such time as any person or group of affiliated persons
becomes an Acquiring Person)
121
<PAGE>
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of persons (except for Security
Capital and certain other affiliates of ATLANTIC) of 25% or more of the
outstanding Shares.
"Rights Record Date" means March 12, 1996.
"SCG Realty Services" means SCG Realty Services Atlantic Incorporated, an
affiliate of the REIT Manager.
"SCI" means Security Capital Industrial Trust, a publicly traded REIT
managed by an affiliate of Security Capital.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Capital" means Security Capital Group Incorporated, ATLANTIC's
principal shareholder and the owner of the REIT Manager.
"Security Capital Real Estate Research" means Security Capital Real Estate
Research Group Incorporated, an affiliate of the REIT Manager.
"Series A Preferred Shares" means shares of Series A Cumulative Redeemable
Preferred Stock, par value $.01 per share, of ATLANTIC which are proposed to
be offered in the Preferred Share Offering.
"Shares" means the shares of common stock, par value $.01 per share, of
ATLANTIC.
"Stabilized" means that renovation, repositioning, new management and new
marketing programs (or development and marketing in the case of newly
developed communities) have been completed and in effect for a sufficient
period of time (but in no event longer than 12 months, except in cases of
major rehabilitation) to achieve 93% occupancy at market rents. Prior to being
"stabilized", a community is considered "pre-stabilized".
"Subscription Agent" means the First National Bank of Boston.
"Subscription Price" means $ per Share, the price at which a holder of
Rights is entitled to purchase one Share.
"Total expected investment cost" represents cost plus budgeted renovations
(for operating communities) or cost plus additional budgeted development
expenditures (for communities under construction and in planning).
"Treasury" means the United States Treasury Department.
"UBTI" means unrelated business taxable income as defined under the Code.
"Under control" means that ATLANTIC has an exclusive right (through
contingent contract or letter of intent), during a contractually agreed-upon
time period, to acquire land for future development of multifamily
communities, subject to removal of contingencies during the due diligence
process, but does not currently own the land.
"Unsubscribed Shares" means Shares covered by this Prospectus that have not
been purchased through the exercise of Rights.
"Warrant Issuance" means the issuance of warrants by Security Capital to
ATLANTIC's shareholders in connection with the Merger Agreement.
122
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL:
Independent Accountants' Review Report.................................. F-2
Condensed Balance Sheets as of March 31, 1997 and December 31, 1996..... F-3
Condensed Statements of Earnings for the three-month periods ended March
31, 1997 and 1996...................................................... F-4
Condensed Statements of Cash Flows for the three-month periods ended
March 31, 1997 and 1996................................................ F-5
Notes to Condensed Financial Statements................................. F-6
Report of Independent Auditors.......................................... F-13
Balance Sheets as of December 31, 1996 and 1995......................... F-14
Statements of Earnings for the years ended December 31, 1996, 1995 and
1994................................................................... F-15
Statements of Shareholders' Equity for the years ended December 31,
1994, 1995 and 1996.................................................... F-16
Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................... F-17
Notes to Financial Statements........................................... F-18
Schedule III--Real Estate and Accumulated Depreciation.................. F-32
Note to Schedule III.................................................... F-37
PRO FORMA (UNAUDITED):
Summary of Pro Forma adjustments........................................ F-38
Pro Forma Condensed Balance Sheet as of March 31, 1997.................. F-40
Pro Forma Condensed Statement of Earnings for the three-month period
ended March 31, 1997................................................... F-41
Pro Forma Condensed Statement of Earnings for the year ended December
31, 1996............................................................... F-42
Notes to Pro Forma Financial Statements................................. F-43
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
PURSUANT TO RULE 3-14:
Report of Independent Auditors.......................................... F-50
Group C Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-51
Notes to Group C Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-52
Report of Independent Auditors.......................................... F-53
Group D Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-54
Notes to Group D Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-55
Report of Independent Auditors.......................................... F-57
Group E Communities Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1995......... F-58
Notes to Group E Communities Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-59
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have reviewed the accompanying condensed balance sheet of Security
Capital Atlantic Incorporated as of March 31, 1997 and the related condensed
statements of earnings and statements of cash flows for the three-month
periods ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial statements consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year, with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Security Capital Atlantic Incorporated as of
December 31, 1996 and the related statements of earnings, shareholders'
equity, and cash flows for the year then ended (not presented herein) and in
our report dated February 3, 1997, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1996, is fairly
stated, in all material respects, in relation to the balance sheet from which
it has been derived.
Ernst & Young LLP
Dallas, Texas
April 24, 1997, except for Note 6,
as to which the date is May 1, 1997.
F-2
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Real estate........................................... $1,208,229 $1,157,235
Less accumulated depreciation......................... 47,297 41,166
---------- ----------
1,160,932 1,116,069
Homestead Convertible Mortgages....................... 25,891 --
---------- ----------
Net investments................................... 1,186,823 1,116,069
Cash and cash equivalents--unrestricted............... 3,953 4,339
Cash and cash equivalents--restricted tax-deferred
exchange proceeds.................................... -- 1,672
Other assets.......................................... 13,455 12,985
---------- ----------
Total assets...................................... $1,204,231 $1,135,065
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Line of credit...................................... $ 295,250 $ 228,000
Mortgages payable................................... 155,418 155,790
Distributions payable............................... -- 14,778
Accounts payable.................................... 18,189 20,076
Accrued expenses and other liabilities.............. 20,654 17,779
---------- ----------
Total liabilities................................. 489,511 436,423
---------- ----------
Shareholders' equity:
Common shares (250,000,000 authorized, 37,891,580
issued and outstanding at March 31, 1997 and
December 31, 1996)................................. 379 379
Additional paid-in capital.......................... 747,640 747,640
Unrealized gains on Homestead Convertible Mortgages. 5,900 --
Distributions in excess of net earnings............. (39,199) (49,377)
---------- ----------
Total shareholders' equity........................ 714,720 698,642
---------- ----------
Total liabilities and shareholders' equity ....... $1,204,231 $1,135,065
========== ==========
</TABLE>
See accompanying notes to the condensed financial statements.
F-3
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIODS
ENDED MARCH 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Rental income................................................ $39,715 $30,809
Homestead Convertible Mortgages interest income.............. 185 --
Other interest income........................................ 57 72
------- -------
39,957 30,881
------- -------
Expenses:
Rental expenses.............................................. 9,974 8,495
Real estate taxes............................................ 3,849 3,104
Property management fees:
Paid to affiliate.......................................... 1,280 920
Paid to third parties...................................... 232 217
Depreciation................................................. 6,132 4,804
Interest..................................................... 4,761 4,342
REIT management fee paid to affiliate........................ 3,029 2,123
General and administrative................................... 265 187
Provision for possible loss on investments................... 200 --
Other........................................................ 57 39
------- -------
29,779 24,231
------- -------
Net earnings................................................... $10,178 $ 6,650
======= =======
Weighted-average shares outstanding............................ 37,892 27,777
======= =======
Net earnings per share......................................... $ 0.27 $ 0.24
======= =======
Distributions paid per share................................... $ 0.39 $ 0.42
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-4
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings........................................... $ 10,178 $ 6,650
Adjustments to reconcile net earnings to net cash flow
provided by operating activities:
Depreciation and amortization........................ 6,205 5,236
Provision for possible loss on investments........... 200 --
Decrease in accounts payable......................... (2,056) (444)
Increase in accrued expenses and other liabilities... 2,884 2,076
Increase in other assets............................. (498) (1,188)
--------- ---------
Net cash flow provided by operating activities..... 16,913 12,330
--------- ---------
Investing activities:
Real estate investments................................ (51,026) (41,520)
Tax-deferred exchange proceeds held in escrow.......... 1,672 --
Fundings on Homestead Convertible Mortgages............ (20,000) --
--------- ---------
Net cash flow used by investing activities......... (69,354) (41,520)
--------- ---------
Financing activities:
Proceeds from sale of shares........................... -- 430
Proceeds from line of credit........................... 75,000 42,000
Payments on line of credit............................. (7,750) (6,000)
Proceeds from mortgage debt............................ -- 5,000
Distributions paid..................................... (14,778) (11,667)
Debt issuance costs incurred........................... (45) (281)
Regularly scheduled mortgage principal payments........ (372) (233)
--------- ---------
Net cash flow provided by financing activities..... 52,055 29,249
--------- ---------
Net increase (decrease) in cash and cash equivalents..... (386) 59
Cash and cash equivalents, beginning of period........... 4,339 6,494
--------- ---------
Cash and cash equivalents, end of period................. $ 3,953 $ 6,553
========= =========
Non-cash investing activities:
Unrealized gains on Homestead convertible mortgages.... $ 5,900 $ --
</TABLE>
See accompanying notes to the condensed financial statements.
F-5
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1 GENERAL
The financial statements of Security Capital Atlantic Incorporated
("ATLANTIC") as of March 31, 1997 and for the three-month periods ended March
31, 1997 and 1996 are unaudited and certain information and footnote
disclosures normally included in financial statements have been omitted. While
management of ATLANTIC believes that the disclosures presented are adequate,
these interim financial statements should be read in conjunction with the
financial statements and notes included in ATLANTIC's 1996 Annual Report on
Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of ATLANTIC's financial
statements for the interim periods presented. The results of operations for
the three-month periods ended March 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 REAL ESTATE
Real Estate
ATLANTIC's real estate, which consists entirely of multifamily communities,
at cost, was as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
----------------- --------------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Operating communities:
Acquired........................ $ 880,634 17,727 $ 878,029 17,727
Developed....................... 75,711 1,514 74,741 1,514
---------- ------ ---------- ------
956,345 19,241 952,770 19,241
Communities under construction(1). 238,176 5,395 194,587 4,727
Communities in planning(1):
Owned........................... 11,625 1,172(2) 7,795 868(2)
Under control(3)................ -- 2,332(2) -- 2,228(2)
---------- ------ ---------- ------
11,625 3,504 7,795 3,096
Land held for future development.. 2,083 -- 2,083 --
---------- ------ ---------- ------
Total......................... $1,208,229 28,140(4) $1,157,235(4) 27,064
========== ====== ========== ======
</TABLE>
- --------
(1) At March 31, 1997, ATLANTIC had unfunded commitments for communities under
construction of $97.4 million, for a total completed construction cost of
$335.6 million. Costs for communities in planning shown above are
primarily for land acquisitions.
(2) Unit information is based on management's estimates and is unaudited and
unreviewed.
(3) ATLANTIC's investment at March 31, 1997 and December 31, 1996 in land in
planning and under control for future development was $1.2 million and
$1.4 million, respectively, and is reflected in the "Other assets" caption
of ATLANTIC's balance sheets.
(4) Of ATLANTIC's real estate, at cost, communities located in Atlanta,
Georgia aggregated 30.1% and 30.7% at March 31, 1997 and December 31,
1996, respectively.
F-6
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The change in real estate, at cost, for the three-month period ended March
31, 1997 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1997.................................... $1,157,235
Acquisition and renovation expenditures....................... 2,397
Development expenditures, including land acquisitions......... 48,279
Recurring capital expenditures................................ 518
Provision for possible loss on investments.................... (200)
----------
Balance at March 31, 1997..................................... $1,208,229
==========
</TABLE>
Gains and Losses from Dispositions or Impairments of Real Estate
ATLANTIC's real estate investments have been made with a view to effective
long-term operation and ownership. Based upon ATLANTIC's market research and
in an effort to optimize its portfolio composition, ATLANTIC may from time to
time seek to dispose of assets that no longer meet ATLANTIC's investment
criteria and redeploy the proceeds therefrom, primarily through tax-deferred
exchanges, into assets with better prospects for growth. ATLANTIC did not
dispose of any communities in the three-month period ended March 31, 1997. As
discussed below, one community was disposed of subsequent to March 31, 1997.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. At March
31, 1997, such investments are carried at cost, which is not in excess of fair
market value. ATLANTIC recognized a provision for possible loss of $200,000
during the three-month period ended March 31, 1997 and $2,500,000 during 1996
associated with a community that was being held for sale. ATLANTIC disposed of
this community in April 1997. The sales price approximated ATLANTIC's carrying
value at March 31, 1997. This community accounted for $224,000 and $236,000 of
net operating income for the three-month periods ended March 31, 1997 and
1996, respectively.
NOTE 3 HOMESTEAD CONVERTIBLE MORTGAGES
General
To provide funds for the completion of construction of the Homestead Village
assets sold by ATLANTIC in October 1996, ATLANTIC entered into a funding
commitment agreement ("Funding Agreement") which provides for aggregate
fundings of $111.1 million in exchange for convertible mortgages ("Homestead
Convertible Mortgages"). During the three-month period ended March 31, 1997
ATLANTIC funded $20.0 million.
The Homestead Convertible Mortgages (i) bear interest at 9% per annum which
is due in interest only payments on a semi-annual basis, (ii) are due October
2006, (iii) are not callable until 2001, and (iv) beginning March 31, 1997,
are convertible at ATLANTIC's option into one share of common stock of
Homestead Village Incorporated ("Homestead") for every $11.50 of principal
outstanding (approximately 8,522,000 shares upon full funding). The individual
Homestead Village development projects serve as collateral individually and in
the aggregate under cross-collateral provisions. The Homestead Convertible
Mortgages represent approximately 70% of the estimated value of the projects
upon completion.
Carrying Value
ATLANTIC will receive $98.0 million of Homestead Convertible Mortgages
assuming full funding under the Funding Agreement of $111.1 million, resulting
in the recognition of an original issue premium which will be amortized over
the term of the Homestead Convertible Mortgages. The value attributed to the
conversion
F-7
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
feature of the Homestead Convertible Mortgages issued ($6,900,000 assuming
full funding) has been recognized along with an offsetting discount in the
Homestead Convertible Mortgages balance. This discount will be amortized over
the term of the Homestead Convertible Mortgages. The carrying value of the
Homestead Convertible Mortgages has been further adjusted to fair value. The
fair value adjustment of $5,900,000 is recognized as an unrealized gain in
shareholders' equity. The amount of the adjustment is based upon the
conversion value of the Homestead Convertible Mortgages and is calculated
using the trading price of Homestead common stock at March 31, 1997 of
$16.875.
At March 31, 1997 the carrying value of the Homestead Convertible Mortgages
consisted of the following components (in thousands):
<TABLE>
<S> <C>
Face amount...................................................... $17,644
Original issue premium........................................... 2,356
-------
Amount funded.................................................... 20,000
Amortization of original issue premium........................... (20)
Initial value of conversion feature.............................. 1,243
Unamortized discount on conversion feature....................... (1,232)
Fair value adjustment............................................ 5,900
-------
Carrying value................................................. $25,891
=======
</TABLE>
Deferred Revenue
ATLANTIC received a commitment fee in the form of warrants to purchase
shares of Homestead common stock in return for entering into the Funding
Agreement. The warrants, which were distributed to ATLANTIC's shareholders,
were valued at $6,500,000. The commitment fee has been recognized as deferred
revenue in the liability section of ATLANTIC's balance sheet and is being
amortized over the term of the Homestead Convertible Mortgages.
Income Recognized
The aggregate income recognized on the Homestead Convertible Mortgages
consists of (i) the interest income recognized at 9.0% per annum, (ii) the
amortization of the original issue premium which reduces income, (iii) the
amortization of the discount on the conversion feature which increases income,
and, (iv) the amortization of the deferred commitment fee which increases
income. ATLANTIC uses the effective interest method to calculate the
amortization of all items associated with the Homestead Convertible Mortgages.
The effective interest rate on the funded amount is approximately 8.46% per
annum.
NOTE 4 LINE OF CREDIT AND MORTGAGES PAYABLE
Variable Interest Rate Swap Agreements
ATLANTIC has effectively eliminated its variable interest rate debt exposure
on all of its variable interest rate mortgages and $100 million of borrowings
on its line of credit by entering into swap agreements. Under the swap
agreements ATLANTIC pays a fixed rate of interest to a swap counterparty
pursuant to one agreement and receives a variable rate of interest from a swap
counterparty pursuant to another agreement. The amounts received from the
variable rate agreement are structured such that these amounts will closely
approximate the amount of variable interest due on the underlying line of
credit or mortgage note borrowings. The difference
F-8
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
between the variable amount received and the fixed amount paid represents
either the cost or the benefit of the interest rate swap agreement and is
recorded as an increase or decrease to the variable interest paid on the
underlying debt instrument.
Line of Credit
On December 18, 1996, ATLANTIC entered into a $350 million unsecured
revolving line of credit agreement with Morgan Guaranty Trust Company of New
York, as agent for a group of lenders ("MGT"). Borrowings on the unsecured
line of credit bear interest at prime, or at ATLANTIC's option, LIBOR plus a
margin ranging from 1.0% to 1.375% (currently 1.375%) depending on ATLANTIC's
credit rating. ATLANTIC's objective is to achieve an investment-grade debt
rating in 1997. ATLANTIC currently pays a commitment fee on the average
unfunded line of credit balance of 0.1875%. If ATLANTIC achieves an
investment-grade debt rating, the commitment fee on the average unfunded line
of credit balance will range from 0.125% to 0.25% per annum, depending on the
amount of undrawn commitments. The line of credit matures December 1998 and
may be extended for one year with the approval of MGT and the other
participating lenders.
All debt incurrences under the unsecured line of credit are subject to
certain covenants. Specifically, distributions for the preceding four
quarters, excluding the non-cash distribution related to the transaction with
Homestead in October 1996, may not exceed 95% of ATLANTIC's funds from
operations (as defined in the credit agreement) for the preceding four
quarters. ATLANTIC is in compliance with all such covenants.
ATLANTIC has a swap agreement with MGT covering $100 million of borrowings
under the line of credit, effectively eliminating a portion of its variable
interest rate exposure associated with the line of credit. Under this one-year
agreement which became effective on February 5, 1997, ATLANTIC pays a fixed
rate of interest of 7.325% on the $100 million of borrowings. The interest
rate ATLANTIC will pay will be reduced if ATLANTIC achieves an investment-
grade debt rating and will range from 6.95% to 7.2% depending on the rating
achieved. ATLANTIC had a similar swap agreement in place from February 5, 1996
through February 4, 1997. Under that agreement, ATLANTIC paid a fixed rate of
interest on the $100 million of borrowings of 7.46% through December 17, 1996
and 7.335% thereafter. ATLANTIC paid $77,000 and $110,000 more in interest
than it received under the swap agreement during the three-month periods ended
March 31, 1997 and 1996, respectively. ATLANTIC is exposed to credit loss in
the event of non-performance by the swap counterparty; however, ATLANTIC
believes the risk of loss is minimal.
F-9
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Mortgages Payable
Mortgages payable consisted of the following at March 31, 1997 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
INTEREST MATURITY PERIODIC PRINCIPAL
COMMUNITY RATE DATE PAYMENT TERMS BALANCE
- --------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cameron Ridge............... 7.000% 09/10/98(1) fully amortizing $ 5,839
Country Place Village I..... 7.750% 11/01/00 (2) 1,995
Country Oaks................ 7.655% 07/01/02 (3) 5,918
Cameron at Hickory Grove.... 8.000% 07/10/03 (4) 5,967
Cameron Villas I............ 8.750% 04/01/24 fully amortizing 6,327
Cameron on the Cahaba II.... 7.125% 03/01/29 fully amortizing 8,005
--------
34,051
--------
Tax-exempt fixed rate or
variable rate subject to swap
agreements(5):
Cameron Station............. 6.000% 06/01/07 interest only 14,500
Azalea Park................. (6) 06/01/25 interest only 15,500
Cameron Brook............... (6) 06/01/25 interest only 19,500
Cameron Cove................ (6) 06/01/25 interest only 8,500
Clairmont Crest............. (6) 06/01/25 interest only 11,600
Forestwood.................. (6) 06/01/25 interest only 11,485
Foxbridge on the Bay........ (6) 06/01/25 interest only 10,400
The Greens.................. (6) 06/01/25 interest only 10,400
Parrot's Landing I.......... (6) 06/01/25 interest only 15,835
WintersCreek................ (6) 06/01/25 interest only 5,000
Less amounts held in
principal reserve fund(7).. (1,353)
--------
121,367
--------
$155,418
--------
Total annual weighted-
average interest rate.... 6.97%
========
</TABLE>
- --------
(1) This loan is callable at the option of the mortgage lender on September
10, 1998 and at subsequent five-year intervals through September 10, 2013.
(2) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
(3) Interest and financial payments due monthly; balloon payment of $5,539,000
due at maturity.
(4) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(5) These communities, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets, liabilities
and business operations.
(6) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association ("FNMA") discussed below. Through these swap agreements,
ATLANTIC has effectively eliminated its variable interest rate exposure
associated with its tax-exempt bond issues.
(7) ATLANTIC has a 30-year credit enhancement agreement with FNMA related to
the tax-exempt bond issues. This credit enhancement agreement requires
ATLANTIC to make monthly payments on each mortgage into a principle
reserve account based on a 30-year amortization.
F-10
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT OF FIXED
MORTGAGES TERM INTEREST RATE(1) ISSUER
--------- ---- ---------------- ------
<S> <C> <C> <C>
$23.1 million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6 million June 1995 to June 2005 6.74% Morgan Guaranty Trust Company of New York
5.0 million March 1996 to March 2006 6.21% Morgan Guaranty Trust Company of New York
15.5 million August 1996 to August 2006 6.50% Morgan Stanley Derivative Products Inc.
-----
Weighted-average interest rate 6.63%
=====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
ATLANTIC paid $493,000 and $428,000 more in interest during the three-month
periods ended March 31, 1997 and 1996, respectively than it received under the
swap agreements. The swap agreements cover the principal amount of the bonds,
net of amounts deposited in the principal reserve fund. ATLANTIC pays interest
on that portion of bonds not covered by the swap agreements (an amount equal
to the amount of the principal reserve fund) at the variable rates as provided
by the mortgage agreements. ATLANTIC is exposed to credit loss in the event of
non-performance by the swap counterparties, however, ATLANTIC believes the
risk of loss is minimal.
Real estate with an aggregate undepreciated cost at March 31, 1997 of
$51,019,000 and $207,462,000 serves as collateral for the conventional
mortgages payable and the tax-exempt mortgages payable, respectively.
The change in mortgages payable for the three-month period ended March 31,
1997 is as follows (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1997...................................... $155,790
Regularly scheduled principal payments.......................... (372)
--------
Balance at March 31, 1997....................................... $155,418
========
</TABLE>
ATLANTIC is in compliance with all debt covenants required by the mortgage
agreements.
Interest Expense
Interest paid in cash on all outstanding debt for the three-month period
ended March 31, 1997 was $7,516,000, including $2,553,000 of interest
capitalized during construction. Interest paid in cash on all outstanding debt
for the three-month period ended March 31, 1996 was $5,948,000, including
$2,036,000 of interest capitalized during construction.
Amortization of loan costs included in interest expense for the three-month
periods ended March 31, 1997 and 1996 was $72,000 and $432,000, respectively.
NOTE 5 SHAREHOLDERS' EQUITY
Capital Offerings
On April 10, 1997 ATLANTIC completed an underwritten public offering of
4,000,000 common shares, par value $.01, ("Shares") at a price of $21.50 per
Share. The proceeds from the sale of these Shares, net of
F-11
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
underwriters' commissions and other expenses, were approximately $80.5
million. The proceeds were used to repay borrowings under ATLANTIC's $350
million line of credit which had an outstanding balance of $228,250,000 on May
9, 1997.
Distributions
ATLANTIC paid a quarterly distribution of $0.39 per Share on February 19,
1997. On April 22, 1997 the Board declared a distribution of $0.39 per Share
for the second quarter of 1997. The distribution is payable on May 27, 1997 to
shareholders of record on May 12, 1997.
Earnings Per Share
In the fourth quarter of 1997, ATLANTIC will adopt Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share, which changes the
method used to compute earnings per share. The impact of SFAS No. 128 on the
calculation of ATLANTIC's earnings per share is not expected to be material.
NOTE 6 REIT MANAGER AND PROPERTY MANAGER ACQUISITION PROPOSAL
ATLANTIC has a REIT management agreement with Security Capital (Atlantic)
Incorporated (the "REIT Manager"), to provide REIT management services to
ATLANTIC. The REIT Manager is a wholly-owned subsidiary of Security Capital
Group Incorporated ("Security Capital"), which owned 56.9% of ATLANTIC's
Shares at March 31, 1997 (51.4% after the completion of ATLANTIC's public
offering in April 1997). The REIT management agreement is renewable annually,
subject to a determination by ATLANTIC's independent directors that the REIT
Manager's performance has been satisfactory and that the compensation payable
to the REIT Manager is fair.
SCG Realty Services Atlantic Incorporated ("SCG Realty Services") currently
manages approximately 88% of ATLANTIC's multifamily properties. Security
Capital owns 100% of SCG Realty Services' voting shares. Rates for services
performed by SCG Realty Services are reviewed annually by a third party and
are subject to approval by ATLANTIC's independent Directors and are at rates
prevailing in the markets in which ATLANTIC operates.
On May 1, 1997, Security Capital filed a Form S-4 Registration Statement
with the Securities and Exchange Commission, containing ATLANTIC's preliminary
proxy statement and Security Capital's preliminary prospectus relating to
warrants to purchase Class B common stock of Security Capital, relating to a
proposed merger transaction whereby ATLANTIC would acquire the operations and
businesses of its REIT Manager and SCG Realty Services in exchange for Shares
valued at approximately $54.6 million. The number of Shares issuable to
Security Capital will depend on the average market price of the Shares over
the five-day period prior to the record date, subject to such average not
being more than $25.8633 or less than $20.6367. As a result of the
transaction, ATLANTIC would become an internally managed REIT and Security
Capital would remain ATLANTIC's largest shareholder. ATLANTIC's Board recently
approved the proposed merger transaction based on the recommendation of a
special committee comprised of independent directors. The proposed merger
transaction requires the approval of a majority of the holders of the
outstanding Shares. ATLANTIC's proxy statement, after review and clearance by
the Securities and Exchange Commission will be mailed to ATLANTIC's
shareholders prior to the shareholder vote.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
SECURITY CAPITAL ATLANTIC INCORPORATED
We have audited the accompanying balance sheets of Security Capital Atlantic
Incorporated as of December 31, 1996 and 1995, and the related statements of
earnings, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Security Capital Atlantic
Incorporated at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule of Real
Estate and Accumulated Depreciation is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken
as a whole.
Ernst & Young LLP
Dallas, Texas
February 3, 1997
F-13
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---------- --------
<S> <C> <C>
ASSETS
------
Real estate.............................................. $1,157,235 $888,928
Less accumulated depreciation............................ 41,166 23,561
---------- --------
Net investments in real estate......................... 1,116,069 865,367
Cash and cash equivalents--unrestricted.................. 4,339 6,494
Cash and cash equivalents--restricted tax-deferred
exchange proceeds....................................... 1,672 --
Other assets............................................. 12,985 13,963
---------- --------
Total assets........................................... $1,135,065 $885,824
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Line of credit......................................... $ 228,000 $190,000
Mortgages payable...................................... 155,790 118,524
Distributions payable.................................. 14,778 --
Accounts payable....................................... 20,076 11,030
Accrued expenses and other liabilities................. 17,779 9,332
---------- --------
Total liabilities.................................... 436,423 328,886
---------- --------
Shareholders' equity:
Common shares (250,000,000 authorized, 37,891,580
issued and outstanding at December 31, 1996 and
27,762,817 issued and outstanding at December 31,
1995)................................................. 379 278
Additional paid-in capital............................. 747,640 576,824
Distributions in excess of net earnings................ (49,377) (20,164)
---------- --------
Total shareholders' equity........................... 698,642 556,938
---------- --------
Total liabilities and shareholders' equity........... $1,135,065 $885,824
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Rental income...................................... $137,729 $103,634 $55,071
Interest income.................................... 427 245 149
-------- -------- -------
138,156 103,879 55,220
-------- -------- -------
Expenses:
Rental expenses.................................... 36,808 27,814 15,260
Real estate taxes.................................. 12,293 9,570 5,595
Property management fees:
Paid to affiliate................................ 4,208 3,475 1,536
Paid to third parties............................ 971 591 661
Depreciation....................................... 20,824 15,925 8,770
Interest........................................... 16,181 19,042 9,240
REIT management fee paid to affiliate.............. 10,445 6,923 3,671
General and administrative......................... 673 646 266
Provision for possible loss on investments......... 2,500 -- --
Other.............................................. 255 254 295
-------- -------- -------
105,158 84,240 45,294
-------- -------- -------
Earnings from operations............................. 32,998 19,639 9,926
Gain on disposition of real estate................. 6,732 -- --
Gain on sale of Homestead Assets................... 2,839 -- --
-------- -------- -------
Earnings before extraordinary item................... 42,569 19,639 9,926
Extraordinary item--loss on early extinguishment of
debt.............................................. 3,940 -- --
-------- -------- -------
Net earnings......................................... $ 38,629 $ 19,639 $ 9,926
======== ======== =======
Weighted-average shares outstanding.................. 32,028 21,944 12,227
======== ======== =======
Per share amounts:
Earnings per share before extraordinary item....... $ 1.33 $ 0.89 $ 0.81
======== ======== =======
Net earnings per share............................. $ 1.21 $ 0.89 $ 0.81
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON DISTRIBUTIONS
SHARES ADDITIONAL IN EXCESS
AT PAR PAID-IN OF NET
VALUE CAPITAL EARNINGS TOTAL
------ ---------- ------------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1993........ $ 16 $ 31,618 $ 38 $ 31,672
Net earnings....................... -- -- 9,926 9,926
Distributions paid................. -- -- (14,648) (14,648)
Shares issued--private offerings... 170 339,510 -- 339,680
---- -------- -------- --------
Balances at December 31, 1994........ 186 371,128 (4,684) 366,630
Net earnings....................... -- -- 19,639 19,639
Distributions paid................. -- -- (35,119) (35,119)
Shares issued--private offerings... 130 289,578 -- 289,708
Shares repurchased................. (38) (83,882) -- (83,920)
---- -------- -------- --------
Balances at December 31, 1995........ 278 576,824 (20,164) 556,938
Net earnings....................... -- -- 38,629 38,629
Distributions paid................. -- -- (53,064) (53,064)
Distributions--Homestead........... -- (58,228) -- (58,228)
Distributions accrued.............. -- -- (14,778) (14,778)
Shares issued--private offerings... 52 119,125 -- 119,177
Shares issued--initial public
offering.......................... 49 109,919 -- 109,968
---- -------- -------- --------
Balances at December 31, 1996........ $379 $747,640 $(49,377) $698,642
==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net earnings................................ $ 38,629 $ 19,639 $ 9,926
Adjustments to reconcile net earnings to net
cash flow provided by operating activities:
Depreciation and amortization............. 22,492 17,496 9,480
Provision for possible loss on
investments.............................. 2,500 -- --
Gain on disposition of real estate........ (6,732) -- --
Gain on sale of Homestead Assets.......... (2,839) -- --
Extraordinary item-loss on early
extinguishment of debt................... 3,940 -- --
Increase (decrease) in accounts payable... (374) 937 1,909
Increase in accrued expenses and other
liabilities.............................. 1,993 3,053 6,141
Increase in other assets.................. (5,253) (1,393) (3,892)
--------- --------- ---------
Net cash flow provided by operating
activities................................ 54,356 39,732 23,564
--------- --------- ---------
Investing activities:
Real estate investments..................... (331,440) (259,008) (390,077)
Proceeds from disposition of real estate.... 63,544 23,859 --
Cash payment to Homestead................... (16,595) -- --
Tax-deferred exchange proceeds held in es-
crow....................................... (1,672) -- --
Other....................................... (1,255) -- --
--------- --------- ---------
Net cash flow used by investing activities.. (287,418) (235,149) (390,077)
--------- --------- ---------
Financing activities:
Proceeds from sale of shares................ 229,145 289,708 239,680
Repurchase of shares........................ -- (83,920) --
Proceeds from line of credit................ 246,000 270,000 166,000
Payments on line of credit.................. (208,000) (233,000) (13,000)
Proceeds from mortgage debt................. 20,500 -- --
Distributions paid.......................... (53,064) (35,119) (14,648)
Debt issuance costs incurred................ (2,573) (5,019) (5,204)
Regularly scheduled mortgage principal
payments................................... (1,101) (623) (190)
Mortgage principal payments at maturity..... -- (6,378) --
--------- --------- ---------
Net cash flow provided by financing
activities................................. 230,907 195,649 372,638
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (2,155) 232 6,125
Cash and cash equivalents, beginning of
year....................................... 6,494 6,262 137
--------- --------- ---------
Cash and cash equivalents, end of year...... $ 4,339 $ 6,494 $ 6,262
========= ========= =========
</TABLE>
See Note 9 for information on non-cash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Security Capital Atlantic Incorporated ("ATLANTIC") is an equity real estate
investment trust organized as a corporation under the laws of the State of
Maryland, which owns, acquires, develops and operates income-producing
multifamily communities in the southeastern United States.
Principles of Financial Presentation
The accounts of ATLANTIC and its wholly owned subsidiaries are consolidated
in the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
ATLANTIC considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents.
Real Estate and Depreciation
Real estate is carried at cost, which is not in excess of net realizable
value. Costs directly related to the acquisition, renovation or development of
real estate are capitalized. Costs incurred in connection with the pursuit of
unsuccessful acquisitions are expensed at the time the pursuit is abandoned.
Repairs and maintenance, including carpet and appliance replacements, are
expensed as incurred. Renovations and improvements are capitalized and
depreciated over their estimated useful lives.
Depreciation is computed over the economic useful lives of depreciable
property on a straight-line basis. Communities are depreciated principally
over the following periods:
<TABLE>
<S> <C>
Buildings and improvements...................... 20-40 years
Furnishings and other........................... 2-10 years
</TABLE>
Make-Ready and Repairs and Maintenance
Make-ready expenses (expenses incurred in preparing a vacant multifamily
unit for the next resident) and repairs and maintenance, other than
acquisition-related renovation costs identified during ATLANTIC's pre-
acquisition due diligence, are expensed as incurred. ATLANTIC expenses carpet
and appliance repairs and replacements once all planned acquisition-related
renovation expenses for such items have been incurred.
F-18
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Interest
Periodically, ATLANTIC enters into swap agreements to manage its variable
interest rate exposure. Swap agreements are used to exchange interest rate
payment streams based on a notional principal amount. Under the swap
agreements, ATLANTIC pays a fixed rate of interest to a swap counterparty
pursuant to one agreement and receives a variable rate of interest from a swap
counterparty pursuant to another agreement. The amounts received from the
variable rate agreement are structured such that the amount received will
closely approximate the amount of variable interest due on a portion of the
underlying line of credit or mortgage note borrowings. The difference between
the variable amount received and the fixed amount paid represents either the
cost or the benefit of the interest rate swap agreement and is recorded as an
increase or decrease to the variable interest paid on the underlying debt
instrument.
During 1996, 1995 and 1994, the total interest paid in cash on all
outstanding debt was $24,677,000, $20,609,000 and $8,412,000, respectively.
ATLANTIC capitalizes interest as part of the cost of real estate projects
under development. Interest capitalized during 1996, 1995 and 1994 aggregated
$10,250,000, $4,404,000 and $793,000, respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of shares of common stock,
par value $.01 per share (the "Shares"), are deducted from shareholders'
equity. Costs incurred in connection with the incurrence or renewal of debt
are capitalized, included with other assets and amortized over the term of the
related loan or renewal term. Amortization of deferred financing costs
included in interest expense for 1996, 1995 and 1994 totaled $1,663,000,
$1,568,000 and $707,000, respectively.
Revenue Recognition
Rental and interest income are recorded on the accrual method of accounting.
Gains on sales of real estate are recorded when criteria required by Statement
of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate,
have been met. A provision for possible loss is made when collection of
receivables is considered doubtful.
Rental Expenses
Rental expenses include utilities, repairs and maintenance, make-ready costs
(including carpet and appliance replacement), property insurance, marketing,
landscaping, on-site personnel and other administrative costs.
Federal Income Taxes
ATLANTIC has made an election to be taxed as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. ATLANTIC believes it
qualifies as a real estate investment trust. Accordingly, no provisions have
been made for federal income taxes in the accompanying financial statements.
Per Share Data
Per share data is computed based on the weighted average number of Shares
outstanding during the period. The Share and per Share amounts included in the
financial statements have been restated to reflect the reverse Share split
discussed in Note 6.
F-19
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain of the 1995 and 1994 amounts have been reclassified to conform to
the 1996 presentation.
NOTE 2 HOMESTEAD TRANSACTION
On October 17, 1996, ATLANTIC sold its moderate-priced, purpose-built,
extended-stay lodging facilities known as Homestead Village(R) properties to
Homestead Village Incorporated ("Homestead"). In the transaction, ATLANTIC
sold one operating property and 25 properties under construction or in
planning (or the rights to acquire such properties) and paid $16.6 million in
cash (the "Homestead Assets"). In addition, ATLANTIC entered into a funding
commitment agreement to provide secured financing of up to $111.1 million to
Homestead for purposes of completing the development and construction of the
properties sold in the transaction. The Homestead transaction was treated as a
sale for financial accounting purposes, but was treated as a contribution for
tax purposes.
The transaction resulted in ATLANTIC receiving 4,201,220 shares of common
stock of Homestead in exchange for the Homestead Assets and 2,818,517 warrants
to purchase one share of Homestead common stock at $10 per share in exchange
for entering into the funding commitment agreement. On November 12, 1996,
ATLANTIC distributed the Homestead common stock and warrants to its
shareholders of record on October 29, 1996 (the "Homestead Distribution").
ATLANTIC shareholders received 0.110875 shares of Homestead common stock and
0.074384 Homestead warrants per Share. ATLANTIC will receive up to $98.0
million of convertible mortgage notes from Homestead in exchange for funding
up to $111.1 million under the funding commitment agreement. The difference
between the amounts funded and the convertible mortgage notes received of
$13.1 million (assuming full funding of the funding commitment) represents a
mortgage note premium that will be amortized as a reduction to interest income
over the term of the convertible mortgage notes.
ATLANTIC realized a gain of $2.8 million, after deducting expenses
associated with the transaction, representing the excess value of the
Homestead common stock received over the recorded basis of the Homestead
Assets. The Homestead warrants received represent a funding commitment fee
which has been valued at $6.5 million. The conversion feature of the
convertible mortgage notes has been valued at $6.9 million (assuming full
funding of the funding commitment). These deferred credits will be amortized
as an increase to interest income over the term of the convertible mortgage
notes.
The convertible mortgage notes received from Homestead will bear interest at
9% per annum, will be due October 2006, will not be callable until 2001 and
will be convertible commencing March 31, 1997 at the option of the holder into
one share of Homestead common stock for every $11.50 of principal amount
outstanding. Upon full funding of ATLANTIC's convertible mortgage notes, its
conversion rights would represent a 15.35% ownership in Homestead (assuming no
further equity offerings by Homestead, conversion of all convertible mortgage
notes and exercise of all outstanding warrants). The effective yield on the
convertible mortgage notes, assuming conversion of all convertible mortgage
notes and exercise of all outstanding warrants, is estimated to be 8.46%,
after giving effect to the mortgage note premium, the funding commitment fee
and the conversion value of the convertible mortgage notes. At December 31,
1996, no funds had been advanced pursuant to the funding commitment agreement
and there were no convertible mortgage notes outstanding. ATLANTIC advanced
$6.0 million under the funding commitment agreement in January 1997.
F-20
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 REAL ESTATE
Investment in Real Estate
Investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
-------------------- -------------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Multifamily:
Operating communities:
Acquired.................... $ 878,029 17,727 $757,986 15,355
Developed................... 74,741 1,514 23,097 468
---------- ------ -------- ------
952,770 19,241 781,083 15,823
Developments under
construction................. 194,587 4,727 94,094 2,958
Developments in planning:
Owned....................... 7,795 868(1) 9,830 1,258(1)
Under control(2)............ -- 2,228(1) -- 922(1)
---------- ------ -------- ------
7,795 3,096 9,830 2,180
Land held for future
development.................. 2,083 -- 1,294 --
---------- ------ -------- ------
Total multifamily(3)...... 1,157,235 27,064 886,301 20,961
---------- ------ -------- ------
Homestead Village(R)
properties(4).................. -- -- 2,627 2,515
---------- ------ -------- ------
Total..................... $1,157,235(5) 27,064 $888,928(5) 23,476
========== ====== ======== ======
</TABLE>
- --------
(1) Unit information is based on management's estimates and is unaudited.
(2) ATLANTIC's investment at December 31, 1996 and 1995 for multifamily
developments under control was $1.4 million and $0.6 million,
respectively, and is reflected in the "Other assets" caption of ATLANTIC's
balance sheets.
(3) At December 31, 1996, ATLANTIC had unfunded commitments for multifamily
developments under construction of $95.9 million, for a total completed
construction cost of $290.5 million. Cost for multifamily developments in
planning shown above are primarily for land acquisitions.
(4) ATLANTIC sold all of its Homestead Village(R) properties to Homestead on
October 17, 1996. The Homestead transaction is discussed in Note 2.
(5) Of ATLANTIC's investment in real estate, at cost, communities located in
Atlanta, Georgia aggregated 30.7% and 36.4% at December 31, 1996 and 1995,
respectively.
F-21
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The change in investments in real estate, at cost, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Beginning balances.............................. $ 888,928 $631,260 $ 31,005
Acquisitions and renovation expenditures........ 179,752 187,267 571,288
Development expenditures, including land
acquisitions................................... 179,783 101,335 28,967
Recurring capital expenditures.................. 2,783 -- --
Provision for possible loss..................... (2,500) -- --
Dispositions.................................... (59,988) (30,934) --
Sale of Homestead Assets........................ (31,523) -- --
---------- -------- --------
Ending balances................................. $1,157,235 $888,928 $631,260
========== ======== ========
</TABLE>
Third Party Owner/Developers
To enhance its flexibility in developing and acquiring multifamily
communities, ATLANTIC has and will enter into presale agreements to acquire
communities developed by third-party owner/developers where the developments
meet ATLANTIC's investment criteria. ATLANTIC has and will fund such
developments through development loans to these owner/developers. In addition,
to provide greater flexibility for the use of land acquired for development
and to dispose of excess parcels, ATLANTIC plans to make mortgage loans to
Atlantic Development Services Incorporated ("Atlantic Development Services")
to purchase land for development. ATLANTIC owns all of the preferred stock of
Atlantic Development Services, which entitles ATLANTIC to substantially all of
the net operating cash flow (95%) of Atlantic Development Services. All of the
common stock of Atlantic Development Services is owned by an unaffiliated
trust. The common stock is entitled to receive the remaining 5% of net
operating cash flow. As of December 31, 1996, the outstanding balance of
development and mortgage loans made by ATLANTIC to third-party
owner/developers and Atlantic Development Services aggregated $15,413,000 and
none, respectively. The activities of Atlantic Development Services and third-
party owner/developers are consolidated with ATLANTIC's activities and all
intercompany transactions have been eliminated in consolidation.
Gains and Losses from Dispositions or Impairments of Real Estate
ATLANTIC acquires and develops communities with a view to effective long-
term operation and ownership. Each year, REIT Management generates operating
and capital plans based on an ongoing active review of ATLANTIC's portfolio.
Based upon ATLANTIC's market research and in an effort to optimize its
portfolio composition, ATLANTIC may from time to time dispose of assets that
no longer meet its long-term investment objectives and redeploy the proceeds,
preferably through tax-deferred exchanges, into assets with better prospects
for growth.
As a result of this asset optimization strategy, ATLANTIC disposed of four
operating communities aggregating 1,184 units in 1996. A gain was recognized
on each disposition with the total gain aggregating $6,732,000. These four
communities accounted for $3,648,000 and $5,174,000 of net operating income
during 1996 and 1995, respectively. Each disposition has been included in a
tax-deferred exchange. At December 31, 1996, ATLANTIC held a portion of the
proceeds from one of these dispositions aggregating $1,672,000 in an interest-
bearing escrow account. These funds were used in the acquisition of a land
parcel in January 1997, completing the tax-deferred exchange.
ATLANTIC disposed of two communities in 1995. The proceeds from these
dispositions were not materially different from the book value of the assets
on the date of disposition. These two communities accounted for $2,409,000 of
net operating income during 1995.
F-22
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of
("SFAS No. 121"), adopted by ATLANTIC effective January 1, 1996, establishes
accounting standards for the review of long-lived assets to be held and used
for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS No. 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. ATLANTIC did not recognize any losses on the date it adopted
SFAS No. 121.
Long-lived investments held and used are periodically evaluated for
impairment and provisions for possible losses are made if required. As of
December 31, 1996, such investments are carried at cost, which is not in
excess of fair market value and no provisions for possible losses have been
made. ATLANTIC recognized a provision for possible loss of $2,500,000 in 1996
associated with a community that is being held for sale. The carrying value of
this community at December 31, 1996 was $8,842,000. This community is not
being depreciated during the period in which it is being held for sale.
ATLANTIC expects the disposition of this community to occur in 1997. This
community accounted for $959,000, $1,023,000 and $501,000 of net operating
income for 1996, 1995 and 1994, respectively. This income is included in
ATLANTIC's earnings from operations in these years.
NOTE 4 LINE OF CREDIT AND MORTGAGES PAYABLE
Line of Credit
On December 18, 1996, ATLANTIC obtained a $350 million unsecured line of
credit from Morgan Guaranty Trust Company of New York ("MGT"), as agent for a
group of lenders, that replaced the previous $350 million secured line of
credit. Borrowings on the unsecured line of credit bear interest at prime or,
at ATLANTIC's option, LIBOR plus a margin ranging from 1.0% to 1.375%
(currently 1.375% as compared to 1.5% under the previous agreement) depending
on ATLANTIC's debt rating. ATLANTIC's objective is to achieve an investment-
grade debt rating in 1997. ATLANTIC currently pays a commitment fee on the
average unfunded line of credit balance of 0.1875%. If ATLANTIC achieves an
investment-grade debt rating, the commitment fee on the average unfunded line
of credit balance will range from 0.125% to 0.25% per annum, depending on the
amount of undrawn commitments. The line of credit matures December 1998 and
may be extended for one year with the approval of MGT and the other
participating lenders.
In 1996, ATLANTIC expensed all previously unamortized costs associated with
the secured line of credit that was extinguished in 1996. These costs
aggregated $3,940,000 and are reflected as an extraordinary item in ATLANTIC's
1996 statement of earnings.
All debt incurrences under the unsecured line of credit are subject to
certain covenants. Specifically, distributions for the preceding four
quarters, excluding the Homestead Distribution, may not exceed 95% (97% for
distributions made before December 31, 1996) of ATLANTIC's funds from
operations (as defined in the loan agreement) for the preceding four quarters.
ATLANTIC is in compliance with all such covenants.
A summary of ATLANTIC's line of credit borrowings is as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Total line of credit.... $350,000 $300,000 $225,000
Borrowings outstanding
at December 31......... 228,000 190,000 153,000
Weighted-average daily
borrowings............. 204,265 178,318 65,556
Maximum borrowings
outstanding at any
month end.............. 234,000 252,000 153,000
Weighted-average daily
interest rate.......... 7.39% 7.92% 7.34%
Weighted-average
interest rate at
December 31............ 7.24% 7.73% 8.17%
</TABLE>
F-23
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit, effectively mitigating a portion of its variable interest rate
exposure. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC paid a fixed rate of interest of 7.46% on the $100 million of
borrowings through December 17, 1996 and 7.335% thereafter. Upon expiration of
the existing swap agreement on February 5, 1997, a swap agreement with MGT
will take effect. The new agreement will provide for a fixed rate of 7.325% on
$100 million of borrowings through February 5, 1998. The interest rate
ATLANTIC will pay under the new agreement will be reduced if ATLANTIC achieves
an investment-grade debt rating and will range from 6.95% to 7.2%, depending
on the rating achieved. ATLANTIC paid $332,000 more in interest than it
received under the swap agreement during 1996. ATLANTIC is exposed to credit
loss in the event of non-performance by the swap counterparty; however,
ATLANTIC believes the risk of loss is minimal.
Mortgages Payable
Mortgages payable consisted of the following at December 31, 1996 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
PERIODIC
INTEREST MATURITY PAYMENT PRINCIPAL
COMMUNITY RATE DATE TERMS BALANCE
--------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cameron Ridge.............. 7.000% 09/18/98(1) fully amortizing $ 5,888
Country Place Village I.... 7.750 11/01/00 (2) 2,004
Country Oaks............... 7.655 07/01/02 (3) 5,933
Cameron at Hickory Grove... 8.000 07/10/03 (4) 5,979
Cameron Villas I........... 8.750 04/01/24 fully amortizing 6,343
Cameron on the Cahaba II... 7.125 03/01/29 fully amortizing 8,021
--------
34,168
--------
Tax exempt fixed rate or
variable rate subject to
swap agreements(5):
Cameron Station............ 6.000% 06/01/07 interest only 14,500
Azalea Park................ (6) 06/01/25 interest only 15,500
Cameron Brook.............. (6) 06/01/25 interest only 19,500
Clairmont Crest............ (6) 06/01/25 interest only 11,600
Forestwood................. (6) 06/01/25 interest only 11,485
Foxbridge on the Bay....... (6) 06/01/25 interest only 10,400
The Greens................. (6) 06/01/25 interest only 10,400
Parrot's Landing I......... (6) 06/01/25 interest only 15,835
Sun Pointe Cove............ (6) 06/01/25 interest only 8,500
WintersCreek............... (6) 06/01/25 interest only 5,000
Less amounts held in
principal reserve
fund(7)................... (1,098)
--------
121,622
--------
$155,790
========
Total annual weighted-
average interest rate..... 6.95%
========
</TABLE>
- --------
(1) This loan is callable at the option of the mortgage lender on September
10, 1998 and at subsequent five-year intervals through September 10, 2013.
(2) Interest and principal payments due monthly; balloon payment of $1,849,000
due at maturity.
F-24
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) Interest and principal payments due monthly; balloon payment of $5,539,000
due at maturity.
(4) Interest and principal payments due monthly; balloon payment of $5,556,000
due at maturity.
(5) These communities, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets and
liabilities and business operations.
(6) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association ("FNMA") discussed below. Through these swap agreements,
ATLANTIC has effectively mitigated its variable interest rate exposure.
(7) ATLANTIC has a 30-year credit enhancement agreement with FNMA related to
the tax-exempt bond issues. This credit enhancement agreement requires
ATLANTIC to make monthly payments on each mortgage, based on a 30-year
amortization, into a principal reserve account.
ATLANTIC's swap agreements related to its tax-exempt variable rate mortgages
are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS FIXED
OF INTEREST
BONDS TERM RATE(1) ISSUER
- ------- ---- -------- ------
<S> <C> <C> <C>
$23.1
million June 1995 to June 2002 6.48% General Re Financial Products Corporation
64.6
million June 1995 to June 2005 6.74 Morgan Guaranty Trust Company of New York
5.0
million March 1996 to March 2006 6.18 Morgan Guaranty Trust Company of New York
15.5
million August 1996 to August 2006 6.51 Morgan Stanley Derivative Products Inc.
----
Weighted-average interest rate.... 6.64%
====
</TABLE>
- --------
(1) Includes the fixed interest rate provided by the swap agreements, annual
fees associated with the swap agreements and credit enhancement agreement
and amortization of capitalized costs associated with the credit
enhancement agreement.
ATLANTIC paid $1,832,000 more in interest during 1996 and $575,000 more in
interest during 1995 than it received under the swap agreements. The swap
agreements cover the principal amount of the bonds, net of amounts deposited
in the principal reserve fund. ATLANTIC pays interest on that portion of bonds
not covered by the swap agreements at the variable rates as provided by the
mortgage agreements. ATLANTIC is exposed to credit loss in the event of non-
performance by the swap counterparties; however, ATLANTIC believes the risk of
loss is minimal.
Real estate with an aggregate undepreciated cost at December 31, 1996 of
$50,714,000 and $206,963,000 serves as collateral for the conventional
mortgages payable and the tax-exempt mortgages payable, respectively.
The change in mortgages payable is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balances at January 1............................ $118,524 $107,347 $ --
Mortgages assumed................................ 17,867 24,678 107,537
Mortgage proceeds................................ 20,500 -- --
Regularly scheduled principal payments........... (1,101) (623) (190)
Reduction upon disposition of multifamily
community....................................... -- (6,500) --
Principal payments at maturity................... -- (6,378) --
-------- -------- --------
Balances at December 31.......................... $155,790 $118,524 $107,347
======== ======== ========
</TABLE>
F-25
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Approximate principal payments due on mortgages payable during each of the
years in the five-year period ending December 31, 2001 and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................... $ 1,537
1998................................................................... 7,136
1999................................................................... 1,577
2000................................................................... 3,554
2001................................................................... 1,812
Thereafter............................................................. 140,174
--------
$155,790
========
</TABLE>
NOTE 5 DISTRIBUTIONS
ATLANTIC made total cash distributions of $1.65 per Share in 1996, $1.60 per
Share in 1995 and $1.20 per Share in 1994. On December 19, 1996, ATLANTIC's
Board of Directors (the "Board") declared a distribution of $0.39 per Share
for the first quarter of 1997. The distribution is payable on February 19,
1997.
In addition, on November 12, 1996, ATLANTIC distributed 0.110875 shares of
Homestead common stock and warrants to purchase 0.074384 shares of Homestead
common stock per Share in the Homestead Distribution to each shareholder of
record on October 29, 1996. The Homestead Distribution was valued at $58.2
million based on the estimated fair value of the net assets sold to Homestead.
For federal income tax purposes, the following summarizes the taxability of
cash distributions paid for 1994 and 1995 and the estimated taxability for
1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Per Share:
Ordinary income....................................... $ 0.78 $ 0.92 $ 0.92
Return of capital..................................... 0.87 0.68 0.28
------- ------- -------
Total............................................... $ 1.65 $ 1.60 $ 1.20
======= ======= =======
</TABLE>
The securities distributed to each ATLANTIC shareholder in the Homestead
Distribution were valued at $1.91 per Share for federal income tax purposes,
of which $0.90 was taxable as ordinary income and $1.01 was treated as a
return of capital. ATLANTIC's tax return for the year ended December 31, 1996
has not been filed, and the taxability information for 1996 is based on the
best available data. ATLANTIC's tax returns for prior years have not been
examined by the Internal Revenue Service and, therefore, the taxability of
distributions and dividends is subject to change.
NOTE 6 SHAREHOLDERS' EQUITY
Shares Authorized
At December 31, 1996, 250,000,000 Shares were authorized. The Board may
classify or reclassify any unissued shares of ATLANTIC's stock from time to
time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to distributions, qualifications
and terms or conditions of redemption of such shares. No such shares have been
reclassified, except as described under "Purchase Rights" below, and no
reclassified shares are issued or outstanding.
F-26
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reverse Share Split
On September 10, 1996, the shareholders of ATLANTIC authorized a one-for-two
reverse split of ATLANTIC's Shares. A transfer from the common shares account
to additional paid-in capital was made to reflect the reduced number of Shares
outstanding after the split. All references in the accompanying financial
statements to the number of Shares and per Share amounts have been restated to
reflect the reverse Share split.
Ownership Restrictions and Significant Shareholder
ATLANTIC's Charter restricts beneficial ownership (or ownership generally
attributed to a person under the REIT tax rules) of ATLANTIC's outstanding
shares of stock by a single person, or persons acting as a group, to 9.8% of
ATLANTIC's outstanding shares of stock. The purpose of this provision is to
assist in protecting and preserving ATLANTIC's REIT status and to protect the
interest of shareholders in takeover transactions by preventing the
acquisition of a substantial block of shares unless the acquiror makes a cash
tender offer for all outstanding shares. For ATLANTIC to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, not more than 50% in
value of its outstanding shares of stock may be owned by five or fewer
individuals at any time during the last half of ATLANTIC's taxable year. The
provision permits five persons to individually acquire up to a maximum of 9.8%
each of the outstanding shares of stock, or an aggregate of 49% of the
outstanding shares and, thus, assists the Board in protecting and preserving
ATLANTIC's REIT status for tax purposes.
Shares of stock owned by a person or group of persons in excess of these
limits are subject to redemption by ATLANTIC. The provision does not apply
where a majority of the Board, in its sole absolute discretion, waives such
limit after determining that the status of ATLANTIC as a REIT for federal
income tax purposes will not be jeopardized or the disqualification of
ATLANTIC as a REIT is advantageous to the shareholders.
The Board has exempted Security Capital Group Incorporated ("Security
Capital"), an affiliate of the REIT Manager (see Note 7), from the ownership
restrictions described above. Security Capital owned 56.9% of the outstanding
Shares at December 31, 1996. For tax purposes, Security Capital's ownership is
attributed to its shareholders.
Capital Offerings
On October 18, 1996, ATLANTIC completed an initial public offering of
4,940,000 Shares at a price of $24.00 per Share (before adjusting for the
Homestead Distribution described in Notes 2 and 5). The Shares, excluding the
416,666 Shares sold to Security Capital, were sold through an underwritten
offering. The proceeds from the sale of these 4,940,000 Shares, net of
underwriters' commission and other expenses, were approximately $110.0
million. The proceeds were used to repay borrowings under ATLANTIC's $350
million line of credit.
From inception through May 1996, ATLANTIC raised capital through various
private offerings. ATLANTIC sold a total of 31,701,580 Shares during this
period at prices ranging from $20 to $23.136 per Share. In addition, ATLANTIC
exchanged 5,000,000 Shares at a price of $20 per Share as partial
consideration for the acquisition of a pool of communities in May 1994. The
acquisition price was negotiated prior to the seller becoming a related party.
To facilitate ATLANTIC's transactions with the seller, Security Capital
granted the seller certain rights to require Security Capital to purchase the
5,000,000 Shares owned by the seller at pre-agreed prices. In consideration
for Security Capital purchasing Shares through its private offerings, ATLANTIC
assumed Security Capital's obligation with respect to 3,750,000 Shares.
ATLANTIC repurchased these Shares directly from the seller. The remaining
1,250,000 Shares were acquired directly from the seller by Security Capital.
F-27
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Option Plan
On March 12, 1996, ATLANTIC adopted the Security Capital Atlantic
Incorporated Share Option Plan for Outside Directors (the "Outside Directors
Plan"). There are 100,000 Shares reserved for issuance upon exercise of
options granted under the Outside Directors Plan. The Outside Directors Plan
provides that each member of the Board who is not an employee of ATLANTIC or
the REIT Manager on the date of each annual meeting of ATLANTIC's shareholders
will receive an option to purchase 1,000 Shares at an exercise price equal to
the fair market value of the Shares on such date. The options will be granted
on the date of the annual meeting of shareholders for the years 1997 through
and including 2006. The options granted are for a term of five years and are
exercisable in whole or in part. At December 31, 1996, 3,000 options had been
granted at an exercise price of $24.00 per Share, none of which have been
exercised.
Purchase Rights
On March 12, 1996, the Board declared and paid a dividend of one preferred
share purchase right ("Purchase Right") for each Share outstanding at the
close of business on March 12, 1996 to the holders of ATLANTIC's Shares on
that date. Holders of additional Shares issued after March 12, 1996 and prior
to the expiration of the rights on March 12, 2006 will be entitled to one
Purchase Right for each additional Share.
Each Purchase Right entitles the holder, under certain circumstances, to
purchase from ATLANTIC two one-hundredths of a share of non-redeemable Series
A Junior Participating Preferred Stock of ATLANTIC, par value $0.01 per share
(the "Participating Preferred Shares"), at a price of $40 per one one-
hundredth of a Participating Preferred Share, subject to adjustment. ATLANTIC
has designated two one-hundredths of the total Shares outstanding at any point
in time as Participating Preferred Shares. Purchase Rights are exercisable
when a person or group of persons (other than certain affiliates of ATLANTIC)
acquire beneficial ownership of 20% or more of the outstanding Shares,
commence or announce a tender offer or exchange offer which would result in
the beneficial ownership by a person or group of persons (other than certain
affiliates of ATLANTIC) of 25% or more of the outstanding Shares or file or
announce their intention to file with any regulatory authority an application
seeking approval of any transaction which would result in the beneficial
ownership by a person or group of persons (other than certain affiliates of
ATLANTIC) of 25% or more of the outstanding Shares. Under certain
circumstances, each Purchase Right entitles the holder to purchase at the
Purchase Right's then current subscription price, a number of Shares having a
market value of twice the Purchase Right's subscription price. The acquisition
of ATLANTIC pursuant to certain mergers or other business transactions would
entitle each holder to purchase, at the Purchase Right's then current
subscription price, a number of the acquiring company's common shares having a
market value at that time equal to twice the Purchase Right's subscription
price. The Purchase Rights held by certain 20% shareholders (other than
certain affiliates of ATLANTIC) would not be exercisable. As of December 31,
1996, ATLANTIC had no Participating Preferred Shares outstanding and the
events required to exercise the Purchase Rights had not occurred. Therefore,
the Purchase Rights dividend had no value and was not recorded in the
financial statements.
NOTE 7 REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
REIT Management Agreement
ATLANTIC has a REIT management agreement (the "REIT Management Agreement")
with Security Capital (Atlantic) Incorporated (the "REIT Manager") to provide
management services to ATLANTIC. The REIT Manager is a subsidiary of Security
Capital (see Note 6). All officers of ATLANTIC are employees
F-28
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of the REIT Manager and ATLANTIC currently has no employees. The REIT Manager
provides both strategic and day-to-day management of ATLANTIC, including
research, investment analysis, acquisition, development, marketing,
disposition of assets, asset management, due diligence, capital markets, legal
and accounting services.
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow, as defined in the REIT Management Agreement, payable monthly.
Cash flow is calculated by reference to ATLANTIC's cash flow from operations
plus (i) fees paid to the REIT Manager, (ii) extraordinary expenses incurred
at the request of the independent Directors of ATLANTIC (of which there were
none in the periods reported) and (iii) 33% of any interest paid by ATLANTIC
on convertible subordinated debentures (of which there were none in the
periods reported); and after deducting (i) regularly scheduled principal
payments (excluding prepayments or balloon payments) for debt with
commercially reasonable amortization schedules, (ii) assumed principal and
interest payments on senior unsecured debt treated as having regularly
scheduled principal and interest payments like a 20-year level-payment, fully
amortizing mortgage (of which there were none in the periods reported) and
(iii) distributions actually paid with respect to any non-convertible
preferred stock (of which there were none in the periods reported). Cash flow
does not include: (i) realized gains or losses from dispositions of
investments, (ii) interest income from cash equivalent investments and the
Homestead convertible mortgage notes and dividend and interest income from
Atlantic Development Services, (iii) provisions for possible losses on
investments and (iv) extraordinary items.
The REIT Manager also receives a fee of 0.20% per year on the average daily
balance of cash equivalent investments. ATLANTIC must also reimburse the REIT
Manager for third-party and out-of-pocket expenses relating to travel,
transaction costs and similar costs relating to the acquisition, development
or disposition of assets or the obtaining of financing for ATLANTIC and its
operations. The REIT Manager will pay all of its own salary and other overhead
expenses. ATLANTIC will not have any employee expense; however, it will pay
all of the third-party costs related to its normal operations, including
legal, accounting, travel, architectural, engineering, shareholder relations,
independent Director fees and similar expenses, property management and
similar fees paid on behalf of ATLANTIC, and travel expenses incurred in
seeking financing, community acquisitions, community dispositions and similar
activities on behalf of ATLANTIC and in attending ATLANTIC Board, committee
and shareholder meetings.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to
a determination by the independent Directors that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. Each of ATLANTIC and the REIT Manager may terminate the
REIT Management Agreement on 60 days' notice. Because of the year-to-year
nature of the agreement, its maximum effect on ATLANTIC's results of
operations cannot be predicted, other than that REIT management fees will
generally increase or decrease in proportion to cash flow increases or
decreases.
Property Management Agreement
SCG Realty Services Atlantic Incorporated ("SCG Realty Services") provides
property management services to ATLANTIC. At January 31, 1997, SCG Realty
Services managed approximately 87% of ATLANTIC's multifamily communities.
Security Capital owns 100% of SCG Realty Services' voting shares.
The property management agreement, like the REIT Management Agreement, is
renewable annually and subject to a determination by the independent Directors
that SCG Realty Services' performance has been satisfactory and that the
compensation payable to SCG Realty Services is at rates prevailing in the
markets in which ATLANTIC operates. ATLANTIC may terminate the property
management agreement on 30 days' notice.
F-29
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per Share amounts)
for 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
1996:
Rental income.............. $30,809 $32,876 $35,959 $38,085 $137,729
======= ======= ======= ======= ========
Earnings before
extraordinary item........ $ 6,650 $ 9,747 $11,131 $15,041 $ 42,569
======= ======= ======= ======= ========
Net earnings............... $ 6,650 $ 9,747 $11,131 $11,101 $ 38,629
======= ======= ======= ======= ========
Earnings per Share before
extraordinary item........ $ 0.24 $ 0.32 $ 0.34 $ 0.41 $ 1.33
======= ======= ======= ======= ========
Net earnings per Share..... $ 0.24 $ 0.32 $ 0.34 $ 0.30 $ 1.21
======= ======= ======= ======= ========
Weighted-average Shares.... 27,777 30,393 32,952 36,925 32,028
======= ======= ======= ======= ========
1995:
Rental income.............. $22,952 $24,330 $26,969 $29,383 $103,634
======= ======= ======= ======= ========
Net earnings............... $ 4,175 $ 4,956 $ 5,333 $ 5,175 $ 19,639
======= ======= ======= ======= ========
Net earnings per Share..... $ 0.22 $ 0.23 $ 0.23 $ 0.21 $ 0.89
======= ======= ======= ======= ========
Weighted-average Shares.... 18,567 21,642 23,340 24,153 21,944
======= ======= ======= ======= ========
</TABLE>
The total of the four quarterly amounts for net earnings per Share may not
equal the total for the year. These differences result from the use of a
weighted average to compute the average number of Shares outstanding.
NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended December 31,
1996, 1995 and 1994 are as follows:
(a) As discussed in Note 2, in 1996, ATLANTIC received Homestead common
stock valued at $51,717,000 upon the sale of the Homestead Assets (assets
with a net book value of $31,028,000 and cash of $16,595,000). A gain of
$2,839,000, net of expenses of $1,255,000, was recognized on the
transaction.
(b) As discussed in Note 2, in 1996, ATLANTIC received warrants to
purchase Homestead common stock valued at $6,511,000 in exchange for
entering into a funding commitment agreement. The value of the warrants has
been recognized as deferred revenue.
(c) ATLANTIC made a $58,228,000 non-cash distribution to its shareholders
in November 1996 consisting of the Homestead common stock and warrants.
(d) In December 1996, ATLANTIC declared a distribution for the first
quarter of 1997 in the amount of $14,778,000.
(e) In connection with the acquisition of communities, ATLANTIC assumed
mortgage debt in the amount of $17,867,000, $24,678,000 and $107,537,000 in
1996, 1995 and 1994, respectively.
(f) In 1994, ATLANTIC issued $100,000,000 of Shares in partial
consideration for the purchase of a pool of communities.
(g) ATLANTIC sold a community in 1995 that secured $6,500,000 of mortgage
debt.
F-30
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10 COMMITMENTS AND CONTINGENCIES
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of business. ATLANTIC does not believe that the claims and
litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position or results of operations.
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each community prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
communities that is likely to have a material adverse effect on its business,
financial position or results of operations.
NOTE 11 FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, other assets, accrued
expenses and other liabilities approximates fair value as of December 31, 1996
and 1995 because of the short maturity of these instruments. Similarly, the
carrying value of line of credit borrowings approximates fair value as of
those dates because the interest rate fluctuates based on published market
rates. In the opinion of management, the interest rates associated with the
mortgages payable approximates the market interest rates for this type of
instrument, and as such, the carrying values approximate fair value at
December 31, 1996 and 1995, in all material respects.
NOTE 12 PROPOSED TRANSACTION
On January 22, 1997, ATLANTIC received a proposal from Security Capital to
exchange the REIT Manager and SCG Realty Services for Shares. As a result of
the proposed transaction, ATLANTIC would become an internally managed REIT,
and Security Capital would remain ATLANTIC's largest shareholder. The Board
has formed a special committee comprised of independent Directors to review
the proposed transaction. The proposed transaction is subject to approval by
the special committee, the Board and ATLANTIC's shareholders.
F-31
<PAGE>
SCHEDULE III
SECURITY CAPITAL ATLANTIC
Incorporated
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Which Carried at
to ATLANTIC Costs December 31, 1996
-------------------- Capitalized ----------------------------
Encum- Buildings and Subsequent to Buildings and Totals Accumulated Construction Year
Multifamily Communities brances Land Improvements Acquisition Land Improvements (c) Depreciation Year Acquired
----------------------- ------- ------ ------------- ------------- ------ ------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communities Acquired:
Atlanta, Georgia:
Azalea Park.......... $15,500 $3,717 $21,076 $ 975 $3,717 $22,051 $25,768 $ 715 1987 1995
Balmoral Village..... - 2,871 16,270 74 2,871 16,344 19,215 73 1990 1996
Cameron Ashford...... - 3,672 20,841 399 3,672 21,240 24,912 1,551 1990 1994
Cameron Briarcliff... (b) 2,105 11,953 191 2,105 12,144 14,249 897 1989 1994
Cameron Brook........ 19,500 3,318 18,784 326 3,318 19,110 22,428 1,279 1988 1994
Cameron Creek I...... - 3,627 20,589 328 3,627 20,917 24,544 1,473 1988 1994
Cameron Crest........ - 3,525 20,009 290 3,525 20,299 23,824 1,426 1988 1994
Cameron Dunwoody..... - 2,486 14,114 252 2,486 14,366 16,852 1,050 1989 1994
Cameron Forest....... - 884 5,008 352 884 5,360 6,244 145 1981 1995
Cameron Place........ - 1,124 6,372 579 1,124 6,951 8,075 185 1979 1995
Cameron Pointe....... - 2,172 12,306 413 2,172 12,719 14,891 192 1987 1996
Cameron Station...... 14,500 2,338 13,246 496 2,338 13,742 16,080 354 (c) 1995
Clairmont Crest...... 11,600 1,603 9,102 315 1,603 9,417 11,020 626 1987 1994
The Greens........... 10,400 2,004 11,354 382 2,004 11,736 13,740 794 1986 1994
Lake Ridge........... - 2,001 11,359 4,012 2,001 15,371 17,372 1,200 1979 1993
Morgan's Landing..... - 1,168 6,646 857 1,168 7,503 8,671 608 1983 1993
Old Salem............ - 1,053 6,144 919 1,053 7,063 8,116 485 1968 1994
Trolley Square....... - 2,031 11,528 347 2,031 11,875 13,906 911 1989 1994
Vinings Landing...... - 1,363 7,902 714 1,363 8,616 9,979 613 1978 1994
WintersCreek......... 5,000 1,133 6,434 220 1,133 6,654 7,787 233 1984 1995
Woodlands............ - 3,785 21,471 485 3,785 21,956 25,741 761 (d) 1995
Birmingham, Alabama:
Cameron on the
Cahaba I............ - 1,020 5,784 352 1,020 6,136 7,156 281 1987 1995
Cameron on the
Cahaba II........... 8,021 1,688 9,580 501 1,688 10,081 11,769 463 1990 1995
Colony Woods I....... - 1,560 8,845 281 1,560 9,126 10,686 676 1991 1994
Morning Sun Villas... - 1,260 7,309 732 1,260 8,041 9,301 554 1985 1994
Charlotte, North
Carolina:
Cameron at
Hickory Grove....... 5,979 1,203 6,808 381 1,203 7,189 8,392 137 1988 1996
Cameron Oaks........ - 2,255 12,800 306 2,255 13,106 15,361 974 1989 1994
</TABLE>
(see notes following table)
F-32
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION-(Continued)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Which Carried at
to ATLANTIC Costs December 31, 1996
-------------------- Capitalized ----------------------------
Encum- Buildings and Subsequent to Buildings and Totals Accumulated Construction Year
Multifamily Communities brances Land Improvements Acquisition Land Improvements (c) Depreciation Year Acquired
----------------------- ------- ------ ------------- ------------- ------ ------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ft. Lauderdale/West
Palm Beach, Florida:
Cypress Lakes........ $ - $1,225 $ 6,961 $ 324 $1,225 $ 7,285 $ 8,510 $ 271 1987 1995
Park Place at
Turtle Run.......... - 2,208 12,223 1,283 2,208 13,506 15,714 223 1989 1996
Parrot's Landing I... 15,835 2,691 15,276 684 2,691 15,960 18,651 1,072 1986 1994
The Pointe at
Bayberry Lake....... - 2,508 14,210 303 2,508 14,513 17,021 222 1988 1996
Spencer Run.......... (b) 2,852 16,194 425 2,852 16,619 19,471 1,133 1987 1994
Sun Pointe Cove...... 8,500 1,367 7,773 229 1,367 8,002 9,369 550 1986 1994
Trails at Meadow
Lakes............... - 1,285 7,293 262 1,285 7,555 8,840 282 1983 1995
Ft. Myers, Florida:
Forestwood........... 11,485 2,031 11,540 210 2,031 11,750 13,781 815 1986 1994
Greenville, South
Carolina:
Cameron Court........ - 1,602 9,369 89 1,602 9,458 11,060 163 1991 1996
Jacksonville, Florida:
Bay Club............. - 1,789 10,160 273 1,789 10,433 12,222 773 1990 1994
Memphis, Tennessee:
Cameron Century
Center.............. - 2,382 13,496 50 2,382 13,546 15,928 60 1988 1996
Cameron at Kirby
Parkway............. - 1,386 7,959 829 1,386 8,788 10,174 686 1985 1994
Country Oaks......... 5,933 1,246 7,061 177 1,246 7,238 8,484 63 1985 1996
Stonegate............ - 985 5,608 483 985 6,091 7,076 360 1986 1994
Miami, Florida:
Park Hill............ - 1,650 9,377 (2,185)(e) 1,650 7,192 8,842 606 1968 1994
Nashville, Tennessee:
Arbor Creek.......... - - (f) 17,671 512 - 18,183 18,183 1,267 1986 1994
Enclave at Brentwood. - 2,263 12,847 1,016 2,263 13,863 16,126 605 1988 1995
Orlando, Florida:
Camden Springs....... - 2,477 14,072 808 2,477 14,880 17,357 1,056 1986 1994
Cameron Villas I..... 6,343 1,087 6,317 609 1,087 6,926 8,013 473 1982 1994
Cameron Villas II.... (b) 255 1,454 64 255 1,518 1,773 56 1981 1995
Kingston Village..... - 876 4,973 164 876 5,137 6,013 192 1982 1995
The Wellington....... (b) 1,155 6,565 282 1,155 6,847 8,002 466 1988 1994
Raleigh, North
Carolina:
Cameron Lake......... - 1,385 7,848 60 1,385 7,908 9,293 35 1985 1996
Cameron Ridge........ 5,888 1,503 8,519 109 1,503 8,628 10,131 38 1985 1996
Cameron Square....... - 2,314 13,143 525 2,314 13,668 15,982 959 1987 1994
Emerald Forest....... - 2,202 12,478 - 2,202 12,478 14,680 - 1986 1996
Richmond, Virginia:
Camden at Wellesley.. - 2,878 16,339 293 2,878 16,632 19,510 1,240 1989 1994
Potomac Hunt......... (b) 1,486 8,452 181 1,486 8,633 10,119 464 1987 1994
</TABLE>
(see notes following table)
F-33
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION-(Continued)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Which Carried at
to ATLANTIC Costs December 31, 1996
--------------------- Capitalized ----------------------------
Encum- Buildings and Subsequent to Buildings and Totals Accumulated Construction Year
Multifamily Communities brances Land Improvements Acquisition Land Improvements (c) Depreciation Year Acquired
----------------------- ------- ------- ------------- ------------- ------ ------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sarasota, Florida:
Camden at Palmer
Ranch................ $ - $ 3,534 $ 20,057 $ 607 $ 3,534 $ 20,664 $ 24,198 $ 1,469 1988 1994
Tampa, Florida:
Camden Downs......... - 1,840 10,447 305 1,840 10,752 12,592 780 1988 1994
Cameron Bayshore..... - 1,607 9,105 - 1,607 9,105 10,712 - 1984 1996
Cameron Lakes........ - 1,126 6,418 1,107 1,126 7,525 8,651 365 1986 1995
Country Place
Village I........... 2,004 567 3,219 140 567 3,359 3,926 125 1982 1995
Country Place
Village II.......... - 644 3,658 94 644 3,752 4,396 141 1983 1995
Foxbridge on
the Bay............. 10,400 1,591 9,036 328 1,591 9,364 10,955 652 1986 1994
Summer Chase......... (b) 542 3,094 136 542 3,230 3,772 219 1988 1994
Washington, D.C.:
Camden at Kendall
Ridge............... - 1,708 9,698 295 1,708 9,993 11,701 755 1990 1994
Cameron at
Saybrooke........... - 2,802 15,906 258 2,802 16,164 18,966 1,190 1990 1994
Sheffield Forest..... - 2,269 12,859 418 2,269 13,277 15,546 374 1987 1995
West Springfield
Terrace............. - 2,417 13,695 98 2,417 13,793 16,210 92 1978 1996
Less amounts held in
principal reserve
fund(g)............. (1,098) - - - - - - -
--------- ------- -------- ------- -------- -------- -------- -------
Total Operating
Communities
Acquired............ $155,790 $124,701 $726,004 $27,324 $124,701 $753,328 $878,029 $38,948
-------- -------- -------- ------- -------- -------- -------- -------
Communities Developed:
Birmingham, Alabama:
Colony Woods II...... $ - $ 1,254 $ - $ 9,261 $ 1,551 $ 8,964 $ 10,515 $ 365 1995 1994
Charlotte, North
Carolina:
Waterford Hills...... - 1,508 - 11,109 1,943 10,674 12,617 476 1995 1993
Waterford Square I... - 1,890 - 17,763 2,053 17,600 19,653 436 1996 1994
Jacksonville, Florida:
Cameron Lakes I...... - 1,759 - 14,358 1,959 14,158 16,117 216 1996 1995
Raleigh, North
Carolina:
Waterford Point...... - 985 - 14,854 1,493 14,346 15,839 519 1996 1994
-------- -------- -------- ------- -------- -------- -------- -------
Total Operating
Communities
Developed.......... $ - $ 7,396 $ - $67,345 $ 8,999 $ 65,742 $ 74,741 $ 2,012
-------- -------- -------- ------- -------- -------- -------- -------
Total Operating
Communities......... $155,790 $132,097 $726,004 $94,669 $133,700 $819,070 $952,770 $40,960
-------- -------- -------- ------- -------- -------- -------- -------
</TABLE>
(see notes following table)
F-34
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION-(Continued)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Which Carried at
to ATLANTIC Costs December 31, 1996
--------------------- Capitalized ----------------------------
Encum- Buildings and Subsequent to Buildings and Totals Accumulated Construction Year
Multifamily Communities brances Land Improvements Acquisition Land Improvements (c) Depreciation Year Acquired
- ----------------------- ------- ------ ------------- ------------- ------ ------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communities Under
Construction:
Atlanta, Georgia:
Cameron Creek II..... $ - $ 2,730 $ - $ 16,602 $ 2,897 $ 16,435 $ 19,332 $ 39 - (h) 1994
Birmingham, Alabama:
Cameron at the
Summit I............ - 2,774 - 5,709 2,778 5,705 8,483 - - 1996
Charlotte, North
Carolina:
Waterford Square II.. - 2,014 - 4,578 2,065 4,527 6,592 - - 1995
Ft. Lauderdale/West
Palm Beach, Florida:
Parrot's Landing II.. - 1,328 - 6,742 1,367 6,703 8,070 - - 1994
Jacksonville, Florida:
Cameron Deerwood..... - 2,331 - 12,173 2,332 12,172 14,504 - - (h) 1996
Cameron Lakes II..... - 1,340 - 1,529 1,340 1,529 2,869 - - 1996
Cameron Timberlin
Parc I.............. - 2,167 - 13,280 2,282 13,165 15,447 16 - (h) 1995
Nashville, Tennessee:
Cameron Overlook..... - 2,659 - 4,679 2,659 4,679 7,338 - - 1996
Raleigh, North
Carolina:
Cameron Brooke....... - 1,353 - 8,717 1,382 8,688 10,070 - - 1995
Waterford Forest..... - 2,371 - 17,978 2,480 17,869 20,349 52 - (h) 1995
Richmond, Virginia:
Cameron at Wyndham... - 2,038 - 2,366 2,052 2,352 4,404 - - 1993
Cameron Crossing
I & II.............. - 2,752 - 8,450 2,768 8,434 11,202 - - 1995(i)
Washington, D.C.:
Cameron at
Milestone........... - 5,477 - 24,867 5,607 24,737 30,344 43 - (h) 1995
Woodway at
Trinity Center...... - 5,342 - 30,241 5,584 29,999 35,583 56 - (h) 1994
------- ------- ------- -------- ------- -------- -------- ----
Total Commun-
ities under
Construction...... $ - $36,676 $ - $157,911 $37,593 $156,994 $194,587 $206
------- ------- ------- -------- ------- -------- -------- ----
</TABLE>
(see notes following table)
F-35
<PAGE>
SECURITY CAPITAL ATLANTIC
Incorporated
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION-(Concluded)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Which Carried at
to ATLANTIC Costs December 31, 1996
-------------------- Capitalized ----------------------------
Encum- Buildings and Subsequent to Buildings and Totals Accumulated Construction Year
Multifamily Communities brances Land Improvements Acquisition Land Improvements (c) Depreciation Year Acquired
----------------------- ------- ------ ------------- ------------- ------ ------------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communities in
Planning:
Atlanta, Georgia:
Cameron Landing....... $ - $ 1,508 $ - $ 512 $ 1,508 $ 512 $ 2,020 $ - - 1996
Ft. Lauderdale/West
Palm Beach, Florida:
Cameron Waterway...... - 4,025 - 361 4,029 357 4,386 - - 1996
Jacksonville, Florida:
Cameron Timberlin
Parc II............... - 1,294 - 95 1,294 95 1,389 - - 1995
-------- -------- --------- -------- -------- -------- ---------- -------
Total Communities in
Planning............ $ - $ 6,827 $ - $ 968 $ 6,831 $ 964 $ 7,795 $ -
-------- -------- --------- -------- -------- -------- ---------- -------
Land Held for
Future Development:
Birmingham, Alabama:
Cameron at the
Summit II............. - 2,008 - 75 2,083 - 2,083 - - 1996
-------- -------- --------- -------- -------- -------- ---------- -------
Total Land Held for
Future Development.. $ - $ 2,008 $ - $ 75 $ 2,083 $ - $ 2,083 $ -
-------- -------- --------- -------- -------- -------- ---------- -------
Total............... $155,790 $177,608 $726,004 $253,623 $180,207 $977,028 $1,157,235 $41,166
======== ======== ========= ======== ======== ======== ========== =======
</TABLE>
- -----
(a) For federal income tax purposes, ATLANTIC's aggregate cost of real estate
at December 31, 1996 was $1,133,431,000.
(b) Pledged as additional collateral under credit enhancement agreement with
the Federal National Mortgage Association.
(c) Phase I (108 units) was constructed in 1981 and Phase II (240 units) was
constructed in 1983.
(d) Phase I (332 units) was constructed in 1983 and Phase II (312 units) was
constructed in 1985.
(e) A provision for possible loss of $2,500,000 was recognized in December
1996 to more properly reflect the fair value of this community.
(f) The land associated with this community is leased by ATLANTIC through the
year 2058 under an agreement with the Metropolitan Nashville Airport
Authority.
(g) The FNMA credit enhancement agreement requires payments to be made to a
principal reserve fund.
(h) This community is leasing completed units.
(i) 19.24 acres purchased in 1995; 9.86 acres purchased in 1996.
F-36
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTE TO SCHEDULE III
AS OF DECEMBER 31, 1996
The following is a reconciliation of the carrying amount and related
accumulated depreciation of ATLANTIC's investment in real estate, at cost (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
CARRYING AMOUNT 1996 1995 1994
--------------- ---------- -------- --------
<S> <C> <C> <C>
Beginning balances........................ $ 888,928 $631,260 $ 31,005
Acquisitions and renovation expenditures.. 179,752 187,267 571,288
Development expenditures, including land
acquisitions............................. 179,783 101,335 28,967
Recurring capital expenditures............ 2,783 -- --
Provision for possible loss............... (2,500) -- --
Dispositions.............................. (59,988) (30,934) --
Sale of Homestead Assets.................. (31,523) -- --
---------- -------- --------
Ending balances........................... $1,157,235 $888,928 $631,260
========== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
ACCUMULATED DEPRECIATION 1996 1995 1994
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Beginning balances........................ $ 23,561 $ 8,798 $ 28
Depreciation for the period............... 20,824 15,925 8,770
Accumulated depreciation of real estate
disposed of.............................. (3,219) (1,162) --
---------- -------- --------
Ending balances........................... $ 41,166 $ 23,561 $ 8,798
========== ======== ========
</TABLE>
F-37
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying pro forma condensed financial statements for ATLANTIC
reflect the Merger pursuant to which ATLANTIC will acquire its REIT Manager
and SCG Realty Services currently owned by Security Capital, in exchange for
ATLANTIC Shares. The Merger, if approved by a majority of ATLANTIC's
shareholders, will result in ATLANTIC becoming an internally managed REIT. The
Merger does not meet the significance tests of the Securities and Exchange
Commission that require pro forma financial statements and financial
statements of the acquired companies. However, pro forma condensed financial
statements have been included because management believes that presenting the
pro forma effects of the Merger will help shareholders evaluate and understand
the Merger.
The pro forma condensed financial statements have been prepared based on
certain pro forma adjustments to the historical financial statements of
ATLANTIC. The pro forma financial statements do not reflect the Offering as
ATLANTIC is not able to estimate what portion, if any, of the rights
distributed to shareholders in the Offering will ultimately be exercised.
The accompanying pro forma condensed balance sheet as of March 31, 1997 has
been prepared as if the Merger had been completed as of the balance sheet date
and also reflects: (i) the sale of $86.0 million of Shares on April 10, 1997
(4,000,000 Shares at $21.50 per Share), net of estimated costs of issuance of
$5.5 million, as if the Shares had been sold as of March 31, 1997; (ii) the
proposed Note Offering with aggregate gross proceeds of $150.0 million, net of
estimated costs of issuance of $4.3 million, as if the Notes had been issued
as of March 31, 1997; and (iii) the proposed Preferred Share Offering with
gross proceeds of $50.0 million, net of estimated costs of issuance of $2.0
million, as if the Series A Preferred Shares had been issued as of March 31,
1997. For pro forma purposes, the proceeds from the sale of Shares, the Note
Offering and the Preferred Share Offering have been assumed to be used to
repay borrowings on ATLANTIC's $350 million line of credit.
The accompanying pro forma condensed statements of earnings for the three-
month period ended March 31, 1997 and the year ended December 31, 1996 have
been prepared as if the Merger had occurred on January 1, 1996 and also
reflects: (i) the sale of ATLANTIC's Homestead Village(R) properties to
Homestead and subsequent distribution of the Homestead common stock and
warrants to ATLANTIC's shareholders as if the transaction had been consummated
on January 1, 1996; (ii) the acquisition and disposition by ATLANTIC of all
communities acquired or disposed of from December 31, 1995 through March 31,
1997 as if these communities had been acquired or disposed of as of January 1,
1996; (iii) the assumption of mortgage debt associated with the acquisition of
the communities acquired from December 31, 1995 through March 31, 1997 as if
this mortgage debt had been assumed as of January 1, 1996; (iv) the sale of
Shares through private placement subsequent to December 31, 1995, necessary to
fund pro forma acquisitions as if the Shares had been sold as of January 1,
1996; (v) the sale of Shares in ATLANTIC's initial public offering in October
1996, net of costs of issuance, necessary to fund pro forma acquisitions as if
the Shares had been sold as of January 1, 1996; (vi) the sale of $86.0 million
of Shares on April 10, 1997 (4,000,000 Shares at $21.50 per Share), net of
estimated costs of issuance of $5.5 million as if the Shares had been sold as
of January 1, 1996; (vii) the proposed Note Offering with aggregate gross
proceeds of $150.0 million, net of estimated costs of issuance of $4.3
million, as if the Notes had been issued as of January 1, 1996; and (viii) the
proposed Preferred Share Offering with gross proceeds of $50.0 million, net of
estimated costs of issuance of $2.0 million, as if the Series A Preferred
Shares had been issued as of January 1, 1996. For pro forma purposes, the
proceeds from the sale of Shares on April 10, 1997, the Note Offering and the
Preferred Share Offering have been assumed to be used to repay pro forma
borrowings on ATLANTIC's $350 million line of credit.
The accompanying pro forma condensed statements of earnings for the three-
month period ended March 31, 1997 and the year ended December 31, 1996 do not
give effect to the fully stabilized results of operations
F-38
<PAGE>
related to ATLANTIC communities under construction or in planning and owned at
March 31, 1997 with a total budgeted completion cost of $410.2 million or the
1996 and first quarter 1997 development completions with a total budgeted cost
of $56.4 million. Management believes there will be sufficient depth of
management and personnel such that additional assets can be acquired, developed
and managed without a significant increase in personnel or other costs. As a
result, management of ATLANTIC believes that the accretion in net earnings and
funds from operations from the Merger reflected in the pro forma condensed
statements of earnings is not indicative of the full accretion that is expected
to occur under an internally managed structure.
The pro forma condensed financial statements do not reflect the funding of
ATLANTIC's unfunded obligation of approximately $91.1 million at March 31, 1997
under a funding commitment agreement with Homestead or receipt of the related
convertible mortgage notes, as this funding is related to future development
costs of the properties sold to Homestead.
The pro forma condensed financial statements do not purport to be indicative
the financial position or results of operations which would actually have been
obtained had the transactions described above been completed on the dates
indicated or which may be obtained in the future. The pro forma condensed
financial statements should be read in conjunction with the historical
financial statements of ATLANTIC included elsewhere herein. In management's
opinion all material adjustments necessary to reflect the effects of these
transactions have been made.
F-39
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PROPOSED
SERIES A
PROPOSED PREFERRED
ATLANTIC SHARE THE NOTES SHARES
HISTORICAL ISSUANCE(A) SUBTOTAL MERGER SUBTOTAL ISSUANCE(B) ISSUANCE(C) PRO FORMA
---------- ----------- ---------- ------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Real estate............. $1,208,229 $ -- $1,208,229 $ -- $1,208,229 $ -- $ -- $1,208,229
Less accumulated
depreciation.......... 47,297 -- 47,297 -- 47,297 -- -- 47,297
---------- -------- ---------- ------ ---------- --------- -------- ----------
1,160,932 -- 1,160,932 -- 1,160,932 -- -- 1,160,932
Homestead Convertible
Mortgages.............. 25,891 -- 25,891 -- 25,891 -- -- 25,891
---------- -------- ---------- ------ ---------- --------- -------- ----------
Net investments........ 1,186,823 -- 1,186,823 -- 1,186,823 -- -- 1,186,823
Cash and cash
equivalents............ 3,953 -- 3,953 24 (d) 3,977 -- -- 3,977
Due from Security
Capital................ -- -- -- 625 (e) 625 -- -- 625
Other fixed assets...... -- -- -- 1,102 (f) 1,102 -- -- 1,102
Accounts receivable and
other assets........... 13,455 -- 13,455 413 (d) 13,868 4,250 -- 18,118
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total assets......... $1,204,231 $ -- $1,204,231 $2,164 $1,206,395 $ 4,250 $ -- $1,210,645
========== ======== ========== ====== ========== ========= ======== ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Line of credit......... $ 295,250 $(80,480) $ 214,770 $ -- $ 214,770 $(145,750) $(48,000) $ 21,020
Long-term debt......... -- -- -- -- -- 150,000 -- 150,000
Mortgages payable...... 155,418 -- 155,418 -- 155,418 -- -- 155,418
Accounts payable....... 18,189 -- 18,189 1,062 (d) 19,251 -- -- 19,251
Accrued expenses and
other liabilities..... 20,654 -- 20,654 700 (g) 21,354 -- -- 21,354
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total liabilities.... 489,511 (80,480) 409,031 1,762 410,793 4,250 (48,000) 367,043
---------- -------- ---------- ------ ---------- --------- -------- ----------
Shareholders' equity:
Series A Preferred
Shares (2,000,000
shares at a stated
liquidation
preference of $25.00
per share)............ -- -- -- -- -- -- 50,000 50,000
Common shares
(250,000,000
authorized,
37,891,580 issued
historical and
44,240,580 pro
forma)................ 379 40 419 23 (h) 442 -- -- 442
Additional paid-in
capital............... 747,640 80,440 828,080 379 (i) 828,459 -- (2,000) 826,459
Unrealized gains on
Homestead Convertible
Mortgages............. 5,900 -- 5,900 -- 5,900 -- -- 5,900
Distributions in
excess of net
earnings.............. (39,199) -- (39,199) -- (39,199) -- -- (39,199)
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total shareholders'
equity.............. 714,720 80,480 795,200 402 795,602 -- 48,000 843,602
---------- -------- ---------- ------ ---------- --------- -------- ----------
Total liabilities and
shareholders'
equity.............. $1,204,231 $ -- $1,204,231 $2,164 $1,206,395 $ 4,250 $ -- $1,210,645
========== ======== ========== ====== ========== ========= ======== ==========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-40
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
THREE-MONTH PERIOD ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PROPOSED
SERIES A
PROPOSED PREFERRED
ATLANTIC SHARE THE NOTES SHARES PRO
HISTORICAL ISSUANCE(A) SUBTOTAL MERGER SUBTOTAL ISSUANCE(B) ISSUANCE(C) FORMA
---------- ----------- -------- ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income.......... $ 39,715 $ -- $ 39,715 $ -- $ 39,715 $ -- $ -- $ 39,715
Homestead Convertible
Mortgages interest
income................ 185 -- 185 -- 185 -- -- 185
Other interest income.. 57 -- 57 -- 57 -- -- 57
-------- ------- -------- ------- -------- ------- ------- --------
39,957 -- 39,957 -- 39,957 -- -- 39,957
-------- ------- -------- ------- -------- ------- ------- --------
Expenses:
Rental expenses........ 13,823 -- 13,823 1,540 (j) 15,363 -- -- 15,363
Property management
fees:
Paid to affiliate...... 1,280 -- 1,280 (1,280)(k) -- -- -- --
Paid to third parties.. 232 -- 232 232 -- -- 232
Depreciation........... 6,132 -- 6,132 71 (l) 6,203 -- -- 6,203
Interest:
Mortgage............... 2,650 -- 2,650 -- 2,650 -- -- 2,650
Line of credit and
long-term debt........ 2,111 (1,429)(m) 682 -- 682 413 (n) (852)(o) 243
REIT management fee
paid to affiliate..... 3,029 229 (m) 3,258 (3,258)(k) -- -- -- --
General and
administrative........ 265 -- 265 1,486 (p) 1,751 -- -- 1,751
Provision for possible
loss on investments... 200 -- 200 -- 200 -- -- 200
Other.................. 57 -- 57 -- 57 -- -- 57
-------- ------- -------- ------- -------- ------- ------- --------
29,779 (1,200) 28,579 (1,441) 27,138 413 (852) 26,699
-------- ------- -------- ------- -------- ------- ------- --------
Net earnings from
operations............. $10,178 $ 1,200 $ 11,378 $ 1,441 (q) $ 12,819 $ (413) $ 852 $ 13,258
Less Series A Preferred
Share dividends....... -- -- -- -- -- -- 1,125 (r) 1,125
-------- ------- -------- ------- -------- ------- ------- --------
Net earnings
attributable to
Shares................ $ 10,178 $ 1,200 $ 11,378 $ 1,441 $ 12,819 $ (413) $ (273) $ 12,133
======== ======= ======== ======= ======== ======= ======= ========
Weighted average Shares
outstanding............ 37,892 4,000 (s) 41,892 2,349 (t) 44,241 -- -- 44,241
======== ======= ======== ======= ======== ======= ======= ========
Net earnings
attributable to Shares
per Share.............. $ 0.27 $ -- $ 0.27 $ 0.02 $ 0.29 $ (0.01) $ (0.01) $ 0.27
======== ======= ======== ======= ======== ======= ======= ========
Reconciliation of net
earnings attributable
to Shares to funds from
operations:
Net earnings
attributable to
Shares................ $ 10,178 $ 1,200 $ 11,378 $ 1,441 $ 12,819 $ (413) $ (273) $ 12,133
Add (Deduct):
Real estate
depreciation ......... 6,132 -- 6,132 -- 6,132 -- -- 6,132
Provision for possible
loss on investments... 200 -- 200 -- 200 -- -- 200
Amortization of
discount on conversion
feature and deferred
commitment fee related
to Homestead
Convertible Mortgages. (20) -- (20) -- (20) -- -- (20)
-------- ------- -------- ------- -------- ------- ------- --------
Funds from
operations(u)......... $ 16,490 $ 1,200 $ 17,690 $ 1,441 $ 19,131 $ (413) $ (273) $ 18,445
======== ======= ======== ======= ======== ======= ======= ========
Weighted average Shares
outstanding............ 37,892 4,000 41,892 2,349 44,241 -- -- 44,241
======== ======= ======== ======= ======== ======= ======= ========
Cash Flow Summary:
Net cash provided
(used) by operating
activities............ $ 16,913 $ 1,200 $ 18,113 $ 1,252 $ 19,365 $ (413) $ 852 $ 19,804
Net cash used by
investing activities.. (69,354) -- (69,354) (1,132) (70,486) -- -- (70,486)
Net cash provided
(used) by financing
activities............ $ 52,055 $ -- $ 52,055 $ (197) $ 51,858 $ -- $(1,125) $ 50,733
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-41
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITIONS PROPOSED
ATLANTIC HOMESTEAD DISPOSITIONS & THE NOTES
HISTORICAL TRANSACTION(V) SUBTOTAL SHARE ISSUANCE SUBTOTAL MERGER SUBTOTAL ISSUANCE
---------- -------------- -------- -------------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income... $137,729 $ (424) $137,305 $11,056 (w) $148,361 $ -- $ 148,361 $ --
Interest income. 427 (21) 406 -- 406 -- 406 --
-------- ------- -------- ------- -------- ------- --------- -------
138,156 (445) 137,711 11,056 148,767 -- 148,767 --
-------- ------- -------- ------- -------- ------- --------- -------
Expenses:
Rental expenses. 49,101 (173) 48,928 4,279 (w) 53,207 5,662 (x) 58,869 --
Property
management fees:
Paid to affiliate. 4,208 -- 4,208 404 (w) 4,612 (4,612)(k) -- --
Paid to third
parties......... 971 -- 971 -- 971 -- 971 --
Depreciation.... 20,824 (43) 20,781 1,753 (y) 22,534 213 (z) 22,747 --
Interest:
Mortgage........ 9,484 -- 9,484 785 (aa) 10,269 -- 10,269 --
Line of credit
and long-term
debt............ 6,697 2,739 9,436 (5,168)(bb) 4,268 -- 4,268 1,229 (cc)
REIT management
fee paid to
affiliate....... 10,445 (475) 9,970 1,682 (ee) 11,652 (11,652)(k) -- --
General and
administrative.. 673 (32) 641 -- 641 5,282 (ff) 5,923 --
Provision for
possible loss on
investments..... 2,500 -- 2,500 -- 2,500 -- 2,500 --
Other........... 255 (23) 232 -- 232 -- 232 --
-------- ------- -------- ------- -------- ------- --------- -------
105,158 1,993 107,151 3,735 110,886 (5,107) 105,779 1,229
-------- ------- -------- ------- -------- ------- --------- -------
Net earnings from
operations
excluding gains
on dispositions
and extraordinary
item............. $ 32,998 $(2,438) $ 30,560 $ 7,321 $ 37,881 $ 5,107 (q) $ 42,988 $(1,229)
Less Series A
Preferred Share
dividends........ -- -- -- -- -- -- -- --
-------- ------- -------- ------- -------- ------- --------- -------
Net earnings
attributable to
Shares.......... $ 32,998 $(2,438) $ 30,560 $ 7,321 $ 37,881 $ 5,107 $ 42,988 $(1,229)
======== ======= ======== ======= ======== ======= ========= =======
Weighted average
Shares
outstanding...... 32,028 -- 32,028 5,869 (hh) 37,897 2,349 (t) 40,246 --
======== ======= ======== ======= ======== ======= ========= =======
Net earnings
attributable to
Shares per Share
excluding gains
on dispositions
and extraordinary
item............. $ 1.03 $ (0.08) $ 0.95 $ 0.05 $ 1.00 $ 0.07 $ 1.07 $ (0.03)
Reconciliation of
net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item to funds
from operations:
Net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item............ $ 32,998 $(2,438) $ 30,560 $ 7,321 $ 37,881 $ 5,107 $ 42,988 $(1,229)
Add (Deduct):
Real estate
depreciation.... 20,824 (43) 20,781 1,753 22,534 -- 22,534 --
Provision for
possible loss on
investments..... 2,500 -- 2,500 -- 2,500 -- 2,500 --
-------- ------- -------- ------- -------- ------- --------- -------
Funds from
operations (u).. $ 56,322 $(2,481) $ 53,841 $ 9,074 $ 62,915 $ 5,107 $ 68,022 $(1,229)
======== ======= ======== ======= ======== ======= ========= =======
Weighted average
Shares
outstanding...... 32,028 -- 32,028 5,869 37,897 2,349 40,246 --
======== ======= ======== ======= ======== ======= ========= =======
Cash Flow
Summary:
Net cash
provided (used)
by operating
activities...... $ 54,356 $(2,481) $ 51,875 $ 9,074 $ 60,949 $ 6,418 $ 67,367 $(1,229)
Net cash used by
investing
activities...... (287,418) -- (287,418) -- (287,418) (4,058) (291,476) --
Net cash
provided (used)
by financing
activities...... $230,907 $ -- $230,907 $ -- $230,907 $ (381) $ 230,526 $ --
<CAPTION>
PROPOSED
SERIES A
PREFERRED
SHARES PRO
ISSUANCE FORMA
------------- ---------
<S> <C> <C>
Revenues:
Rental income... $ -- $148,361
Interest income. -- 406
------------- ---------
-- 148,767
------------- ---------
Expenses:
Rental expenses. -- 58,869
Property
management fees:
Paid to affiliate. -- --
Paid to third
parties......... -- 971
Depreciation.... -- 22,747
Interest:
Mortgage........ -- 10,269
Line of credit
and long-term
debt............ (3,547)(dd) 1,950
REIT management
fee paid to
affiliate....... -- --
General and
administrative.. -- 5,923
Provision for
possible loss on
investments..... -- 2,500
Other........... -- 232
------------- ---------
(3,547) 103,461
------------- ---------
Net earnings from
operations
excluding gains
on dispositions
and extraordinary
item............. $ 3,547 $ 45,306
Less Series A
Preferred Share
dividends........ 4,500 (gg) 4,500
------------- ---------
Net earnings
attributable to
Shares.......... $ (953) $ 40,806
============= =========
Weighted average
Shares
outstanding...... -- 40,246
============= =========
Net earnings
attributable to
Shares per Share
excluding gains
on dispositions
and extraordinary
item............. $ (0.03) $ 1.01
Reconciliation of
net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item to funds
from operations:
Net earnings
attributable to
Shares excluding
gains on
dispositions and
extraordinary
item............ $ (953) $ 40,806
Add (Deduct):
Real estate
depreciation.... -- 22,534
Provision for
possible loss on
investments..... -- 2,500
------------- ---------
Funds from
operations (u).. $ (953) $ 65,840
============= =========
Weighted average
Shares
outstanding...... -- 40,246
============= =========
Cash Flow
Summary:
Net cash
provided (used)
by operating
activities...... $ 3,547 $ 69,685
Net cash used by
investing
activities...... -- (291,476)
Net cash
provided (used)
by financing
activities...... $(4,500) $226,026
</TABLE>
See accompanying notes to pro forma condensed financial statements.
F-42
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(a) Reflects the sale of 4,000,000 Shares at a price of $21.50 per Share
which occurred on April 10, 1997. The total proceeds of $86.0 million, net of
estimated costs of issuance of $5.5 million, results in $80.5 million of cash
available which, for pro forma purposes, has been assumed to be used to repay
borrowings on ATLANTIC's $350 million unsecured line of credit.
(b) Reflects the proposed sale of $100.0 million of % Notes and $50.0
million of % Notes, net of estimated costs of issuance of $4.3 million,
resulting in $145.7 million of cash available which, for pro forma purposes,
has been assumed to be used to repay borrowings on ATLANTIC's $350 million
unsecured line of credit.
(c) Reflects the proposed sale of 2,000,000 shares of Series A Preferred
Shares at a price of $25.00 per share. The total proceeds of $50.0 million,
net of estimated costs of issuance of $2.0 million, results in $48.0 million
of cash available which, for pro forma purposes, has been assumed to be used
to repay borrowings on ATLANTIC's $350 million unsecured line of credit. For
pro forma purposes, the issuance price and the redemption price are assumed to
be the same.
(d) Reflects the historical operating assets and liabilities of the REIT
Manager and SCG Realty Services for which Security Capital will reimburse
ATLANTIC as more fully discussed in note (e).
(e) In accordance with the terms of the Merger Agreement, reflects the
amount due to ATLANTIC from Security Capital as reimbursement for the net
historical operating liabilities (as discussed in note (d)) acquired from the
REIT Manager and SCG Realty Services as of March 31, 1997.
(f) Reflects the historical cost of the fixed assets (primarily computer
equipment and software) of the REIT Manager and SCG Realty Services that are
being acquired by ATLANTIC. Assets and liabilities, consisting primarily of
intercompany and related accounts, which are not being acquired in the Merger
have not been reflected as they will have no impact on the financial position
of ATLANTIC.
(g) Reflects estimated costs of completing the Merger which are reflected in
shareholders' equity. See note (i).
(h) Reflects the par value of the Shares issued as consideration for the
purchase of the net tangible assets of the REIT Manager and SCG Realty
Services. For pro forma purposes, 2,349,000 Shares were calculated using the
purchase price of $54.6 million and an assumed per Share price of $23.25. This
price represents the midpoint of the pricing range set forth in the Merger
Agreement.
(i) Reflects: (i) the additional paid-in capital related to the Shares
issued as consideration for the purchase of the net tangible assets of the
REIT Manager and SCG Realty Services, (ii) the costs associated with the
Merger and (iii) the difference between the Merger purchase price and the
historical cost of the net tangible assets of the REIT Manager and SCG Realty
Services being acquired by ATLANTIC. Because the management companies being
acquired do not qualify as "businesses" for purposes of applying APB Opinion
No. 16, "Business Combinations" and because the transaction is occurring
between entities with common control this difference has been accounted for as
a capital transaction reflected in shareholders' equity.
<TABLE>
<S> <C> <C>
Additional paid-in capital
associated with Shares issued
($54,609,000 less par value
of $23,000).................. $54,586,000
Purchase price................ 54,609,000
Costs associated with the
Merger....................... 700,000
Net tangible assets acquired.. (1,102,000)
----------
54,207,000
-----------
Net adjustment to additional
paid-in capital.............. $ 379,000
===========
</TABLE>
F-43
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(j) Reflects the historical operating expenses of SCG Realty Services,
including charges for administrative services provided by Security Capital,
which were directly related to providing services to ATLANTIC for the three-
month period ended March 31, 1997. See note (p) for further discussion.
(k) Reflects the elimination of ATLANTIC's expenses related to REIT
management fees and property management fees. The corresponding fee revenue
recognized by the REIT Manager and SCG Realty Services have not been reflected
as they would be eliminated.
(l) Reflects the historical depreciation expense of the REIT Manager and SCG
Realty Services ($60,000) directly related to fixed assets being acquired in
the Merger for the three-month period ended March 31, 1997, as adjusted for
the estimated increase that would result from the capitalization of
acquisition and development costs ($11,000) discussed in note (p). These
capitalized costs will be depreciated utilizing the same lives and methods
currently utilized by ATLANTIC.
(m) Reflects the reduction to interest expense and related increase in the
REIT management fee resulting from the pro forma repayments on the line of
credit due to the Share issuance on April 10, 1997. The interest reduction is
calculated using the weighted average daily interest rate of 7.1% for the
three-month period ended March 31, 1997.
(n) Reflects the net change in interest expense as a result of the Note
Offering for the three-month period ended March 31, 1997 as follows:
<TABLE>
<S> <C>
Increase in interest expense related to the Notes............... $ 3,000
Decrease in interest expense associated with the pro forma
repayments on the line of credit............................... (2,587)
-------
Net change.................................................... $ 413
=======
</TABLE>
The interest expense on the Notes is calculated at an assumed effective rate
of 8.0% (including the amortization of associated deferred loan costs). The
reduction in interest expense associated with the line of credit is calculated
using the line of credit weighted average interest rate of 7.1%.
<TABLE>
<S> <C>
===
</TABLE>
(o) Reflects the reduction in interest expense resulting from the pro forma
repayments on the line of credit due to the proposed Preferred Share Offering
calculated using the line of credit weighted average interest rate of 7.1% for
the three-month period ended March 31, 1997.
(p) Reflects the historical general and administrative costs of the REIT
Manager ($2,488,000) which were associated with providing services to ATLANTIC
for the three-month period ended March 31, 1997, reduced for the pro forma
adjustment to capitalize qualifying direct and incremental costs relating
primarily to the acquisition and development of real estate investments
($1,002,000) that would have been capitalized by ATLANTIC under GAAP, had the
Merger occurred on January 1, 1996. Under the current management structure,
ATLANTIC pays a REIT management fee which is based on 16% of cash flow, as
defined. The entire fee is expensed in accordance with GAAP since the
underlying costs of service are not directly incurred by ATLANTIC and the fees
do not represent a reimbursement of such costs. Upon consummation of the
Merger, all such costs will be incurred directly by ATLANTIC and to the extent
that they are qualifying, incremental costs, they will be capitalized in
accordance with GAAP.
In connection with the Merger, it is expected that ATLANTIC will enter into
a proposed Administrative Services Agreement (ASA) with Security Capital.
Under the ASA, Security Capital will provide ATLANTIC with administrative
services such as payroll, accounts payable, cash management, risk management,
internal audit, tax and legal administration, systems development and systems
support. Such services are currently
F-44
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
provided by Security Capital to ATLANTIC through the REIT Manager and SCG
Realty Services. The fees payable to Security Capital will be equal to
Security Capital's cost of providing such services, plus 20%. Based upon a
review of the terms of the ASA, it was determined that the costs that would
have been incurred under the ASA for the three-month period ended March 31,
1997 and the year ended December 31, 1996 would not differ materially from the
actual costs charged to the REIT Manager and SCG Realty Services by Security
Capital during these periods and therefore no pro forma adjustments are
required.
(q) No income tax adjustment is reflected in the accompanying pro forma
condensed statements of earnings as the operations of the REIT Manager and SCG
Realty Services will be merged into a qualified REIT subsidiary which, under
federal income tax laws, would not be subject to income taxes.
(r) Reflects the dividend related to the Series A Preferred Shares
calculated at an assumed dividend rate of 9.0% for the three-month period
ended March 31, 1997.
(s) Reflects the issuance of 4,000,000 Shares on April 10, 1997 as if the
Shares had been issued as of March 31, 1997.
(t) Reflects the increase in weighted average Shares outstanding that would
result from the issuance of Shares as consideration for the purchase of the
net tangible assets of the REIT Manager and SCG Realty Services as if the
purchase had occurred on January 1, 1996. The number of Shares shown is based
on the purchase price of $54.6 million at an assumed per Share price of
$23.25. The price represents the mid point of the pricing range set forth in
the Merger Agreement.
(u) Funds from operations represents ATLANTIC's net earnings computed in
accordance with GAAP, excluding gains (or losses) from real estate
transactions, provisions for possible losses, extraordinary items and real
estate depreciation. ATLANTIC believes that an understanding of funds from
operations will enhance the reader's comprehension of the impact of the Merger
to ATLANTIC. The impact of the Merger on ATLANTIC's funds from operations was
a specific consideration of ATLANTIC's Special Committee which was formed for
purposes of making a recommendation to ATLANTIC's Board. Funds from operations
should not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of ATLANTIC's operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. Furthermore, the funds from operations
measure presented by ATLANTIC may not be comparable to similarly titled
measures of other REITs. Funds from operations is not intended to represent
cash made available to shareholders.
(v) Reflects the sale of ATLANTIC's Homestead Village(R) properties to
Homestead as if the transaction had taken place on January 1, 1996 as follows:
(i) the elimination of the historical results of operations of ATLANTIC's
Homestead Village(R) properties from January 1, 1996 to the date of sale
(October 17, 1996), (ii) the recognition of additional interest expense and a
corresponding reduction in the REIT management fee resulting from the
additional borrowings that would have been necessary in 1996 to complete the
Homestead transaction and (iii) the recognition of the historical interest
expense that was capitalized on the properties sold to Homestead and the
corresponding reduction in the REIT management fee.
F-45
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(w) All of ATLANTIC's acquisitions subsequent to December 31, 1995 were
acquired from unaffiliated third parties. These acquisitions are described
below:
<TABLE>
<CAPTION>
OCCUPANCY
ACQUISITION ACQUISITION AT DATE OF
COMMUNITY DATE LOCATION COST (IN 000'S) UNITS PRODUCT TYPE ACQUISITION
--------- ----------- -------- --------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cameron at Hickory Grove
(formerly Esprit)...... 4/10/96 Charlotte, NC $ 8,000 202 Moderate 93.6%
Cameron Court (formerly
Paces Court)........... 4/22/96 Greenville, SC 11,007 234 Middle 91.0
Park Place at Turtle Run
(formerly Park Place).. 4/22/96 Ft. Lauderdale, FL 14,355 350 Moderate 91.7
The Pointe at Bayberry
Lake................... 5/29/96 Ft. Lauderdale, FL 16,650 308 Moderate 90.9
Cameron Pointe.......... 5/30/96 Atlanta, GA 14,450 214 Middle 96.3
Country Oaks............ 9/5/96 Memphis, TN 8,250 200 Moderate 98.0
West Springfield
Terrace................ 9/30/96 Washington, DC 16,100 244 Moderate 94.7
Cameron Ridge (formerly
Lincoln Ridge)......... 10/17/96 Raleigh, NC 10,000 228 Middle 99.6
Cameron Century Center
(formerly Arbors of
Century Center)........ 10/18/96 Memphis, TN 15,800 420 Moderate 90.7
Balmoral Village........ 10/22/96 Atlanta, GA 19,125 312 Middle 95.5
Cameron Lake (formerly
Summer Lake)........... 11/12/96 Raleigh, NC 9,225 196 Moderate 84.1
Emerald Forest.......... 12/19/96 Raleigh, NC 14,625 320 Moderate 85.6
Cameron Bayshore (for-
merly Chesapeake)...... 12/20/96 Tampa, FL 10,700 328 Moderate 97.0
</TABLE>
This adjustment reflects historical gross income and rental expenses for all
communities acquired subsequent to December 31, 1995 for the period from
January 1, 1996 to the respective dates of acquisition (results of operations
after the date of acquisition are included in ATLANTIC's historical operating
results). It also reflects the removal from ATLANTIC's historical balances of
gross income and rental expenses for all communities disposed of subsequent to
December 31, 1995 for the period from January 1, 1996 to the respective dates
of disposition. The historical gross income and rental expenses relating to
the period prior to ATLANTIC's acquisition of the communities exclude amounts
which would not be comparable to the proposed future operations of the
communities such as certain interest income and income taxes.
F-46
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarize the historical income and expense amounts
shown on the pro forma statement of earnings for the year ended December 31,
1996 (in thousands). There were no community acquisitions or dispositions in
the three-month period ended March 31, 1997.
<TABLE>
<CAPTION>
RENTAL RENTAL
INCOME EXPENSES(1)
------- -----------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Group C Communities................................ $ 5,805 $ 2,481
Group D Communities................................ 6,180 2,505
Group E Communities................................ 11,645 4,753
Other communities acquired in 1996................. 3,683 1,534
------- -------
Totals for the year.............................. 27,313 11,273
Less: Post acquisition amounts already included in
ATLANTIC's historical balances................ (9,690) (3,616)
Less: Dispositions................................. (6,567) (2,920)
------- -------
Net adjustment to ATLANTIC's historical balances. $11,056 $ 4,737 (2)
======= =======
</TABLE>
- --------
(1) Includes property management fees and real estate taxes.
(2) Rental expenses are further adjusted by ($54) to reflect the difference
for the year ended December 31, 1996 between historical property
management fee expense and ATLANTIC's pro forma property management fee
expense.
The following analysis reconciles the audited information for the Group C
Communities, the Group D Communities and the Group E Communities to the
amounts contained in the pro forma statement of earnings (in thousands):
<TABLE>
<CAPTION>
RENTAL RENTAL
INCOME EXPENSES(1)
------- -----------
<S> <C> <C>
Group C Communities: Audited results of operations
for the year ended December 31, 1995............. $ 5,876 $3,043
Adjustment to reflect the results of operations
of Group C Communities for 1996................ (71)(2) (562)(2)
------- ------
Total 1996 Group C............................ $ 5,805 $2,481
======= ======
Group D Communities: Audited results of operations
for the year ended December 31, 1995............. $ 6,173 $2,576
Adjustment to reflect the results of operations
of Group D Communities for 1996................ 7(2) (71)(2)
------- ------
Total 1996 Group D............................ $ 6,180 $2,505
======= ======
Group E Communities: Audited results of operations
for the year ended December 31, 1995............. $11,347 $4,990
Adjustment to reflect the results of operations
of Group E Communities for 1996................ 298(2) (237)(2)
------- ------
Total 1996 Group E............................ $11,645 $4,753
======= ======
</TABLE>
- --------
(1) Includes property management fees and real estate taxes.
(2) Represents incremental income and expense adjustments necessary to
reconcile the 1995 audited results with the 1996 actual results.
F-47
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(x) Reflects the historical operating expenses of the Property Manager
($5,257,000), including charges for administrative services provided by
Security Capital (see note (p)) which were directly related to providing
services to ATLANTIC for the year ended December 31, 1996, as adjusted for the
estimated increase to historical operating expenses of SCG Realty Services
($405,000) resulting from the pro forma acquisitions, net of dispositions,
discussed in note (w).
(y) Reflects (i) the removal of depreciation expense recognized on
communities disposed of subsequent to December 31, 1995 which is included in
ATLANTIC's historical balances ($735,000) and (ii) the addition of
depreciation expense from January 1, 1996 through the acquisition date for all
communities acquired subsequent to December 31, 1995 ($2,488,000)
(depreciation expense after the date of acquisition is included in ATLANTIC's
historical operating results). This depreciation adjustment is based on
ATLANTIC's purchase cost assuming asset lives of ten to 40 years. Depreciation
is computed using a straight-line method.
(z) Reflects the historical depreciation expense of the REIT Manager and the
Property Manager ($193,000) directly related to fixed assets being acquired in
the Merger for the year ended December 31, 1996, as adjusted for the estimated
increase that would result from the capitalization of acquisition and
development costs ($20,000) discussed in note (ff). These capitalized costs
will be depreciated utilizing the same lives and methods currently utilized by
ATLANTIC.
(aa) Reflects pro forma interest expense for the year ended December 31,
1996 on the three mortgage notes assumed in connection with acquisitions in
1996. The interest rates on the mortgage notes vary from 7.0% to 8.0%.
(bb) Represents the reduction to interest expense resulting from the pro
forma repayments on the line of credit due to the Share issuance on April 10,
1997. The interest reduction is calculated using the weighted-average daily
interest rate of 7.39% for 1996.
(cc) Reflects the net change in interest expense as a result of the Note
Offering for the year ended December 31, 1996 as follows:
<TABLE>
<S> <C>
Increase in interest expense related to the Notes............... $12,000
Decrease in interest expense associated with the pro forma
repayments on the line of credit............................... (10,771)
-------
Net change.................................................... $ 1,229
=======
</TABLE>
The interest expense on the Notes is calculated at an assumed effective rate
of 8.0% (including the amortization of associated deferred loan costs). The
reduction in interest expense associated with the line of credit is calculated
using the line of credit weighted average interest rate of 7.39%.
(dd) Reflects the reduction in interest expense resulting from the pro forma
repayments on the line of credit due to the proposed Preferred Share Offering
calculated using the line of credit weighted average interest rate of 7.39%
for the year ended December 31, 1996.
(ee) Reflects the additional REIT management fee that would have been
incurred for the year ended December 31, 1996, had the pro forma acquisitions
and dispositions and the pro forma repayments on the line of credit all
occurred as of January 1, 1996.
(ff) Reflects the historical general and administrative costs of the REIT
Manager ($9,383,000), including charges for administrative services provided
by Security Capital which were associated with providing services to ATLANTIC
for the year ended December 31, 1996, reduced for the pro forma adjustment to
capitalize
F-48
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
qualifying direct and incremental costs relating primarily to the acquisition
and development of real estate investments ($4,101,000) that would have been
capitalized by ATLANTIC under GAAP, had the Merger occurred on January 1,
1996. See note (p) for further discussion.
Historical general and administrative costs of the REIT Manager relating to
the operations of Homestead Village properties which were contributed to
Homestead (as discussed in note (v)), have not been reflected as they would
not impact the ongoing operations of ATLANTIC.
(gg) Reflects the dividends related to the Series A Preferred Shares
calculated at an assumed dividend rate of 9.0% for the year ended December 31,
1996.
(hh) The number of Shares used in the calculation of the pro forma per Share
data was based on the weighted-average number of Shares outstanding during the
period, adjusted to give effect to Shares assumed to have been issued on
January 1, 1996 as necessary to complete the pro forma acquisitions and to
make the pro forma repayments on the line of credit.
F-49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group C
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group C Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group C Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group C
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group C Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
April 26, 1996
F-50
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP C COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Gross income:
Rental...................................................... $5,760,923
Other....................................................... 114,949
----------
Total gross income........................................ 5,875,872
----------
Direct operating expenses:
Utilities and other operating expenses...................... 1,279,237
Real estate taxes........................................... 615,907
Repairs and maintenance..................................... 783,851
Management fees............................................. 228,903
Advertising................................................. 88,289
Insurance................................................... 47,163
----------
Total direct operating expenses........................... 3,043,350
----------
Excess of gross income over direct operating expenses......... $2,832,522
==========
</TABLE>
See accompanying notes.
F-51
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP C COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") for the year ended December 31, 1995,
relates to the operations of the following Group C Communities which were
acquired from unaffiliated parties by Security Capital Atlantic Incorporated
("ATLANTIC") between January 1, 1996 and April 29, 1996:
<TABLE>
<CAPTION>
ACQUISITION DATE COMMUNITY NAME LOCATION ACQUISITION COST
---------------- -------------- -------------------------- ----------------
(IN 000S)
<C> <S> <C> <C>
April 10, 1996 Cameron at Charlotte, North Carolina $ 8,000
Hickory
Grove
(formerly
Esprit)
April 22, 1996 Park Place Ft. Lauderdale, Florida 14,355
at Turtle
Run
(formerly
Park
Place)
April 22, 1996 Cameron Greenville, South Carolina 11,007
Court
(formerly
Paces
Court)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-11
of ATLANTIC. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group C Communities for
the year ended December 31, 1995, as certain costs such as depreciation,
amortization, certain mortgage interest, professional fees and other costs not
considered comparable to the future operations of the Group C Communities have
been excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
3. RELATED PARTY TRANSACTIONS
Management fees of $228,903 were paid to affiliates of the prior owners
under property management contracts.
4. DEBT ASSUMPTION
During 1995, the Cameron at Hickory Grove Apartments secured an 8.75%,
interest-only mortgage note with a balance of $6,660,000. ATLANTIC assumed
this mortgage note on April 10, 1996 in connection with the acquisition of the
community. Substantial modifications in the terms of the note were made prior
to the assumption by ATLANTIC. Therefore, on a continuing basis, the interest
expense incurred will differ from the amounts incurred prior to ATLANTIC's
assumption of the debt. Accordingly, no interest expense is recognized in the
accompanying combined Historical Summary.
F-52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group D
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group D Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group D Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group D
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group D Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
August 13, 1996
F-53
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM JANUARY 1, 1996 THROUGH THE
EARLIER OF JUNE 30, 1996 OR DATE OF ACQUISITION
<TABLE>
<CAPTION>
1995 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
Gross income:
Rental................................................. $5,927,498 $2,530,039
Other.................................................. 245,113 95,154
---------- ----------
Total gross income................................... 6,172,611 2,625,193
---------- ----------
Direct operating expenses:
Utilities and other operating expenses................. 1,252,442 595,707
Real estate taxes...................................... 557,446 278,615
Repairs and maintenance................................ 336,297 78,735
Management fees........................................ 266,917 106,175
Advertising............................................ 65,935 35,320
Insurance.............................................. 97,417 58,141
---------- ----------
Total direct operating expenses...................... 2,576,454 1,152,693
---------- ----------
Excess of gross income over direct operating expenses.... $3,596,157 $1,472,500
========== ==========
</TABLE>
See accompanying notes.
F-54
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM JANUARY 1, 1996 THROUGH THE
EARLIER OF JUNE 30, 1996 OR DATE OF ACQUISITION (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") for the year ended December 31, 1995 and
the period from January 1, 1996 through the earlier of June 30, 1996 or the
date Security Capital Atlantic Incorporated (" ATLANTIC") acquired the
community (the "Date of Acquisition") relates to the operations of the
following Group D Communities which have been or are likely to be acquired
from unaffiliated parties by ATLANTIC between May 29, 1996 and September 30,
1996:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
DATE COMMUNITY NAME LOCATION COST
----------- -------------- -------- -----------
<S> <C> <C> <C>
(IN 000'S)
May 29, 1996 The Pointe at Bayberry Lake Ft. Lauderdale, Florida $ 16,650
May 30, 1996 Cameron Pointe (formerly Calibre Pointe) Atlanta, Georgia 14,450
-- (1) Country Oaks Memphis, Tennessee -- (1)
</TABLE>
- --------
(1) Community is under contract
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-11
of ATLANTIC. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group D Communities for
the year ended December 31, 1995 and the period from January 1, 1996 through
the earlier of June 30, 1996 or the Date of Acquisition, as certain costs such
as depreciation, amortization, certain mortgage interest, professional fees
and other costs not considered comparable to the future operations of the
Group D Communities have been excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
F-55
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP D COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONCLUDED)
Unaudited Interim Historical Summary
The combined Historical Summary for the period from January 1, 1996 through
the earlier of June 30, 1996 or the Date of Acquisition is unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of
such combined Historical Summary have been included. The results of operations
for the period are not necessarily indicative of the Group D Communities'
future results of operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $266,917 and $106,175 were paid to affiliates of the
prior owners under property management contracts in 1995 and 1996,
respectively.
4. DEBT ASSUMPTION
In June 1995, the Country Oaks Apartments secured a mortgage note in the
amount of $6,010,000. The note provides for monthly payments of $42,663,
including principal and interest at 7.655% through July 2002, at which time
all outstanding principal and interest will be due. ATLANTIC will assume this
note in connection with the acquisition of the community.
F-56
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group E
Communities described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group E Communities'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the basis of accounting used and
significant estimates made by management, as well as evaluating the overall
presentation of the combined Historical Summary. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group E Communities and is not intended to be a
complete presentation of the income and expenses of the combined Group E
Communities.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group E Communities for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
January 31, 1997
F-57
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM JANUARY 1, 1996 THROUGH THE DATE OF ACQUISITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -----------
(UNAUDITED)
<S> <C> <C>
Gross income:
Rental.................................................... $10,774 $9,022
Other..................................................... 573 554
------- ------
Total gross income...................................... 11,347 9,576
------- ------
Direct operating expenses:
Utilities and other operating expenses.................... 1,674 1,351
Real estate taxes......................................... 956 848
Repairs and maintenance................................... 1,470 1,198
Management fees........................................... 468 378
Interest on certain obligations assumed................... 437 341
Advertising............................................... 207 148
Insurance................................................. 215 176
------- ------
Total direct operating expenses......................... 5,427 4,440
------- ------
Excess of gross income over direct operating expenses....... $ 5,920 $5,136
======= ======
</TABLE>
See accompanying notes.
F-58
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM JANUARY 1, 1996 THROUGH THE DATE OF ACQUISITION (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the "Historical Summary") for the year ended December 31, 1995 and
the period from January 1, 1996 through the date Security Capital Atlantic
Incorporated ("ATLANTIC") acquired the community (the "Date of Acquisition"),
relates to the operations of the following Group E Communities which were
acquired from unaffiliated parties by ATLANTIC between September 30, 1996 and
December 20, 1996:
<TABLE>
<CAPTION>
ACQUISITION
PRICE
DATE COMMUNITY NAME LOCATION (IN 000'S)
---- -------------- -------- -----------
<C> <S> <C> <C>
September 30, 1996 West Springfield Terrace Washington, D.C. $16,100
October 17, 1996 Cameron Ridge (formerly Lin- Raleigh, NC 10,000
coln Ridge)
October 18, 1996 Cameron Century Center Memphis, TN 15,800
(formerly Arbors at Century
Center)
October 22, 1996 Balmoral Village Atlanta, GA 19,125
December 20, 1996 Cameron Bayshore Tampa, FL 10,700
(formerly Chesapeake)
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement of Form S-11
of ATLANTIC. The combined Historical Summary is not intended to be a complete
presentation of combined income and expenses of the Group E Communities for
the year ended December 31, 1995 and the period from January 1, 1996 through
the Date of Acquisition, as certain costs such as depreciation, amortization,
certain mortgage interest, professional fees and other costs not considered
comparable to the future operations of the Group E Communities have been
excluded.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consists of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
F-59
<PAGE>
SECURITY CAPITAL ATLANTIC
INCORPORATED
GROUP E COMMUNITIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONTINUED)
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
Unaudited Interim Historical Summary
The combined Historical Summary for the period from January 1, 1996 through
the Date of Acquisition is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such combined Historical
Summary have been included. The results of operations for the period are not
necessarily indicative of the Group E Communities' future results of
operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $73,000 and $73,000 in 1995 and 1996, respectively, and
allocated accounting costs of $53,000 and $49,000 in 1995 and 1996,
respectively, were paid to affiliates of the prior owners under property
management contracts.
4. DEBT ASSUMPTION
ATLANTIC assumed outstanding debt in connection with the acquisition of the
Lincoln Ridge Apartments. A 7% mortgage note with an outstanding balance of
$5,920,186 at October 17, 1996 (the date of acquisition) was assumed by
ATLANTIC. The note, which is collateralized by the community, matures on
September 10, 2013, subject to the lender's call options in 1998, 2003 or
2008. The mortgage note requires monthly principal and interest payments of
$50,660 until September 1998, at which time the interest rate will be based on
the prime rate or, at ATLANTIC's option, may be fixed at a rate based on the
current Treasury rate. Beginning in September, 1998, the note requires monthly
payments of interest and monthly principal payments beginning at $15,206,
increasing by approximately 9% annually.
The mortgage note had an outstanding balance of $6,071,000 at December 31,
1995. ATLANTIC's assumption of this mortgage note did not provide for any
modification to the original terms of the note through September 1998;
therefore, interest expense incurred prior to ATLANTIC's assumption is
representative of future interest expense. Accordingly, interest expense of
$437,000 and $341,000 for 1995 and 1996, respectively, is recognized in the
combined Historical Summary.
F-60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ATLANTIC SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 20
Use of Proceeds........................................................... 28
Capitalization............................................................ 28
Price Range of ATLANTIC Shares and Distributions.......................... 29
The Merger Transaction.................................................... 31
Business.................................................................. 37
REIT Management........................................................... 47
ATLANTIC's Communities.................................................... 56
Selected Financial Information............................................ 64
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 66
Policies With Respect to Certain Activities............................... 83
Certain Relationships and Transactions.................................... 86
Principal Shareholders.................................................... 90
Description of Stock...................................................... 91
Certain Provisions of Maryland Law and of ATLANTIC's Charter and Bylaws... 96
Shares Available for Future Sale.......................................... 99
Federal Income Tax Considerations......................................... 99
The Offering.............................................................. 110
Preferred Share Offering.................................................. 116
Note Offering............................................................. 117
Independent Auditors and Experts.......................................... 117
Validity of Shares........................................................ 117
Additional Information.................................................... 117
Glossary.................................................................. 119
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO OF SECURITY CAPITAL ATLANTIC INCORPORATED APPEARS HERE]
RIGHTS TO PURCHASE
COMMON STOCK
SHARES OF
COMMON STOCK
-----------
PROSPECTUS
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The inside front cover page contains a map of the Southeastern United States,
including the location of Registrants target market cities, operating
communities and communities under construction or in planning.
Page thirty-seven contains a chart which indicates the expected population and
employment growth in the Registrants primary target market cities versus the
United States as a whole from 1997 to 2016.
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the shares being registered. All the amounts
shown are estimates (other than the SEC registration fee and the NASD fee).
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee.......................................... $ 15,686
NASD fee......................................................
New York Stock Exchange listing fee...........................
Printing and engraving fees...................................
Legal fees and expenses (other than Blue Sky).................
Accounting fees and expenses..................................
Blue Sky fees and expenses (including fees of counsel)........
Miscellaneous expenses........................................
----------
Total..................................................... $
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32. In addition, on October 18, 1996, Security Capital Group
Incorporated ("Security Capital") purchased 416,666 shares of common stock in
the Registrant's initial public offering of 4,940,000 shares of common stock.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
From October 26, 1993 (the date of the Registrant's inception) through June
28, 1994, Security Capital purchased an aggregate of 13,066,575 shares of the
Registrant's common stock at a price of $20.00 per share. Such purchases were
exempt from registration pursuant to Section 4(2) of the Securities Act. On
May 12, 1994, Laing Properties, Inc. received 5,000,000 shares of the
Registrant's common stock in partial consideration for ATLANTIC's acquisition
of a portfolio of properties. Of the 5,000,000 shares issued to Laing
Properties, Inc., 3,750,000 shares have been repurchased by the Registrant
under a put obligation. In August 1994, the Registrant sold 500,000 shares of
common stock in a private offering at a price of $20.00 per share (including
331,713 shares which were sold to Security Capital). From March 1995 through
June 1995, the Registrant sold 7,272,728 shares of common stock in a private
offering at a price of $22.00 per share (including 4,310,705 shares which were
sold to Security Capital). From November 1995 through May 1996, the Registrant
sold 10,862,278 shares of common stock in a private offering at a price of
$23.00 per share (including 919,712 shares which were sold to Security Capital
at a price of $23.00 per share and 1,250,000 shares which were sold to
Security Capital at a price of $23.136 per share). All such transactions were
effected pursuant to the exemption from registration contained in Section 4(2)
of the Securities Act and Rule 506 thereunder.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Maryland law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit of profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Registrant's
Charter contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
II-1
<PAGE>
The Registrant's officers and Directors are and will be indemnified under
the Registrant's charter against certain liabilities. The Registrant's charter
provides that the Registrant will, to the maximum extent permitted by Maryland
law in effect from time to time, indemnify and pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any individual
who is a present or former Director or officer of the Registrant or (b) any
individual who, while a Director or officer of the Registrant and at the
request of the Registrant, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, employee benefit plan or other enterprise. The
Registrant has the power, with the approval of the Registrant's Board of
Directors, to provide such indemnification and advancement of expenses to a
person who served a predecessor of the Registrant in any of the capacities
described in (a) or (b) above and to any employee or agent of the Registrant
or its predecessors.
Maryland law requires a corporation (unless its charter provides otherwise,
which the Registrant's charter does not) to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which he or she is made a party by reason of his or her service
in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. Maryland law permits the Registrant to
advance reasonable expenses to a Director or officer upon the Registrant's
receipt of (a) a written affirmation by the Director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for
indemnification by the Registrant as authorized by the Registrant's Bylaws and
(b) a written statement by or on his or her behalf to repay the amount paid or
reimbursed by the Registrant if it shall ultimately be determined that the
standard of conduct was not met.
The Registrant has entered into indemnity agreements with each of its
officers and Directors which provide for reimbursement of all expenses and
liabilities of such officer or Director, arising out of any lawsuit or claim
against such officer or Director due to the fact that he or she was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Securities Exchange Act of 1934 or (c)
relating to judicially determined criminal violations.
The form of Underwriting Agreement filed as an exhibit to this registration
statement provides for the reciprocal indemnifications by the Underwriters of
the Registrant, and its Directors, officers and controlling persons, and by
the Registrant of the Underwriters, and their respective directors, officers
and controlling persons, against certain liabilities under the Securities Act.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
The consideration to be received by the Registrant for the shares registered
will be credited to the appropriate capital account.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
See Index to Financial Statements and Index to Exhibits.
II-2
<PAGE>
ITEM 36. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) 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 the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in 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 the Registration Statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(c) 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.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 questions of whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The Registrant hereby 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
upon 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 shall be
deemed to be part of this registration statement as of the time it was
declared effective; and (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.
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 OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF GEORGIA, ON THE
1ST DAY OF JULY, 1997.
SECURITY CAPITAL ATLANTIC
INCORPORATED
/s/ Constance B. Moore
By: _________________________________
Constance B. Moore
Co-Chairman and Chief Operating
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James C. Potts* Co-Chairman, Chief July 1, 1997
____________________________________ Investment Officer and
James C. Potts Director
/s/ Constance B. Moore Co-Chairman, Chief Operating July 1, 1997
____________________________________ Officer and Director
Constance B. Moore
/s/ William Kell* Vice President and July 1, 1997
____________________________________ Controller (Principal
William Kell Financial and Accounting
Officer)
/s/ M. A. Garcia III* Director July 1, 1997
____________________________________
M. A. Garcia III
/s/ Ned S. Holmes* Director July 1, 1997
____________________________________
Ned S. Holmes
/s/ John M. Richman* Director July 1, 1997
____________________________________
John M. Richman
</TABLE>
/s/ Constance B. Moore
*By: _____________________
Constance B. Moore
Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
1 Form of Placement Agent Agreement between Security Capital
Atlantic Incorporated ("ATLANTIC"), Security Capital (Atlantic)
Incorporated (the "REIT Manager") and Security Capital Markets
Group Incorporated ("Capital Markets Group"), as placement agent
2.1 Merger and Distribution Agreement, dated as of May 21, 1996, among
Security Capital Pacific Trust ("PTR"), ATLANTIC, Security Capital
Group Incorporated ("Security Capital") and Homestead Village
Properties Incorporated ("Homestead") (incorporated by reference
to Exhibit 2 to Homestead's Form S-4 Registration Statement (File
No. 333-4455; the "Homestead S-4"))
2.2 Form of Articles of Merger (incorporated by reference to Exhibit
2.1 to the Homestead S-4)
2.3 Merger and Issuance Agreement, dated as of March 24, 1997, between
Security Capital and ATLANTIC (incorporated by reference to
Exhibit 2.1 to ATLANTIC's Form 8-K dated March 24, 1997 (File No.
1-12303, the "ATLANTIC 8-K"))
2.4 First Amendment to Merger and Issuance Agreement (incorporated by
reference to Exhibit 2.7 to Security Capital's Form S-4
Registration Statement (File No. 333-26263; the "Security Capital
S-4"))
2.5 Second Amendment to Merger and Issuance Agreement (incorporated by
reference to Exhibit 2.8 to the Security Capital S-4)
2.6 Form of Agreement and Plan of Merger (incorporated by reference to
Exhibit 2.4 to the Security Capital S-4)
4.1 Second Amended and Restated Articles of Incorporation of ATLANTIC
(incorporated by reference to Exhibit 4.1 to ATLANTIC's Form S-11
Registration Statement (File No. 333-07071; the "ATLANTIC S-11"))
4.2 Articles of Amendment to Second Amended and Restated Articles of
Incorporation of ATLANTIC (incorporated by reference to Exhibit
4.2 to the ATLANTIC S-11)
4.3 Articles of Amendment to Second Amended and Restated Articles of
Incorporation of ATLANTIC (incorporated by reference to Exhibit
4.3 to the ATLANTIC S-11)
4.4 Articles Supplementary to Second Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 4.4 to
ATLANTIC's Form 10-K for the year ended December 31, 1996 (File
No. 1-12303, the "ATLANTIC 10-K"))
4.5 Second Amended and Restated Bylaws of ATLANTIC (incorporated by
reference to Exhibit 4.4 to the ATLANTIC S-11)
4.6 Rights Agreement, dated as of March 12, 1996, between ATLANTIC and
The First National Bank of Boston, as Rights Agent, including form
of Rights Certificate (incorporated by reference to Exhibit 4.5 to
the ATLANTIC S-11)
4.7 Form of stock certificate for shares of common stock of ATLANTIC
(incorporated by reference to Exhibit 4.6 to the ATLANTIC S-11)
4.8 Form of certificate for the Rights
5 Form of opinion of Mayer, Brown & Platt as to the legality of the
shares being registered
8 Opinion of Mayer, Brown & Platt as to certain tax matters
10.1 Transfer and Registration Rights Agreement, dated as of December
15, 1995, among ATLANTIC and the investors listed on the signature
pages thereto (incorporated by reference to Exhibit 10.1 to the
ATLANTIC S-11)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
10.2 Supplemental Registration Rights Agreement, dated as of December
15, 1995, among ATLANTIC and the investors listed on the signature
pages thereto (incorporated by reference to Exhibit 10.2 to the
ATLANTIC S-11)
10.3 Second Amended and Restated REIT Management Agreement, dated as of
June 30, 1996, between ATLANTIC and the REIT Manager (incorporated
by reference to Exhibit 10.3 to the ATLANTIC S-11)
10.4 Investor Agreement, dated as of October 28, 1993, between ATLANTIC
and Security Capital (incorporated by reference to Exhibit 10.4 to
the ATLANTIC S-11)
10.5 Revolving Credit Agreement, dated as of December 18, 1996, between
ATLANTIC and Morgan Guaranty Trust Company of New York, as agent
bank, including form of Revolving Credit Note (incorporated by
reference to Exhibit 10.5 to the ATLANTIC 10-K)
10.6 Form of Indemnification Agreement entered into between ATLANTIC
and each of its Directors (incorporated by reference to Exhibit
10.6 to the ATLANTIC S-11)
10.7 Security Capital Atlantic Incorporated Share Option Plan for
Outside Directors (incorporated by reference to Exhibit 10.7 to
the ATLANTIC S-11)
10.8 First Amendment to Security Capital Atlantic Incorporated Share
Option Plan for Outside Directors (incorporated by reference to
Exhibit 10.8 to the ATLANTIC S-11)
10.9 Consolidated Amended and Restated Promissory Note by Atlantic
Homestead Village Incorporated in favor of ATLANTIC (incorporated
by reference to Exhibit 4.6 to the Homestead S-4)
10.10 Amended and Restated Promissory Note by Atlantic Homestead Village
Limited Partnership in favor of ATLANTIC (incorporated by
reference to Exhibit 4.7 to the Homestead S-4)
10.11 Protection of Business Agreement among ATLANTIC, PTR, Security
Capital and Homestead (incorporated by reference to Exhibit 10.11
to the ATLANTIC 10-K)
10.12 Investor and Registration Rights Agreement between Homestead and
ATLANTIC (incorporated by reference to Exhibit 10.12 to the
ATLANTIC 10-K)
10.13 Funding Commitment Agreement between Homestead and ATLANTIC
(incorporated by reference to Exhibit 10.13 to the ATLANTIC 10-K)
10.14 Form of Property Management Agreement for ATLANTIC's communities
(incorporated by reference to Exhibit 10.13 to the ATLANTIC S-11)
10.15 Form of Amended and Restated Investor Agreement between ATLANTIC
and Security Capital (incorporated by reference to Exhibit 10.1 to
the ATLANTIC 8-K)
10.16 Form of Administrative Services Agreement between ATLANTIC and SC
Group Incorporated (incorporated by reference to Exhibit 10.2 to
the ATLANTIC 8-K)
10.17 Form of Protection of Business Agreement between ATLANTIC and
Security Capital (incorporated by reference to Exhibit 10.3 to the
ATLANTIC 8-K)
10.18 Form of Subscription Agency Agreement between ATLANTIC and The
First National Bank of Boston, as subscription agent
10.19 Form of Escrow Agreement between ATLANTIC, Capital Markets Group
and The First National Bank of Boston, as escrow agent
15 Letter re unaudited interim financial information
21 Subsidiaries of ATLANTIC (incorporated by reference to Exhibit 21
to the ATLANTIC 10-K)
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT DESCRIPTION
----------- --------------------
<C> <S>
*23.1 Consent of Mayer, Brown & Platt (included in the opinions filed as
Exhibits 5 and 8)
23.2 Consent of Ernst & Young LLP, Dallas, Texas
+24 Power of Attorney pursuant to which amendments to this
Registration Statement may be filed
99.1 Form of preliminary letter to ATLANTIC's shareholders relating to
the offering
99.2 Form of transmittal letter to ATLANTIC's shareholders relating to
the offering
99.3 Instructions for Completion of Rights Certificate
99.4 Form of Notice of Guaranteed Delivery
99.5 Form of Institutional Subscription Form
99.6 Form of Individual Subscription Form
</TABLE>
- --------
*To be filed by amendment
+Previously filed
E-3
<PAGE>
Exhibit 1
PLACEMENT AGENT AGREEMENT
__________ __, 1997
Security Capital Markets Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Dear Sirs:
Security Capital Atlantic Incorporated, a Maryland corporation
("ATLANTIC"), is issuing as a dividend, at no cost, to each of its shareholders
--------
the right (a "Right") to subscribe for and purchase shares of common stock, par
-----
value $.01 per share ("Shares"), of ATLANTIC. The issuance of such Rights and
------
the offering of such underlying Shares by ATLANTIC is herein referred to as the
"Rights Offering." A holder of Rights who validly exercises all of such
---------------
holder's Rights will have the further right to oversubscribe for additional
Shares, to the extent that all of the Shares offered in the Rights Offering are
not purchased by the exercise of Rights (the "Oversubscription Privilege").
--------------------------
Simultaneously with the Rights Offering, Security Capital Markets Group
Incorporated (the "Agent"), an affiliate of ATLANTIC's manager, Security Capital
-----
(Atlantic) Incorporated (the "REIT Manager"), will act as a placement agent for
------------
ATLANTIC and seek third-party investors to acquire Shares offered in the Rights
Offering that are not sold through the exercise of Rights or the
Oversubscription Privilege (the "Unsubscribed Shares").
-------------------
ATLANTIC has prepared and filed with the Securities and Exchange Commission
(the "Commission") in accordance with the provisions of the Securities Act of
----------
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Securities Act"), a registration statement (File No. 333-
--------------
27067) on Form S-11 relating to the Rights Offering. The registration statement
as amended to the date of this Agreement is hereinafter referred to as the
"Registration Statement" and the related prospectus in the form first used to
- -----------------------
confirm sales of the Shares in the Rights Offering is hereinafter referred to as
the "Prospectus."
----------
ARTICLE I
EMPLOYMENT OF THE AGENT
In reliance upon the representations and warranties and subject to the
terms and conditions of this Agreement:
<PAGE>
Section 1.1. Best Efforts. ATLANTIC and the REIT Manager employ the Agent
------------
as ATLANTIC's exclusive agent to sell for ATLANTIC's account the Unsubscribed
Shares, if any, on a cash basis only, at the offering price as set forth in the
Prospectus. The Agent agrees to use its best efforts, as agent for ATLANTIC, to
sell the Unsubscribed Shares, if any, subject to the terms and conditions set
forth in this Agreement and in the Prospectus. The Agent shall deliver to
prospective purchasers of Unsubscribed Shares the Prospectus and any other
materials the Agent deems appropriate. It is understood between the parties
that there is no firm commitment by the Agent to purchase any or all of the
Shares.
Section 1.2. Compensation. The Agent shall not receive any commission,
------------
discount or special compensation from ATLANTIC in connection with the Rights
Offering or the sale of Unsubscribed Shares. Upon consummation of the Rights
Offering and the sale of the Shares thereunder (the "Closing"), the REIT Manager
-------
shall pay to the Agent a fee of $250,000 for the Agent's services in assisting
ATLANTIC in the Rights Offering.
Section 1.3. Expenses. In addition to the fee described in Section 1.2
--------
hereof, ATLANTIC will pay, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
or is terminated, all of the Agent's reasonable costs and expenses, including
fees of counsel, incident to the performance of the Agent's obligations under
this Agreement.
Section 1.4. Obligations Not Exclusive. ATLANTIC agrees that the
-------------------------
obligations of the Agent under this Agreement: (a) shall not preclude the Agent
from contemporaneously participating in, acting as placement agent for, or
underwriting the offering of securities of other issuers; (b) shall not impose
any obligation on the Agent to require its registered representatives, some or
all of whom may be independent contractors, to offer and sell the Shares; and
(c) shall require the Agent to make an effort to find purchasers for the
Unsubscribed Shares only to the extent the Agent is motivated to do so by the
compensation and other provisions of this Agreement.
Section 1.5. Offering Solely As Agent. In offering the Unsubscribed
------------------------
Shares for sale, the Agent shall offer them solely as an agent for ATLANTIC, and
such offer shall be made upon the terms and subject to the conditions set forth
in this Agreement and the Prospectus. The Agent shall commence making such
offer as an agent for ATLANTIC as soon after the date hereof as it in its sole
discretion may deem advisable; provided, however, that if the Agent does not
commence such offering within ten business days after the date hereof, it shall
so advise ATLANTIC.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ATLANTIC
In order to induce the Agent to enter into this Agreement, ATLANTIC hereby
represents and warrants to and agrees with the Agent as follows:
-2-
<PAGE>
Section 2.1. Registration Statement and Prospectus. The Registration
-------------------------------------
Statement has been declared effective by the Commission under the Securities
Act; no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has been instituted or, to
the knowledge of ATLANTIC, threatened by the Commission; and the Registration
Statement and the Prospectus (as amended or supplemented, if applicable) comply,
or will comply, as the case may be, in all material respects with the Securities
Act and do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the date of the
Prospectus and any amendment or supplement thereto, contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or, in the case of the Prospectus, necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the Prospectus, as amended or supplemented at the date of the
Closing (the "Closing Date"), if applicable, will not contain an untrue
------------
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; except that the foregoing representations and warranties
shall not apply to statements or omissions in the Registration Statement or the
Prospectus made in reliance upon and in conformity with written information
furnished to ATLANTIC through the Agent or by or on behalf of the Agent
specifically for use therein.
Section 2.2. Financial Statements. The financial statements of ATLANTIC
--------------------
together with related schedules and notes included in the Registration Statement
and the Prospectus present fairly the financial position of ATLANTIC and the
results of its operations and the changes in its financial position at the
respective dates and for the respective periods for which they apply; such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
except as otherwise stated therein.
Section 2.3. Independent Public Accountant. Ernst & Young LLP, which has
-----------------------------
certified or shall certify certain of the financial statements included in the
Registration Statement and the Prospectus, are independent certified public
accountants within the meaning of the Securities Act.
Section 2.4. No Material Adverse Change. Except as described in the
--------------------------
Registration Statement or the Prospectus, subsequent to the dates as of which
information is given in the Registration Statement and the Prospectus and as of
the date hereof, (a) there shall not have been any material adverse change in
the condition (financial or other), properties or business of ATLANTIC; (b)
ATLANTIC shall not have entered into any material transaction other than in the
ordinary course of business; (c) ATLANTIC shall not have incurred any material
obligations, contingent or otherwise, other than in the ordinary course of
business; (d) there shall not have been any change in the capital stock or long-
term debt (except current payments) of ATLANTIC and (e) ATLANTIC shall not have
paid or declared any dividends or other distributions on its capital stock,
other than regular periodic dividends.
Section 2.5. Organization and Standing. ATLANTIC is duly organized and is
-------------------------
validly existing as a corporation in good standing under the laws of the State
of Maryland, with full power and authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do business
and is in good standing in each jurisdiction in which the character of
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the business conducted by it or the location of the properties owned or leased
by it makes such qualification necessary. ATLANTIC holds all material licenses,
certificates and permits from governmental authorities necessary for the conduct
of its business as described in the Prospectus.
Section 2.6. No Violation. ATLANTIC is not in violation of its Charter,
------------
its Bylaws or other governing documents, nor is it in default in the performance
of any obligation, agreement or condition contained in any license, contract,
indenture, mortgage, deed of trust, lease or loan agreement or in any bond,
debenture, note or any other evidence of indebtedness to which it is a party or
by which it is bound, except where such default does not materially adversely
affect the condition (financial or other), properties or business of ATLANTIC.
The performance of this Agreement and the consummation of the transactions
herein contemplated will not conflict with the ATLANTIC's Charter, Bylaws or
other governing documents of ATLANTIC, or result in a breach of, or default
under, any agreement, indenture, mortgage, deed of trust, lease or other
instrument to which ATLANTIC is a party or by which it is bound, or any law,
rule, regulation or decree of any court, governmental agency or body having
jurisdiction over ATLANTIC or its properties or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of ATLANTIC, except as any of the foregoing would not materially adversely
affect the condition (financial or other), properties or business of ATLANTIC.
ATLANTIC is not in violation of any law, rule, regulation or court decree to
which it may be subject nor has it failed to obtain any license, permit,
franchise or other governmental authorization necessary to the ownership of its
property or to the conduct of its business, which violation or failure is likely
to have a material adverse effect on the condition (financial or other),
properties or business of ATLANTIC. Except as required by the Securities Act,
the Exchange Act or applicable state securities or blue sky laws, no consent,
approval, authorization or order of any court, governmental agency or body is
required in connection with the consummation of the transactions contemplated by
this Agreement.
Section 2.7. Capitalization. The authorized, issued and outstanding
--------------
capitalization of ATLANTIC is as described in the Prospectus and all of the
issued and outstanding Shares have been duly authorized and validly issued and
are fully paid and nonassessable.
Section 2.8. Legality of Shares. The Shares to be sold by ATLANTIC in the
------------------
Rights Offering have been duly authorized and, upon issuance and delivery and
payment therefor in the manner described in the Prospectus, will be validly
issued, fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus. No further approval or authority of the
shareholders or the Board of Directors of ATLANTIC will be required for the
issuance and sale of the Shares as contemplated herein. Except as described in
the Prospectus, there are no preemptive rights or other rights to subscribe for
or to purchase, or any restrictions upon the voting or transfer of any Shares to
be sold by ATLANTIC pursuant to ATLANTIC's Charter, Bylaws or any agreement or
other instrument to which ATLANTIC is a party. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated in
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any Shares.
Section 2.9. Authority. ATLANTIC has full right, power and authority to
---------
enter into this Agreement, and this Agreement has been duly authorized, executed
and delivered by ATLANTIC
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and constitutes a valid and binding agreement of ATLANTIC enforceable against
ATLANTIC in accordance with its terms, except as its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and judicial limitations on the
right of specific performance or by general equitable principles, and except as
enforceability of indemnification provisions hereof may be limited by federal
securities laws.
Section 2.10. Property. Except as otherwise described in the Registration
--------
Statement and the Prospectus, ATLANTIC and it subsidiaries have good and
marketable title or good and indefeasible title (or such substantially
equivalent quality of title as provided by the applicable title insurance
policy), free and clear of all liens and encumbrances to all of the real
property described in the Registration Statement and the Prospectus as being
owned by it or its subsidiaries except liens and encumbrances which are not
material in the aggregate and do not materially interfere with the conduct of
the business of ATLANTIC or its subsidiaries, and, except as otherwise described
in the Registration Statement and the Prospectus, has valid and binding leases
to the real property described in the Registration Statement and the Prospectus
as under lease to it or its subsidiaries with such exceptions as do not
materially interfere with the conduct of the business of ATLANTIC or its
subsidiaries.
Section 2.11. No Litigation. Except as set forth in the Registration
-------------
Statement and the Prospectus, there are no actions, suits or proceedings pending
before or by any court, governmental agency or body or any arbitrator, which
might have a material adverse effect on the condition (financial or other),
properties or business of ATLANTIC and, to the best of ATLANTIC's knowledge, no
such action, suit or proceeding is contemplated.
Section 2.12. Price Manipulation. ATLANTIC has not taken and will not
------------------
take, directly or indirectly, any action designed to cause or result in, or that
has constituted or that might reasonably be expected to constitute, the unlawful
stabilization or manipulation of the price of the Shares to facilitate the sale
or resale of the Shares.
Section 2.13. REIT Status. Commencing with ATLANTIC's taxable year ended
-----------
December 31, 1993, ATLANTIC has met the requirements for qualification as a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"), and ATLANTIC's present and contemplated operations, assets and income
----
continue to meet such requirements.
Section 2.14. Finder. ATLANTIC knows of no outstanding claims for
------
services in the nature of a finder's fee or origination fee with respect to the
sale of the Shares hereunder resulting from its acts for which the Agent may be
responsible.
Section 2.15. Exhibits. There are no contracts or other documents which
--------
are required to be filed as exhibits to the Registration Statement by the
Securities Act which have not been so filed and each contract to which ATLANTIC
is a party and to which reference is made in the Prospectus has been duly and
validly executed, is in full force and effect in all material respects in
accordance with its terms, and none of such contracts has been assigned by
ATLANTIC. ATLANTIC knows of no present situation or condition or fact which
would prevent compliance with the terms of such contracts, as amended to date.
Except as set forth in the Registration Statement and the Prospectus
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and except for amendments or modifications of such contracts in the ordinary
course of business, ATLANTIC has no intention of exercising any right which it
may have to cancel any of its obligations under any of such contracts and has no
knowledge that any other party to any of such contracts has any intention not to
render full performance under such contracts.
Section 2.16. Tax Returns. ATLANTIC has filed all federal and state tax
-----------
returns which are required to be filed by it and has paid all taxes shown on
such returns and on all assessments received by it to the extent such taxes have
become due. All taxes with respect to which ATLANTIC is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes.
ARTICLE III
COVENANTS OF ATLANTIC
ATLANTIC covenants and agrees with the Agent that:
Section 3.1. Delivery of Registration Statement and Prospectus. ATLANTIC
-------------------------------------------------
will furnish to the Agent, from time to time and without charge, copies of the
Registration Statement (one of which will be signed and will include all
exhibits), each preliminary prospectus, the Prospectus and all amendments and
supplements to any of such documents, in each case as soon as available and in
such quantities as the Agent may from time to time reasonably request.
Section 3.2. Filing of Prospectus. ATLANTIC will file the Prospectus in a
--------------------
form approved by the Agent pursuant to, and within the period permitted by, Rule
424 under the Securities Act.
Section 3.3. Use of Prospectus. ATLANTIC authorizes the Agent to use the
-----------------
Prospectus as from time to time amended or supplemented in connection with the
offering and sale of the Shares and in accordance with the applicable provisions
of the Securities Act and applicable state securities or blue sky laws.
Section 3.4. Further Amendments and Supplements. If, during such period
----------------------------------
of time as in the opinion of the Agent or its counsel a prospectus relating to
the Rights Offering is required to be delivered under the Securities Act, any
event occurs or any event known to ATLANTIC relating to or affecting ATLANTIC
shall occur as a result of which the Prospectus as then amended or supplemented
would contain an untrue statement of a material fact, or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend or supplement the Prospectus to comply with the Securities
Act, ATLANTIC will forthwith notify the Agent thereof and prepare and file with
the Commission such further amendment to the Registration Statement or
supplement or amendment to the Prospectus as may be required and furnish and
deliver to the Agent, at the cost of ATLANTIC, a reasonable number of copies of
the amended or supplemented Prospectus which as so amended or supplemented will
not contain an untrue statement of a material fact or omit to state a material
fact necessary to make the Prospectus not misleading in light of the
circumstances
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<PAGE>
when it is delivered to a purchaser or prospective purchaser, and which will
comply in all respects with the Securities Act; and in the event the Agent is
required to deliver a prospectus 90 days or more after the Closing Date, upon
request will prepare promptly such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10 of the
Securities Act.
Section 3.5. Objection of Agent to Amendments or Supplements. After the
-----------------------------------------------
date hereof, ATLANTIC will not at any time file any amendment or supplement to
the Registration Statement or the Prospectus unless and until a copy of such
amendment or supplement has been previously furnished to the Agent within a
reasonable time period prior to the proposed filing thereof, or to which the
Agent or counsel for the Agent has reasonably objected, in writing, on the
ground that such amendment or supplement is not in compliance with the
Securities Act.
Section 3.6. Events Relating to Registration Statement and Prospectus.
--------------------------------------------------------
For so long as the delivery of a prospectus is required in connection with the
offering or sale of the Shares, ATLANTIC will promptly advise the Agent (a) when
any amendment to the Registration Statement shall have become effective and when
any amendment or supplement to the Prospectus shall be filed with the
Commission, (b) when the Commission shall make a request or suggestion for any
amendment to the Registration Statement or the Prospectus or for additional
information and the nature and substance thereof, (c) of the issuance by the
Commission of an order suspending the effectiveness of the Registration
Statement pursuant to Section 8 of the Securities Act or of the initiation or
notice of intended initiation of any actions or proceedings for that purpose,
(d) of the happening of any event which in the judgment of ATLANTIC makes any
material statement in the Registration Statement or the Prospectus untrue or
which requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading and (e) of the
refusal to qualify or the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, or of the initiation or notice of intended
initiation of any actions or proceedings for any of such purposes. ATLANTIC
will use every reasonable effort to prevent the issuance of any such order, to
prevent any such refusal to qualify or any such suspension, and to obtain as
soon as possible a lifting of any such order, the reversal of any such refusal
or the termination of any such suspension.
Section 3.7. Preparation and Filing of Amendments and Supplements.
----------------------------------------------------
ATLANTIC will prepare and file promptly with the Commission, upon request of the
Agent, such amendments or supplements to the Registration Statement or the
Prospectus, in form satisfactory to counsel for ATLANTIC, as in the opinion of
counsel to the Agent and counsel to ATLANTIC may be necessary in connection with
the offering or distribution of the Shares and will use its best efforts to
cause the same to become effective as promptly as possible.
Section 3.8. Blue Sky Qualification. ATLANTIC will, when and as requested
----------------------
by the Agent, use reasonable efforts to qualify the Rights Offering or such part
thereof as the Agent may determine for sale under the state securities or blue
sky laws of such states as the Agent may reasonably request, and to continue
such qualification in effect so long as required for the purposes of the
distribution of the Shares; provided, however, that ATLANTIC shall not be
obligated to (a) file any general consent to service of process, (b) qualify as
a foreign business in any jurisdiction in which it is not so qualified or (c)
take any action that would subject it to income taxation in any
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<PAGE>
such jurisdiction. The blue sky work shall be undertaken by counsel selected by
ATLANTIC and shall be at ATLANTIC's expense.
Section 3.9. Reports and Financial Statements. ATLANTIC will file on a
--------------------------------
timely basis all reports and any definitive proxy or information statements
required to be filed by ATLANTIC with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act for so long as the delivery of a
prospectus is required in connection with the offering or sale of the Shares.
ATLANTIC at its own expense will prepare and give and will continue to give such
financial statements and other information to and as may be required by the
Commission, or the proper public bodies of the states in which the Shares may be
qualified.
Section 3.10. Earning Statement. ATLANTIC will make generally available
-----------------
to its security holders as soon as practicable, but in any event not later than
eighteen months after the effective date of the Registration Statement (as
defined in Rule 158(c) under the Securities Act), an earning statement of
ATLANTIC and its subsidiaries (which need not be audited) complying with Section
11(a) of the Securities Act (including, at ATLANTIC's option, Rule 158 under the
Securities Act).
Section 3.11. Reports and Financial Statements to the Agent. During the
---------------------------------------------
period of five years from the effective date of the Registration Statement,
ATLANTIC shall make available to the Agent copies of all periodic and special
reports furnished to the security holders of ATLANTIC and of all information,
documents, and current, quarterly or annual reports filed by ATLANTIC with the
Commission. Upon request in writing from the Agent, ATLANTIC shall furnish to
the Agent such other information as may reasonably be requested and which may be
properly disclosed to the Agent with reference to the property, business and
operations of ATLANTIC and its subsidiaries, if any.
Section 3.12. Expenses Paid by ATLANTIC. ATLANTIC will pay, whether or
-------------------------
not the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including,
without limitation, all costs and expenses (a) incident to the preparation,
issuance and delivery of the Shares, (b) incident to the preparation, printing
and filing under the Securities Act of the Registration Statement, the
Prospectus and any preliminary prospectus (including in each case all exhibits,
amendments and supplements thereto), (c) incurred in connection with the
registration or qualification and determination of eligibility for investment of
the Shares under the laws of such jurisdictions as the Agent may designate and
(d) in connection with the printing and delivery of this Agreement and the
furnishing to the Agent of copies of the Registration Statement and the
Prospectus, including mailing and shipping, as herein provided.
Section 3.13. Post-Effective Availability of Prospectus. For so long as a
-----------------------------------------
prospectus is required to be delivered under the Securities Act, ATLANTIC will
comply, at its own expense, with all requirements imposed upon it by the
Securities Act, as in effect from time to time, and by any order of the
Commission, so far as necessary to permit the continuance of sales or dealings
in the Shares.
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<PAGE>
Section 3.14. Application of Proceeds. ATLANTIC will apply the net
-----------------------
proceeds from the sale of the Shares substantially in the manner set forth in
the Registration Statement and the Prospectus.
Section 3.15. Cooperation with Agent's Due Diligence. ATLANTIC will
--------------------------------------
cooperate with the Agent in such investigation as the Agent may make or cause to
be made of all the properties, business and operations of ATLANTIC in connection
with the purchase and public offering of the Shares, and ATLANTIC will make
available to the Agent in connection therewith such information in its
possession as the Agent may reasonably request.
Section 3.16. Compliance with Conditions Precedent. ATLANTIC will use all
------------------------------------
reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Agent in Article VI hereof.
ARTICLE IV
COVENANTS OF THE REIT MANAGER
The REIT Manager covenants and agrees with the Agent that:
Section 4.1. Cooperation with Agent's Due Diligence. The REIT Manager
--------------------------------------
will cooperate with the Agent in such investigation as the Agent may make or
cause to be made of all the properties, business and operations of ATLANTIC in
connection with the purchase and public offering of the Shares, and the REIT
Manager will make available to the Agent in connection therewith such
information in its possession as the Agent may reasonably request.
ARTICLE V
INDEMNIFICATION AND CONTRIBUTION
Section 5.1. Indemnification by ATLANTIC. ATLANTIC will indemnify and
---------------------------
hold harmless the Agent, each of the Agent's directors and officers, and each
person, if any, who controls the Agent within the meaning of the Securities Act
against any loss, claim, damage or liability, joint or several, to which the
Agent or any such controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (a) an untrue statement or
alleged untrue statement made by ATLANTIC in Article II hereof or (b) an untrue
statement or alleged untrue statement of a material fact contained (i) in the
Registration Statement or any preliminary prospectus or the Prospectus or any
amendment or supplement thereto or (ii) in any blue sky application or other
document executed by ATLANTIC specifically for that purpose or based upon
written information furnished by ATLANTIC filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application") or (c) the omission or alleged omission to
--------------------
state in the Registration
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<PAGE>
Statement or any preliminary prospectus or the Prospectus or any amendment or
supplement thereto or in any Blue Sky Application a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
will reimburse the Agent and each such controlling person for any legal or other
expenses reasonably incurred by the Agent or such controlling person in
connection with investigating or defending against or appearing as a third party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that ATLANTIC will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to ATLANTIC through the Agent or by or on behalf
of the Agent specifically for use in the preparation of the Registration
Statement or any such preliminary prospectus or the Prospectus or any such
amendment or supplement thereto or any such Blue Sky Application; and provided,
further, that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, alleged untrue statement,
omission or alleged omission made in any preliminary prospectus but eliminated
or remedied in the Prospectus, such indemnity agreement shall not inure to the
benefit of the Agent from whom the person asserting any loss, claim, damage or
liability purchased the Shares which are the subject thereof (or to the benefit
of any person who controls the Agent), if a copy of the Prospectus was not sent
or given to such person with or prior to the written confirmation of the sale of
such Shares to such person. This indemnity agreement is in addition to any
liability which ATLANTIC may otherwise have and shall survive the delivery of
and payment for the Unsubscribed Shares.
Section 5.2. Indemnification by Agent. The Agent will indemnify and hold
------------------------
harmless ATLANTIC, each of ATLANTIC's directors, each of ATLANTIC's officers who
has signed the Registration Statement, and each person, if any, who controls
ATLANTIC within the meaning of the Securities Act, against any loss, claim,
damage or liability to which ATLANTIC or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage or liability (or action in respect thereof)
arises out of or is based upon (a) an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
preliminary prospectus or the Prospectus or any amendment or supplement thereto
or in any Blue Sky Application or (b) the omission or alleged omission to state
in the Registration Statement or any preliminary prospectus or the Prospectus or
any amendment or supplement thereto or in any Blue Sky Application a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to ATLANTIC through the Agent
or by or on behalf of the Agent specifically for use in the preparation of the
Registration Statement or any such preliminary prospectus or the Prospectus or
any such amendment or supplement thereto or any such Blue Sky Application; and
will reimburse any legal or other expenses reasonably incurred by ATLANTIC or
any such director or officer or controlling person in connection with
investigating or defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action. This
indemnity agreement is in addition to any liability which the Agent may
otherwise have and shall survive the delivery of and payment for the
Unsubscribed Shares.
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<PAGE>
Section 5.3. Notice. Promptly after receipt by an indemnified party under
------
this Article V of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Article V, notify in writing the indemnifying party of the
commencement thereof within a reasonable time thereafter; the omission so to
notify the indemnifying party will relieve it from any liability under this
Article V as to the particular item for which indemnification is then being
sought, but not from any other liability which it may have to any indemnified
party. In case any such action, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly and with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel who shall be
reasonably satisfactory to the indemnified party, and after notice from the
indemnifying party to the indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to the indemnified
party under this Article V for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the judgment
of the indemnified party, it is advisable for the indemnified party and its
controlling person to be represented by separate counsel, the indemnified party
shall have the right to employ separate counsel to represent the indemnified
party and such controlling person, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party.
Section 5.4. Contribution. In order to provide for just and equitable
------------
contribution in any case in which ATLANTIC or the Agent (or any of their
respective directors or officers or any person who controls either of them
within the meaning of the Securities Act) makes claim for indemnification
pursuant to this Article V but it is judicially determined (by entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the provisions of this Article V provide for indemnification in such case, then,
and in each such case, (a) ATLANTIC and each person who controls ATLANTIC, in
the aggregate, and (b) the Agent, shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from all others) in such proportion so that the Agent is responsible for the
portion represented by the percentage that the fee received by the Agent
pursuant to Section 1.2 hereof bears to the aggregate public offering price for
all Shares offered by ATLANTIC in the Rights Offering, and ATLANTIC and its
controlling persons, in the aggregate, are responsible for the remaining
portion; provided, however, that if such allocation is not permitted by
applicable law then the relative fault of ATLANTIC and the Agent in connection
with the statements or omissions which resulted in such damages and other
relevant equitable considerations shall also be taken into account. The
relative fault shall be determined by reference to, among other things, whether
in the case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by
ATLANTIC or by the Agent and the parties' relative intent, knowledge, access to
the information and opportunity to correct or prevent such untrue statements or
omissions. ATLANTIC and the Agent agree that it would not be just and equitable
if the respective obligations of ATLANTIC and the Agent to contribute pursuant
to this Section 5.4 were to be determined by pro rata or per capita allocation
of the aggregate damages (even if the Agent and its controlling person in the
aggregate were treated as one entity for such purpose) or by any other method of
allocation that does not take account of
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the equitable considerations referred to in the first sentence of this Section
5.4. For purposes of this Section 5.4, the term "damages" shall include any
legal or other expenses reasonably incurred by the indemnified party in
connection with investigating or defending against or appearing as a third-party
witness in any action or claim that is the subject of the contribution
provisions of this Section 5.4. Notwithstanding the provisions of this Section
5.4, the Agent and its controlling person in the aggregate shall not be required
to contribute any amount in excess of the amount by which the total price of the
Unsubscribed Shares sold by it exceeds the amount of any damages that the Agent
and its controlling person in the aggregate have otherwise been required to pay
by reason of such untrue statement or omission. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any person having liability under Section 11 of the
Securities Act other than ATLANTIC and the Agent and persons controlling
ATLANTIC or the Agent.
Promptly after receipt by any party to this Agreement of notice of the
commencement of any action, suit or proceeding, such person will, if a claim for
contribution in respect thereof is to be made against another party, notify the
contributing party of the commencement thereof within a reasonable time
thereafter; but the omission so to notify the contributing party will not
relieve the contributing party from any liability which it may have to any party
other than for contribution. Any notice given pursuant to any other paragraph
of this Section 5 shall be deemed to be the like notice hereunder. In case any
such action, suit or proceeding is brought against any party, and such person
notifies a contributing party of the commencement thereof, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified.
ARTICLE VI
CONDITIONS OF THE AGENT'S OBLIGATIONS
The Agent's obligations hereunder shall be subject to the accuracy of the
representations and warranties on the part of ATLANTIC herein contained, to the
performance by ATLANTIC and the REIT Manager of all of their agreements herein
contained, to the fulfillment of or compliance by ATLANTIC with all covenants
and conditions hereof, and to the following additional conditions:
Section 6.1. Filing of Prospectus. The Prospectus shall have been filed
--------------------
with the Commission pursuant to Rule 424 under the Securities Act within the
permitted time period, no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending and all
requests for additional information on the part of the Commission shall have
been complied with to the reasonable satisfaction of the Agent.
Section 6.2. Accuracy of Prospectus. As of the Closing Date, ATLANTIC
----------------------
shall not have disclosed in writing to the Agent that the Registration Statement
or the Prospectus or any
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amendment or supplement thereto contains an untrue statement of a fact which, in
the opinion of counsel to ATLANTIC, is material, or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein, or is necessary to make the statements therein not misleading.
Section 6.3. Casualty and Other Calamity. Between the date hereof and the
---------------------------
Closing Date, ATLANTIC shall not have sustained any loss on account of fire,
explosion, flood, accident, calamity or any other cause, of such character as
materially adversely affects the condition (financial or other), properties or
business of ATLANTIC, whether or not such loss is covered by insurance.
Section 6.4. Litigation and Other Proceedings. Between the date hereof
--------------------------------
and the Closing Date, there shall be no litigation instituted or threatened
against ATLANTIC and there shall be no proceeding instituted or threatened
against ATLANTIC before or by any federal or state commission, regulatory body
or administrative agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding would materially adversely
affect the condition (financial or other), properties or business of ATLANTIC.
Section 6.5. Lack of Material Change. Except as described in the
-----------------------
Registration Statement and the Prospectus, subsequent to the date of the last
audited balance sheet included in the Registration Statement or the Prospectus
and prior to the Closing Date, (a) ATLANTIC shall have conducted its business
in the usual and ordinary manner as the same was being conducted on the date of
such last audited balance sheet; (b) there shall not have been any material
adverse change in the condition (financial or other), properties or business of
ATLANTIC; (c) ATLANTIC shall not have entered into any material transaction
other than in the ordinary course of business; (d) ATLANTIC shall not have
incurred any material obligations, contingent or otherwise, other than in the
ordinary course of business; (e) there shall not have been any change in the
capital stock or long-term debt (except current payments) of ATLANTIC; and (f)
ATLANTIC shall not have paid or declared any dividends or other distributions on
the Shares, other than regular periodic dividends and the distribution of the
Rights.
Section 6.6. Opinion of Counsel. The Agent shall have received an opinion
------------------
of Mayer, Brown & Platt as to the due organization and existence of ATLANTIC and
to the effect that the Shares, when issued, will be duly authorized, validly
issued, fully paid and nonassessable, and as to such other matters as may be
reasonably requested by the Agent. In addition to the foregoing opinions such
counsel shall state that, in the course of its representation of ATLANTIC, such
counsel has no reason to believe that, as of its effective date, the
Registration Statement (other than the financial statements and related
schedules and other financial information included therein, as to which such
counsel need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as of its date,
the Prospectus (other than the financial statements and related schedules and
other financial information included therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or that, as of the
Closing Date, either the Registration Statement or the Prospectus (other than
the financial statements and related schedules and other financial information
-13-
<PAGE>
included therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were make, not misleading.
Section 6.7. Comfort Letter. On the date of this Agreement and also on
--------------
the Closing Date, Ernst & Young LLP shall have delivered to the Agent (as well
as to ATLANTIC's Board of Directors) a letter or letters, dated the respective
date of delivery thereof, in form and substance reasonably satisfactory to the
Agent (as well as to ATLANTIC's Board of Directors), to the effect set forth in
Annex I hereto.
- -------
Section 6.8. Blue Sky Qualifications. The Rights Offering shall be
-----------------------
qualified in such states as the Agent may reasonably request pursuant to Section
3.8, and each such qualification shall be in effect and not subject to any stop
order or other proceeding on the date of this Agreement.
Section 6.9. Approval of Agent's Counsel. All opinions, letters,
---------------------------
certificates and evidence mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Agent, whose approval shall
not be unreasonably withheld. The suggested form of such documents shall be
provided to counsel to the Agent upon request.
Section 6.10. Officers' Certificates. Any certificate signed by an
----------------------
officer of ATLANTIC and delivered to the Agent or to counsel to the Agent will
be deemed a representation and warranty by ATLANTIC to the Agent as to the
statements made therein.
ARTICLE VII
TERMINATION
Section 7.1. Termination Because of Non-Compliance. This Agreement may be
-------------------------------------
terminated by the Agent by notice to ATLANTIC in the event that ATLANTIC or the
REIT Manager shall have failed or been unable to comply with any of the terms,
conditions or provisions of this Agreement on the part of ATLANTIC or the REIT
Manager to be performed, complied with or fulfilled (including but not limited
to those specified in Articles I, II, III and VI hereof) within the respective
times herein provided for, unless compliance therewith or performance or
satisfaction thereof shall have been expressly waived by the Agent in writing.
Section 7.2. Market Out Termination. This Agreement may be terminated by
----------------------
the Agent by notice to ATLANTIC at any time if, in the reasonable judgment of
the Agent, payment for and delivery of the Unsubscribed Shares is rendered
impracticable or inadvisable because (a) additional material governmental
restrictions not in force and effect on the date hereof shall have been imposed
upon trading in securities generally, or minimum or maximum prices shall have
been generally established on the New York Stock Exchange, or trading in
securities generally on such Exchange shall have been suspended, or a general
moratorium shall have been established by federal or state authorities or (b) a
war involving the United States or other national calamity shall have occurred
-14-
<PAGE>
or (c) substantial and material changes in the condition of the market (either
generally or with reference to the sale of the Shares subject to the Rights
Offering) beyond normal fluctuations are such that it would be undesirable,
impracticable or inadvisable to proceed with this Agreement or with the Rights
Offering or (d) of any matter materially adversely affecting ATLANTIC.
Section 7.3. ATLANTIC's Right to Terminate. In the event any action or
-----------------------------
proceeding of the type referred to in Section 8.2 hereof shall be instituted or
threatened against the Agent at any time prior to the date hereof, or in the
event there shall be filed by or against the Agent in any court pursuant to any
federal, state, local or municipal statute, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of the Agent's assets or if the Agent makes an assignment for the benefit of
creditors, ATLANTIC shall have the right on three days' written notice to the
Agent to terminate this Agreement.
Section 7.4. Effect of Termination Hereunder. Any termination of this
-------------------------------
Agreement pursuant to this Article VII shall be without liability of any
character (including, but not limited to, loss of anticipated profits or
consequential damages) on the part of any party hereto, except that ATLANTIC
shall remain obligated to pay the costs and expenses provided to be paid by it
specified in Section 3.12 and ATLANTIC and the Agent shall be obligated to pay,
respectively, all losses, claims, damages or liabilities, joint or several,
under Article V.
SECTION VIII
AGENT'S REPRESENTATIONS AND WARRANTIES
The Agent represents and warrants to and agrees with ATLANTIC that:
Section 8.1. Registration as Broker-Dealer and Member of NASD. The Agent
------------------------------------------------
is registered as a broker-dealer with the Commission and is registered as a
broker-dealer in each state within the United States in which it will offer the
Unsubscribed Shares and is a member in good standing of the National Association
of Securities Dealers, Inc.
Section 8.2. No Pending Proceedings. There is not now pending or
----------------------
threatened against the Agent any action or proceeding of which it has been
advised, either in any court of competent jurisdiction, before the Commission or
any state securities commission concerning its activities as a broker or dealer,
nor has the Agent been named as a "cause" in any such action or proceeding.
Section 8.3. Delivery of Documents. The Agent will deliver a copy of the
---------------------
Prospectus to each subscriber at or prior to such time as is required under the
Securities Act to be delivered by the Agent to such person, and the Agent will
use only such supplemental sales material in connection with the sales of the
Unsubscribed Shares (a) as has been either prepared or approved by ATLANTIC and
delivered to the Agent and (b) only in the manner and in the jurisdictions
authorized by ATLANTIC.
-15-
<PAGE>
Section 8.4. Distribution Sheets. Upon request, the Agent shall furnish
-------------------
to ATLANTIC after the Closing a breakdown by states of the number of
Unsubscribed Shares sold in each state in which the Unsubscribed Shares are
offered.
ARTICLE IX
NOTICES
Except as otherwise expressly provided in this Agreement:
Section 9.1. Notice to ATLANTIC. Whenever notice is required by the
------------------
provisions of this Agreement to be given to ATLANTIC, such notice shall be given
in writing addressed to ATLANTIC as follows:
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Attn: Jeffrey A. Klopf
Section 9.2. Notice to the Agent. Whenever notice is required by the
-------------------
provisions of this Agreement to be given to the Agent, such notice shall be
given in writing addressed to the Agent as follows:
Security Capital Markets Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attn: K. Scott Canon
ARTICLE X
MISCELLANEOUS
Section 10.1. Benefit. This Agreement is made solely for the benefit of
-------
the Agent, ATLANTIC, their respective officers, directors and any controlling
person referred to in Section 15 of the Securities Act, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Shares.
Section 10.2. Survival. The respective agreements, representations,
--------
warranties, covenants and other statements of ATLANTIC or its officers set forth
in or made pursuant to this Agreement and the indemnity agreements of ATLANTIC
and the Agent contained in Article V hereof shall survive and remain in full
force and effect, regardless of (a) any investigation made by or on behalf
-16-
<PAGE>
of ATLANTIC or the Agent or any officer or director thereof or any controlling
person of ATLANTIC or of the Agent, (b) delivery of or payment for the
Unsubscribed Shares and (c) the Closing, and any successor of ATLANTIC and the
Agent or any controlling person, officer or director thereof, as the case may
be, shall be entitled to the benefits hereof.
Section 10.3. Governing Law. The validity, interpretation and
-------------
construction of this Agreement and of each part hereof will be governed by the
laws of the State of Maryland.
Section 10.4. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which may be deemed an original and all of which
together will constitute one and the same instrument.
-17-
<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
between you, the REIT Manager and ATLANTIC.
Very truly yours,
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
--------------------------------------
Jeffrey A. Klopf
Secretary
SECURITY CAPITAL (ATLANTIC) INCORPORATED
By:
--------------------------------------
Jeffrey A. Klopf
Secretary
We hereby confirm as of the date hereof that the above letter sets forth
the Agreement between ATLANTIC, the REIT Manager and us.
SECURITY CAPITAL MARKETS GROUP
INCORPORATED
By:
--------------------------------------
K. Scott Canon
President
-18-
<PAGE>
ANNEX I
Pursuant to Section 6.7 of the Placement Agent Agreement, Ernst & Young LLP
shall furnish letters to the Agent (as well as to ATLANTIC's Board of Directors)
to the effect that:
(a) They are independent certified public accountants with respect to
ATLANTIC and its subsidiaries within the meaning of the Securities Act and
the applicable published rules and regulations thereunder;
(b) In their opinion, the financial statements and financial statement
schedule audited by them and included in the Registration Statement and the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Exchange Act and the
related published rules and regulations thereunder;
(c) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the minutes of the meetings of ATLANTIC's Board of Directors, a
review of the unaudited financial statements referred to below, inquiries
of certain officials of ATLANTIC and its subsidiaries who have
responsibility for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came
to their attention that caused them to believe that:
(i) any material modifications should be made to the unaudited
financial statements included in the Registration Statement and the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(ii) the unaudited financial statements included in the
Registration Statement and the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and the Exchange Act and the related published rules and
regulations thereunder;
(iii) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the shareholders'
equity or any increase in the consolidated long-term debt of ATLANTIC
and its subsidiaries or other items specified by the Agent or ATLANTIC's
Board of Directors, as the case may be, or any decreases in the
consolidated total assets of ATLANTIC and its subsidiaries or other
items specified by the Agent or ATLANTIC's Board of Directors, as the
case may be, in each case as compared with amounts shown in the latest
balance sheet included in the Registration Statement and the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter;
(iv) for the period from the date of the latest financial
statements included in the Registration Statement and the Prospectus to
the specified date referred to in
I-1
<PAGE>
clause (iii) there were any decreases in consolidated net earnings from
operations or the per share amount of consolidated net earnings from
operations or other items specified by the Agent or ATLANTIC's Board of
Directors, as the case may be, or any increases in any items specified
by the Agent or ATLANTIC's Board of Directors, as the case may be, in
each case as compared with the corresponding period of the preceding
year and with any other period of corresponding length specified by the
Agent or ATLANTIC's Board of Directors, as the case may be, except in
each case for increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
(v) any unaudited pro forma financial statements included in the
Registration Statement or the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the historical
amounts in the computation of those statements;
(d) In addition to the audit referred to in their report(s) included in
the Prospectus and the limited procedures referred to in paragraph (c)
above, they have carried out certain specified procedures, not constituting
an audit in accordance with generally accepted auditing standards, with
respect to certain items identified by the Agent or ATLANTIC's Board of
Directors, as the case may be, on certain pages of the Prospectus and,
except as described in such letter, compared or recalculated certain of such
items to ATLANTIC's audited or unaudited financial statements or support
schedules and found them to be in agreement.
I-2
<PAGE>
EXHIBIT 4.8
VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT PRIOR TO 5:00 P.M.,EASTERN
DAYLIGHT SAVINGS TIME, ON , 1997
RIGHTS CERTIFICATE NO.
SECURITY CAPITAL ATLANTIC INCORPORATED
CUSIP NO.
Dear Shareholder:
As the registered owner of this Rights Certificate, you are entitled to
subscribe for shares of common stock ("Shares") of Security Capital Atlantic
Incorporated ("ATLANTIC") in ATLANTIC's Rights offering at the subscription
price (the "Subscription Price") of $ per Share and upon the terms and
conditions set forth in the enclosed Prospectus dated , 1997 (the
"Prospectus"). You are entitled to subscribe for one Share at the Subscription
Price for every Rights held by you. If you were a holder of Shares on
, 1997 and if you have validly exercised all of the Rights initially
issued to you to the extent possible, you have the further right to
oversubscribe for additional Shares (the "Oversubscription Privilege"),
subject to the maximum number of Shares offered in the Rights offering and
certain other restrictions described in the Prospectus, including proration of
available Shares. You may not purchase fractional Shares.
Certificates for Shares purchased pursuant to the exercise of Rights or the
Oversubscription Privilege will be mailed as soon as practicable after the
Expiration Date and the receipt of all required documents and payment in full
of the Subscription Price due for such Shares.
THIS RIGHTS CERTIFICATE IS TRANSFERABLE
Payment of the full Subscription Price for all Shares subscribed for
pursuant to the exercise of Rights or the Oversubscription Privilege must
accompany this properly completed and duly executed Rights Certificate,
payable in United States currency by personal check, cashier's check, bank
draft or money order drawn on a bank located in the United States, payable to
"ATLANTIC Escrow Account", or by wire transfer. Alternatively, subscribers may
return a completed Notice of Guaranteed Delivery. PLEASE WRITE YOUR CONTROL
NUMBER, SET FORTH ABOVE, ON YOUR CHECK, BANK DRAFT, MONEY ORDER OR NOTICE OF
GUARANTEED DELIVERY OR REFER TO IT ON YOUR WIRE TRANSFER.
- -------------------------------------------------------------------------------
SECTION 1: DETAILS OF SUBSCRIPTION--PLEASE PRINT ALL INFORMATION CLEARLY AND
LEGIBLY
- -------------------------------------------------------------------------------
IF YOU WISH TO EXERCISE ALL OF YOUR RIGHTS:
A: I SUBSCRIBE FOR MY FULL ENTITLEMENT OF SHARES: _____ X $ = $ _______
SHARES
B: OVERSUBSCRIPTION PRIVILEGE*: _____ X $ = $ _______
SHARES
*I HAVE VALIDLY EXERCISED ALL
RIGHTS INITIALLY ISSUED TO ME TO
THE EXTENT POSSIBLE AND WAS A
HOLDER OF SHARES ON THE RECORD DATE
TOTAL AMOUNT ENCLOSED: $_____________
- -------------------------------------------------------------------------------
IF YOU DO NOT WISH TO EXERCISE ALL OF YOUR RIGHTS:
C: I SUBSCRIBE FOR ONLY ________ SHARES X $ = $_____(AMOUNT ENCLOSED)
- -------------------------------------------------------------------------------
SECURITY CAPITAL SECURITY CAPITAL THE FIRST NATIONAL
ATLANTIC INCORPORATED ATLANTIC INCORPORATED BANK OF BOSTON
BY __________________ BY __________________ BY _______________
CO-CHAIRMAN SECRETARY
<PAGE>
To exercise all or part of your Rights, please complete part A. or C. of
Section 1 on the reverse side of this certificate and Section 2 below. To
exercise your Oversubscription Privilege, please also complete part B of
Section 1 on the reverse side of this certificate.
The completed Rights Certificate and payment or Notice of Guaranteed
Delivery should be mailed or delivered to the Subscription Agent as follows:
By Regular Mail: By Hand:
The First National Bank of Boston BancBoston Trust Company of New York
Corporate Reorganization 55 Broadway, Third Floor
P.O. Box 1889 New York, New York
Mail Stop 45-02-53
Boston, Massachusetts 02105
By Facsimile Transmission: By Overnight Courier:
(617) 575-2232 The First National Bank of Boston
(617) 575-2233 Corporate Reorganization
(for Eligible Institutions Only) Mail Stop 45-02-53
Confirm by Telephone 150 Royall Street
(617) 575-3120 Canton, Massachusetts 02021
Delivery other than as set forth above will not constitute a valid delivery.
To transfer your Rights, complete Section 3 only. Refer to the enclosed
instructions for further information.
To sell your Rights, please contact a securities broker of your choice. DO
NOT COMPLETE SECTION 3 UNTIL INSTRUCTED BY YOUR BROKER.
FOR FURTHER INFORMATION CONCERNING COMPLETION AND EXECUTION OF THIS FORM,
PLEASE CONTACT ATLANTIC'S INFORMATION AGENT, GEORGESON & COMPANY, INC., AT 1-
800-223-2064.
- -------------------------------------------------------------------------------
SECTION 2: TO SUBSCRIBE
I acknowledge that I have received the Prospectus for this Rights offering,
and I hereby irrevocably subscribe for the number of Shares indicated in
Section 1 on the terms and conditions set forth in the Prospectus.
I understand that my Rights will be deemed exercised only when a properly
completed and duly executed Rights Certificate and payment of the full
Subscription Price with respect to such exercise have been received by the
Subscription Agent.
SIGNATURE OF
SUBSCRIBER(S): _____________________________ ________________________________
TELEPHONE NUMBER: ( ) _________________________ (daytime)
AREA CODE
TELEPHONE NUMBER: ( ) _________________________ (evening)
AREA CODE
Address for delivery of Shares if other than as shown on front:
[_] Check here if permanent change
- -------------------------------------------------------------------------------
SECTION 3. TO TRANSFER OR SELL RIGHTS*
For Value Received, _________ of the Rights represented by this Rights
Certificate are assigned to (Print Full Name and Address of Assignee):
_____________________________________ _____________________________________
Signature of Assignor(s)
*IF YOU ARE SELLING THESE RIGHTS, PLEASE SEE A SECURITIES DEALER OF YOUR
CHOICE BEFORE COMPLETING THIS SECTION. YOUR SIGNATURE(S) MUST MATCH IN EVERY
DETAIL THE NAME OF THE REGISTERED OWNER(S) PRINTED ON THE REVERSE SIDE OF THIS
CERTIFICATE AND MUST BE GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY OR
CREDIT UNION HAVING AN OFFICE, BRANCH OR AGENCY IN THE UNITED STATES OR BY A
MEMBER OF A STOCK TRANSFER ASSOCIATION APPROVED MEDALLION PROGRAM SUCH AS
STAMP, SEMP OR MSP.
<PAGE>
Exhibit 5
_____________, 1997
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Re: Registration Statement on Form S-11
Ladies and Gentlemen:
We have acted as counsel to Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), in connection with its proposed distribution
of rights (the "Rights") to purchase shares of common stock, par value $.01 per
share (the "Shares"), and the related sale and issuance of Shares pursuant to
the exercise of Rights or otherwise, as more fully set forth in the registration
statement on Form S-11 (the "Registration Statement") relating to the Rights and
the Shares.
As counsel to ATLANTIC, we have examined originals or copies certified to
our satisfaction of ATLANTIC's Charter, ATLANTIC's Bylaws, resolutions of
ATLANTIC's Board of Directors and such records, certificates and other documents
and such questions of law as we considered necessary or appropriate for the
purpose of this opinion. As to certain facts material to our opinion, we have
relied, to the extent we deem such reliance proper, upon certificates of public
officials and officers of ATLANTIC. In rendering such opinion, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals and the conformity to authentic original documents of all
documents submitted to us as copies.
Based upon and subject to the foregoing and to the assumptions, limitations
and qualifications set forth herein, we are of the opinion that (i) the Rights,
when duly delivered in the manner described in the Registration Statement, will
be validly issued and (ii) the Shares, when sold and delivered against payment
therefor and in the manner described in the Registration Statement, pursuant to
the exercise of Rights or otherwise, will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Validity of Shares."
<PAGE>
Security Capital Atlantic Incorporated
_______________, 1997
Page 2
We are admitted to practice law in the State of Illinois and we express no
opinions as to matters under or involving any laws other than the laws of the
State of Illinois, the federal laws of the United States of America and the
Maryland General Corporation Law.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
Exhibit 8
July 2, 1997
Board of Directors
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Re: Security Capital Atlantic Incorporated
Amendment No. 1 to Form S-11
--------------------------------------
Ladies and Gentlemen:
In connection with the offering of Rights/1/ and Shares in Security
Capital Atlantic Incorporated, a Maryland corporation ("ATLANTIC"), pursuant to
the amended Form S-11 Registration Statement filed with the Securities and
Exchange Commission (the "Registration Statement"), you have requested our
opinions concerning (i) the qualification and taxation of ATLANTIC as a REIT and
(ii) the information in the Registration Statement under the headings
"PROSPECTUS SUMMARY -- TAX STATUS OF ATLANTIC," "FEDERAL INCOME TAX
CONSIDERATIONS" and "THE OFFERING -- Certain Federal Income Tax Considerations
Regarding the Offering."
In formulating our opinions, we have reviewed and relied upon the
Registration Statement, such other documents and information provided by you,
and such applicable provisions of law as we have considered necessary or
desirable for purposes of the opinions expressed herein.
In addition, we have relied upon certain representations made by ATLANTIC
relating to the organization and actual and proposed operation of ATLANTIC and
its relevant subsidiaries. For purposes of our opinions, we have not made an
independent investigation of the facts set forth in such documents,
representations from ATLANTIC or the Registration
- --------------------------
/1/ Unless otherwise specifically defined herein, all capitalized terms have
the meaning assigned to them in the Registration Statement.
<PAGE>
Board of Directors
Security Capital Atlantic Incorporated
July 2, 1997
Page 2
Statement. We have, consequently, relied upon your representations that the
information presented in such documents, or otherwise furnished to us,
accurately and completely describes all material facts.
Our opinions expressed herein are based on the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
and the interpretations of the Code and such regulations by the courts and the
Internal Revenue Service, all as they are in effect and exist at the date of
this letter. It should be noted that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change at any time and, in
some circumstances, with retroactive effect. A material change that is made
after the date hereof in any of the foregoing bases for our opinions, could
adversely affect our conclusions.
Based upon and subject to the foregoing, it is our opinion that:
1. Beginning with ATLANTIC's taxable year ended December 31, 1994,
ATLANTIC has been organized in conformity with the requirements for
qualification as a REIT under the Code, and ATLANTIC's actual and proposed
method of operation, as described in the Registration Statement and as
represented by ATLANTIC has enabled it and will continue to enable it to satisfy
the requirements for qualification as a REIT.
2. The information in the Registration Statement under the headings
"PROSPECTUS SUMMARY -- TAX STATUS OF ATLANTIC," "FEDERAL INCOME TAX
CONSIDERATIONS" and "THE OFFERING -- Certain Federal Income Tax Considerations
Regarding the Offering," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by us and is correct in all material
respects.
Other than as expressly stated above, we express no opinion on any issue
relating to ATLANTIC or to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the caption "PROSPECTUS SUMMARY -- TAX STATUS OF ATLANTIC," "FEDERAL INCOME TAX
CONSIDERATIONS" and "THE OFFERING -- Certain Federal Income Tax Considerations
Regarding the Offering" in the Registration Statement.
Very truly yours,
/s/ Mayer, Brown & Platt
MAYER , BROWN & PLATT
<PAGE>
Exhibit 10.18
SUBSCRIPTION AGENCY AGREEMENT
This SUBSCRIPTION AGENCY AGREEMENT (this "Agreement") is entered into as of
---------
this ____ day of ____________, 1997 among Security Capital Atlantic
Incorporated, a Maryland corporation ("ATLANTIC"), The First National Bank of
--------
Boston, as subscription agent (the "Subscription Agent"), and The First National
------------------
Bank of Boston, as transfer agent and registrar.
WHEREAS, ATLANTIC has caused a Registration Statement on Form S-11 (File
No. 333-27067) (the "Registration Statement") to be filed with the Securities
----------------------
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
----------
amended (the "Act"), relating to a proposed distribution by ATLANTIC of
---
transferable subscription rights (the "Rights") and sale of newly issued shares
------
of common stock, par value $.01 per share (the "Shares"), of ATLANTIC upon the
------
exercise of such Rights or otherwise (the "Rights Offering");
---------------
WHEREAS, ATLANTIC has caused the prospectus contained in the Registration
Statement to be prepared and filed with the Commission under the Act (the
"Prospectus");
----------
WHEREAS, the Rights will be distributed to holders of record of Shares as
of the close of business on _____________, 1997, (the "Record Date") at a ratio
-----------
of one Right for each Share held on the Record Date;
WHEREAS, Rights holders will be entitled to purchase one Share at a price
of $ (the "Subscription Price") for each ________ Rights held;
---- ------------------
WHEREAS, ATLANTIC has authorized the issuance of an aggregate number of
_________ authorized and unissued Shares (the "Underlying Shares") equal to
-----------------
one-__________ of the aggregate number of Rights to be distributed pursuant to
the Rights Offering; and
WHEREAS, ATLANTIC desires the Subscription Agent and the transfer agent and
registrar to act on its behalf in connection with the Rights Offering as set
forth herein, and the Subscription Agent and the transfer agent and registrar
are willing so to act;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
SECTION 1. Appointment of Subscription Agent. ATLANTIC hereby appoints
----------------------------------
the Subscription Agent to act as agent for ATLANTIC in accordance with the
instructions set forth in this Agreement, and the Subscription Agent hereby
accepts such appointment. ATLANTIC may from time to time appoint such co-
subscription agents as it may deem necessary or desirable.
<PAGE>
SECTION 2. Issuance of Securities.
----------------------
(a) ATLANTIC has authorized the issuance of the Rights and, following the
Record Date, will issue such Rights to holders of record of Shares as of the
close of business on the Record Date at a ratio of one Right for each Share held
on the Record Date. The Subscription Agent shall provide the transfer agent and
registrar such assistance as ATLANTIC may require in order to effect the
distribution of the Rights to holders of record of Shares as of the close of
business on the Record Date, including assistance in determining the number of
Rights to be distributed to each such record holder and assistance in
distributing the Rights Certificates (as defined below) evidencing the Rights
and all other ancillary documents.
(b) ATLANTIC has authorized the issuance of and will hold in reserve the
Underlying Shares, and upon the valid exercise of Rights, ATLANTIC will issue
Underlying Shares to validly exercising Rights holders as set forth in the
Prospectus.
SECTION 3. Subscription Right; Rights Certificates.
----------------------------------------
(a) Each holder of Rights, upon the valid exercise thereof pursuant to
Section 7 hereof, is entitled to purchase from ATLANTIC one Share at the
Subscription Price for each ________ Rights held.
(b) The Rights shall be evidenced by certificates (the "Rights
------
Certificates"). The Rights Certificates (and the form of election to exercise
- ------------
or transfer Rights to be printed on the reverse thereof) shall be substantially
in the form attached as Exhibit A hereto. The Rights Certificates shall be
---------
fully transferable.
SECTION 4. Signature and Registration.
---------------------------
(a) The Rights Certificates shall be executed on behalf of ATLANTIC by its
Co-Chairman and by its Secretary by facsimile signature. Any Rights Certificate
may be signed on behalf of ATLANTIC by any person who, at the actual date of the
execution of such Rights Certificate, shall be a proper officer of ATLANTIC to
sign such Rights Certificate, even if at the date of the execution of this
Agreement or the date of the actual issuance of such Rights Certificate, any
such person is not such an officer.
(b) The transfer agent and registrar will keep or cause to be kept, at its
office designated for such purpose, books for registration and transfer of the
Rights issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights and the number of Rights evidenced by each
outstanding Rights Certificate.
SECTION 5. Division, Combination and Exchange of Rights Certificates;
----------------------------------------------------------
Lost, Stolen, Destroyed or Mutilated Rights Certificates.
- ---------------------------------------------------------
-2-
<PAGE>
(a) Subject to the provisions of Section 9 hereof, any Rights Certificate,
or any two or more Rights Certificates, may be divided, combined or exchanged
for any number of Rights Certificates or for a single Rights Certificate of
different denomination; provided, however, that the aggregate number of Rights
evidenced by the Rights Certificate or Rights Certificates so issued shall not
exceed the aggregate number of Rights evidenced by the Rights Certificate or
Rights Certificates surrendered in exchange therefor. The foregoing
notwithstanding, a bank, trust company, securities dealer or broker holding
Shares on the Record Date for more than one beneficial owner may, by submitting
a written request prior to 5:00 p.m., Eastern Daylight Time, on _______________,
1997 and, upon proper showing to the Subscription Agent, exchange its Rights
Certificate to obtain Rights Certificates for the number of Rights which each
such beneficial owner would have been entitled to receive pursuant to Section
2(a) hereof had each such beneficial owner been the holder of record of such
beneficial owner's Shares on the Record Date; provided, however, that ATLANTIC
reserves the right to refuse to issue any such Rights Certificate or Rights
Certificates if such issuance would be inconsistent with the principle that each
beneficial owner's holding will be rounded up to the nearest whole Right. No
Rights Certificates evidencing fractional Rights will be issued upon division,
combination or exchange of other Rights Certificates, and any instructions to
divide, combine or exchange Rights Certificates which would result in the
issuance of Rights Certificates evidencing fractional Rights shall be rejected.
(b) Any holder desiring to divide, combine or exchange any Rights
Certificate or Rights Certificates shall make such requests in writing to the
Subscription Agent, and shall surrender the Rights Certificate or Rights
Certificates to be divided, combined or exchanged to the Subscription Agent.
Thereupon the Subscription Agent shall deliver to the person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so requested.
In all cases of transfer by an attorney-in-fact, the original power of attorney,
duly approved, or a copy thereof, duly certified, shall be deposited and remain
with the Subscription Agent. In all cases of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority satisfactory to the Subscription Agent shall be
produced and may be required to be deposited and to remain with the Subscription
Agent in its discretion. ATLANTIC may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
division, combination or exchange of Rights Certificates.
(c) Upon receipt by ATLANTIC and the Subscription Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
and/or security satisfactory to them, which may be in the form of an open
penalty bond, and reimbursement to ATLANTIC and the Subscription Agent of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Rights Certificate if mutilated, the transfer agent and registrar will make
and deliver a new Rights Certificate of like denomination to the Subscription
Agent for delivery to the registered owner in lieu of the Rights Certificate so
lost, stolen, destroyed or mutilated. If required by ATLANTIC or the
Subscription Agent an indemnity bond must be sufficient in the judgment of
-3-
<PAGE>
both to protect ATLANTIC, the Subscription Agent or any agent thereof from any
loss which any of them may suffer if a Rights Certificate is replaced.
SECTION 6. Subsequent Issuance of Rights Certificates. Subsequent to
-------------------------------------------
their original issuance, no Rights Certificates shall be issued except (a)
Rights Certificates issued upon any transfer, division, combination or exchange
of Rights pursuant to Section 5(a), Section 5(b) or Section 10 hereof, (b)
Rights Certificates issued in replacement of lost, stolen, destroyed or
mutilated Rights Certificates pursuant to Section 5(c) hereof and (c) Rights
Certificates issued pursuant to Section 7(h) hereof upon the partial exercise of
any Rights Certificate to evidence the unexercised portion of such Rights
Certificate.
SECTION 7. Exercise of Rights; Exercise Price; Expiration Date.
----------------------------------------------------
(a) The holder of any Rights Certificate may exercise some or all of the
Rights evidenced thereby (but not in amounts other than _______ Rights or
integral multiples thereof) by delivering to the Subscription Agent, prior to
5:00 p.m., Eastern Daylight Time, on ______________, 1997 (the "Expiration
----------
Date"), the properly completed and duly executed Rights Certificate, together
- ----
with payment of the full Subscription Price for each Share subscribed for
pursuant to the exercise of such Rights. In the case of holders of Rights that
are held of record through The Depository Trust Company ("DTC"), such Rights may
---
be exercised by instructing DTC to transfer Rights from the DTC account of such
holder to the DTC account of the Subscription Agent, together with payment of
the Subscription Price for each Share subscribed for pursuant to the exercise of
such Rights. Alternatively, the holder of any Rights Certificate may exercise
the Rights evidenced thereby by effecting compliance with the procedures for
guaranteed delivery set forth in Section 7(b) hereof.
(b) If, prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date,
the Subscription Agent has received a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form distributed with the
Rights Certificates specifying the name of the holder of Rights and the number
of Shares subscribed for (stating separately the number of Shares subscribed for
pursuant to the exercise of Rights and the number of Shares subscribed for
pursuant to the Oversubscription Privilege) and guaranteeing that the properly
completed and duly executed Rights Certificate and payment of the full
Subscription Price for each Share subscribed for will be delivered to the
Subscription Agent within three New York Stock Exchange, Inc. ("NYSE") trading
----
days after the Expiration Date, such subscription may be accepted; however, the
Subscription Agent shall withhold the certificates for the Shares until receipt
of the properly completed and duly executed Rights Certificate and payment of
such amount within such time period. The Notice of Guaranteed Delivery must be
guaranteed by a commercial bank or a trust company having an office, branch or
agency in the United States, or by a member of a Stock Transfer Association
approved medallion program such as STAMP, SEMP or MSP (an "Eligible
--------
Institution").
- -----------
(c) The Rights shall expire at 5:00 p.m., Eastern Daylight Time, on the
Expiration Date.
-4-
<PAGE>
(d) The Subscription Price shall be payable in United States currency (i)
by personal check, cashier's check, bank draft or money order drawn on a bank
located in the United States payable to "ATLANTIC Escrow Account" or (ii) by
wire transfer of funds to the account maintained by the Subscription Agent for
such purpose at The First National Bank of Boston, ABA No. 011000390. The
Subscription Price shall be deemed to have been received by the Subscription
Agent only upon (i) clearance of any personal check, (ii) receipt by the
Subscription Agent of any cashier's check, bank draft or money order or (iii)
receipt of good funds in the Subscription Agent's account designated above, in
payment of the Subscription Price.
(e) If an exercising Rights holder has not indicated the number of Rights
being exercised, or if the Subscription Price payment forwarded by such holder
to the Subscription Agent is not sufficient to purchase the number of Shares
subscribed for, the Rights holder will be deemed to have exercised the maximum
number of whole Rights which may be exercised for the Subscription Price
delivered to the Subscription Agent and, to the extent that the Subscription
Price payment delivered by an exercising Rights holder exceeds the Subscription
Price multiplied by the maximum number of whole Rights which may be exercised
(such excess being the "Subscription Excess"), the Subscription Agent, as soon
-------------------
as practicable after such exercise of Rights, shall mail to such Rights holder
the Subscription Excess paid by such holder without interest or deduction.
(f) A holder of Shares on the Record Date who validly exercises all of
such holder's Rights will have the further right (the "Oversubscription
----------------
Privilege") to oversubscribe for additional Shares, at the Subscription Price,
- ---------
to the extent all of the Underlying Shares have not been purchased through the
exercise of Rights (except for Shares underlying Rights issued to Security
Capital Group Incorporated, which will not be available for oversubscriptions).
Holders of Shares so entitled to exercise the Oversubscription Privilege may
subscribe for as many Shares as desired (subject to the maximum number of
Underlying Shares) in the manner set forth in this Section 7. If the demand for
Shares pursuant to the Oversubscription Privilege exceeds the number of Shares
available, holders of Shares on the Record Date shall participate in the
Oversubscription Privilege (up to, but not exceeding, the number of Shares
oversubscribed for by each such holder) pro rata based upon the number of Rights
exercised by each such person (without regard to the number of Shares
oversubscribed for by each such person under the Oversubscription Privilege),
with fractional Shares adjusted in any manner ATLANTIC deems appropriate.
(g) The Subscription Agent shall pay to, credit to the account of or
otherwise transfer to ATLANTIC all funds received by the Subscription Agent in
payment of the Subscription Price for Shares subscribed for pursuant to the
exercise of Rights and the Oversubscription Privilege, as soon as practicable
following the Expiration Date and any funds received pursuant to the
Oversubscription Privilege or from subscribers as provided in Section 8(b) which
are not used to purchase Shares shall be returned to the appropriate subscriber.
If the Rights Offering is withdrawn or terminated for any reason, the
Subscription Agent will return to each subscriber all funds received from such
subscriber, together with a pro rata share of any net interest thereon. No
interest will be paid on funds returned due to the proration of
oversubscriptions
-5-
<PAGE>
(either pursuant to the Oversubscription Privilege or the sale to third-party
purchasers of Shares for which subscriptions are not received or accepted) or
otherwise.
(h) In case the holder of any Rights Certificate shall exercise less than
all the Rights evidenced thereby, a new Rights Certificate evidencing the number
of Rights remaining unexercised shall be issued by the Subscription Agent to the
registered holder of such Rights Certificate or to his duly authorized assigns,
subject to the provisions of Section 9 hereof.
(i) The Subscription Agent is authorized to accept Rights Certificates
(other than Rights Certificates delivered in accordance with the procedure for
guaranteed delivery set forth in Section 7(b)), or transfers of Rights to its
account at DTC, received prior to 5:00 p.m., Eastern Daylight Time, on the
Expiration Date.
(j) Once a holder of Rights has exercised a Right, such exercise may not
be revoked.
(k) Unless a Rights Certificate (i) provides that the Shares to be issued
pursuant to the exercise of Rights represented thereby are to be registered in
the name and delivered to the holders of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Rights Certificate
must be guaranteed by an Eligible Institution.
SECTION 8. Delivery of Share Certificates.
------------------------------
(a) As soon as practicable after the Expiration Date and the receipt of
all required documents and payment in full of the Subscription Price, the
Subscription Agent shall deliver to each exercising Rights holder certificates
representing the Shares purchased pursuant to the exercise of Rights or the
Oversubscription Privilege.
(b) In the event that ATLANTIC or Security Capital Markets Group
Incorporated, a Delaware corporation ("Capital Markets Group"), place with
---------------------
third-party purchasers any of the Underlying Shares not subscribed for pursuant
to the exercise of Rights or the Oversubscription Privilege, ATLANTIC and
Capital Markets Group will give the Subscription Agent not less than forty-eight
hours' notice in writing as to the number of Shares which are to be issued,
together with a list of the names and denominations in which certificates for
such Shares are to be issued. As soon as practicable thereafter, the
Subscription Agent shall deliver to each such third-party purchaser certificates
representing such Shares.
SECTION 9. Fractional Rights and Shares.
-----------------------------
(a) ATLANTIC shall not issue fractions of Rights nor shall the
Subscription Agent distribute Rights Certificates which evidence fractional
Rights. All questions as to the validity and eligibility of any rounding of
fractional Rights shall be determined by ATLANTIC in its sole discretion, which
determinations shall be final and binding.
-6-
<PAGE>
(b) ATLANTIC shall not issue fractional Shares to exercising Rights
holders upon the exercise of Rights. ATLANTIC may adjust for fractional Shares
resulting from the exercise of the Oversubscription Privilege in any manner it
deems appropriate.
SECTION 10. Transfer of Rights. Any holder may transfer (a) all of the
-------------------
Rights evidenced by a Rights Certificate by properly endorsing the Rights
Certificate for transfer in accordance with the instructions accompanying the
Rights Certificate or (b) part of the Rights evidenced by a Rights Certificate
(but not fractional Rights) by delivering to the Subscription Agent such Rights
Certificate properly endorsed for transfer, with instructions to register the
Rights to be transferred in the name of the transferee (and to issue a new
Rights Certificate to the transferee evidencing such transferred Rights), and
with signatures guaranteed by an Eligible Institution. In such event, the
Subscription Agent shall issue a new Rights Certificate evidencing the balance
of the Rights to the holder or, if so instructed, to an additional transferee.
SECTION 11. Foreign Shareholders. The Subscription Agent shall not mail
---------------------
Rights Certificates to holders of Shares whose addresses are outside the United
States, Mexico and the province of Ontario, Canada. The Subscription Agent
shall hold such Rights Certificates for the account of such holders and upon
notice from such holders shall sell the Rights, if feasible, on their behalf.
If no instructions have been received prior to 10:00 a.m., Eastern Daylight
Time, on the fifth business day immediately preceding the Expiration Date, the
Subscription Agent shall sell such Rights, if feasible, and shall remit the net
proceeds, if any, to such holders promptly following the Expiration Date. If
such Rights can be sold, sales of such Rights will be deemed to have been
effected at the weighted-average price received by the Subscription Agent for
the sale of all Rights sold by the Subscription Agent on that day pursuant to
this Section 11, less any applicable brokerage commissions, taxes and other
expenses, provided that ATLANTIC shall pay the fees of the Subscription Agent in
respect of such sales. In connection therewith, the Subscription Agent agrees
that it (a) is acting solely on behalf and for the benefit of such holders who
wish to sell their Rights and not as agent, or on behalf, of ATLANTIC, (b) shall
not accept any instructions from ATLANTIC with respect to the timing of such
sales, (c) shall effect all such sales in accordance with applicable law and (d)
shall not effect any such sales in a manner that would cause a material adverse
change in the market for the Rights.
SECTION 12. Reports. The Subscription Agent shall notify both ATLANTIC
-------
and its designated representatives by telephone as requested during the period
commencing with the mailing of Rights Certificates and ending on the Expiration
Date (and in the case of guaranteed deliveries pursuant to Section 7(b), the
period ending three business days after the Expiration Date), which notice shall
thereafter be confirmed in writing, of (a) the number of Rights exercised on the
day of such request, (b) the number of Shares subscribed for pursuant to the
exercise of Rights and the number of such Shares for which payment has been
received on such day, (c) the number of Shares subscribed for pursuant to the
Oversubscription Privilege on such day, (d) the number of Shares subject to
guaranteed delivery pursuant to Section 7(b) on such day, (e) the number of
Rights for which defective exercises have been received on such day, (f) the
number of Shares for which subscription forms have been received from third-
party purchasers as contemplated by Section 8(b) on such day and (g) cumulative
totals derived from
-7-
<PAGE>
the information set forth in clauses (a) through (f) above. At or before 5:00
p.m., Eastern Daylight Time, on the first business day following the Expiration
Date, the Subscription Agent shall certify in writing to ATLANTIC the cumulative
totals through the Expiration Date derived from the information set forth in
clauses (a) through (f) above. The Subscription Agent shall also maintain and
update a listing of holders who have fully or partially exercised their Rights,
holders who have transferred their Rights and their transferees and holders who
have not exercised their Rights. The Subscription Agent shall provide ATLANTIC
or its designated representatives with the information compiled pursuant to this
Section 12 as any of them shall request. The Subscription Agent hereby
represents, warrants and agrees that the information contained in each
notification referred to in this Section 12 shall be accurate in all material
respects.
SECTION 13. Future Instructions and Interpretation.
--------------------------------------
(a) All questions as to the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by ATLANTIC, which determinations
shall be final and binding. ATLANTIC in its sole discretion may waive any defect
or irregularity, permit a defect or irregularity to be corrected within such
time as it may determine or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as ATLANTIC determines
in its sole discretion. Neither ATLANTIC nor the Subscription Agent shall be
under any duty to give notification of any defect or irregularity in connection
with the submission of Rights Certificates or incur any liability for failure to
give such notification.
(b) The Subscription Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
authorized officer of ATLANTIC and to apply to such officers for advice or
instructions in connection with its duties and it shall not be liable for any
action taken or omitted by it in good faith in accordance with the instructions
of any such officer.
SECTION 14. Payment of Taxes. ATLANTIC covenants and agrees that it will
----------------
pay when due and payable all documentary, stamp and other taxes, if any, which
may be payable in respect of the issuance or delivery of any Rights or Shares;
provided, however, that ATLANTIC shall not be liable for any tax liability
arising out of any transaction which results in, or is deemed to be, an exchange
of Rights or Shares or a constructive dividend with respect to the Rights or
Shares; and provided, further, that ATLANTIC shall not be required to pay any
tax or other governmental charge which may be payable in respect of any transfer
involved in the transfer or delivery of any Rights Certificate or the issuance
or delivery of certificates for Shares in a name other than that of the
registered holder of the Rights Certificate evidencing the Rights exercised or
transferred, and the Subscription Agent shall not register any such transfer or
issue any such certificate until such tax or governmental charge, if required,
shall have been paid.
-8-
<PAGE>
SECTION 15. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, division,
combination, exchange or transfer shall be canceled by the Subscription Agent,
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement. ATLANTIC shall deliver to the Subscription Agent
for cancellation, and the Subscription Agent shall cancel, any other Rights
Certificate purchased or acquired by ATLANTIC otherwise than upon the exercise
thereof. The Subscription Agent shall deliver all canceled Rights Certificates
to ATLANTIC, or shall, at the written request of ATLANTIC, destroy such canceled
Rights Certificates, and in such case shall deliver a certificate of destruction
thereof to ATLANTIC.
SECTION 16. Right of Action. All rights of action in respect of this
---------------
Agreement are vested in ATLANTIC and the respective registered holders of the
Rights Certificates, and any registered holder of any Rights Certificate,
without the consent of the Subscription Agent or the holder of any other Rights
Certificate, may, on his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against ATLANTIC to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement.
SECTION 17. Concerning the Subscription Agent; Indemnification.
--------------------------------------------------
(a) ATLANTIC agrees to pay to the Subscription Agent compensation in
accordance with the schedule of fees attached hereto as Exhibit B for all
---------
services rendered by it hereunder and, from time to time, on demand of the
Subscription Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Agreement and
the exercise and performance of its duties hereunder.
(b) ATLANTIC also agrees to indemnify and hold the Subscription Agent
harmless against any losses, claims, damages, liabilities, costs or expenses
(including reasonable fees and disbursements of legal counsel) which the
Subscription Agent may incur or become subject to arising from or out of any
claim or liability resulting from actions taken as Subscription Agent pursuant
to this Agreement; provided, however, that such covenant and agreement does not
extend to, and the Subscription Agent shall not be indemnified or held harmless
with respect to, losses, claims, damages, liabilities, costs or expenses
incurred or suffered by the Subscription Agent as a result, or arising out, of
the Subscription Agent's negligence, misconduct, bad faith or breach of this
Agreement. In connection therewith: (i) in no case shall ATLANTIC be liable
with respect to any claim against the Subscription Agent unless the Subscription
Agent shall have notified ATLANTIC in writing of the assertion of such claim
against it or of any action commenced against it with respect to such claim,
promptly after the Subscription Agent shall have notice of a claim or shall have
been served with the summons or other legal process giving information as to the
nature and basis of the claim; (ii) ATLANTIC shall be entitled to participate at
its own expense in the defense of any suit brought to enforce any such claim
and, if ATLANTIC so elects, it shall assume the defense of any such suit, in
which event ATLANTIC shall not be liable for the fees and expenses of any
additional counsel that the Subscription Agent may retain, so long as ATLANTIC
shall retain counsel reasonably
-9-
<PAGE>
satisfactory to the Subscription Agent, in the exercise of the Subscription
Agent's reasonable judgment, to defend such suit; and (iii) the Subscription
Agent agrees not to settle any litigation in connection with any claim or
liability with respect to which it may seek indemnification from ATLANTIC
without the prior written consent of ATLANTIC.
(c) The Subscription Agent shall be protected and shall incur no liability
for or in respect of any action taken or omitted by it without negligence,
misconduct, bad faith or breach of this Agreement in connection with its
administration of this Agreement in reliance upon any document reasonably
believed by it to be genuine and to be executed and, where necessary,
acknowledged or guaranteed by the proper person or persons.
(d) Anything in this Agreement to the contrary notwithstanding, in no
event shall the Subscription Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Subscription Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
SECTION 18. Merger or Consolidation of Subscription Agent. Any
---------------------------------------------
corporation into which the Subscription Agent or any successor Subscription
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Subscription Agent or
any successor Subscription Agent shall be a party, or any corporation succeeding
to the corporate trust or stock transfer business of the Subscription Agent or
any successor Subscription Agent, shall be the successor to the Subscription
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
SECTION 19. Duties of Subscription Agent. The Subscription Agent
----------------------------
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which ATLANTIC and the holders of
Rights Certificates by their acceptance thereof shall be bound:
(a) The Subscription Agent may consult with legal counsel (who may be, but
is not required to be, legal counsel for ATLANTIC), and the advice or opinion of
such counsel shall be full and complete authorization and protection to the
Subscription Agent as to any action taken or omitted by it in good faith and in
accordance with such advice or opinion.
(b) Whenever in the performance of its duties under this Agreement the
Subscription Agent shall deem it necessary or desirable that any fact or matter
be proved or established by ATLANTIC prior to taking or omitting to take any
action hereunder, such fact or matter (unless other evidence in respect thereof
is specifically prescribed herein) may be deemed to be conclusively proved and
established by a certificate signed by a Co-Chairman of the Board, a Managing
Director or a Vice President (including any Senior Vice President) and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
of ATLANTIC and delivered to the Subscription Agent; and such certificate shall
be full authorization to the
-10-
<PAGE>
Subscription Agent for any action taken or omitted in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Subscription Agent shall be liable hereunder only for its own
negligence, misconduct or bad faith.
(d) The Subscription Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same, and all such statements and
recitals are and shall be deemed to have been made by ATLANTIC only.
(e) The Subscription Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution and delivery hereof by the Subscription Agent) or in
respect of the validity or execution of any Rights Certificate; nor shall it be
responsible for any breach by ATLANTIC of any covenant or condition contained in
this Agreement or in any Rights Certificate; nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any Shares to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any Shares will, when issued, be duly authorized,
validly issued, fully paid and nonassessable.
(f) ATLANTIC agrees that it will perform, execute, acknowledge and deliver
or cause to be performed, executed, acknowledged and delivered all such further
acts, instruments and assurances as may reasonably be required by the
Subscription Agent for the carrying out or performing by the Subscription Agent
of the provisions of this Agreement.
(g) Nothing herein shall preclude the Subscription Agent from acting in
any other capacity for ATLANTIC.
(h) The Subscription Agent shall comply with the information and backup
withholding requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), including, without limitation, where appropriate, on a timely basis,
----
filing with the Internal Revenue Service and furnishing to holders of Rights
duly completed Forms 1099B. The Subscription Agent shall also collect and duly
preserve Forms W-8 and W-9 and other forms or information necessary to comply
with the backup withholding requirements of the Code. The Subscription Agent
shall have no obligation to furnish distributees of Rights with Forms 1099DIV or
to withhold any taxes with respect to the distribution of Rights.
(i) The Subscription Agent shall withhold from payments made to record
owners amounts sufficient to comply with the backup withholding requirements of
the Code. For purposes of backup withholding that may be applicable in respect
of Rights distributed to record owners other than foreign holders, the
Subscription Agent shall withhold and sell Rights on behalf of such record
owners in amounts necessary to satisfy such backup withholding requirements.
-11-
<PAGE>
SECTION 20. Notices to ATLANTIC, Holders and Subscription Agent. All
---------------------------------------------------
notices and other communications provided for or permitted hereunder shall be
made by hand delivery, prepaid first-class mail, or telecopier:
(a) if to ATLANTIC, to:
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Attention: Jeffrey A. Klopf
Telecopier: (404) 233-2379
(b) if to the Subscription Agent, to:
The First National Bank of Boston
150 Royall Street M.S. 45-02-53
Canton, Massachusetts 02021
Attention: _________________________
Telecopier: (617) 575-2233
(c) if to a registered holder, at the address shown on the Share
register of ATLANTIC.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if mailed as aforesaid; and
when receipt is acknowledged, if telecopied.
SECTION 21. Supplements and Amendments. ATLANTIC and the Subscription
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Rights Certificates in order to cure any ambiguity or
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provision contained herein, or to make any other
provisions in regard to matters or questions arising hereunder which ATLANTIC
and the Subscription Agent may deem necessary or desirable and which shall not
adversely affect the interests of the holders of the Rights Certificates.
SECTION 22. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of ATLANTIC or the Subscription Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 23. Termination. This Agreement shall terminate at 5:00 p.m.,
-----------
Eastern Daylight Time, on the thirtieth day following the Expiration Date. Upon
termination of this Agreement, and provided that all subscriptions for Shares
accepted prior to such termination are issued and delivered by ATLANTIC,
ATLANTIC shall be discharged from all obligations under this Agreement except
for its obligation to the Subscription Agent under Section 17 hereof and
-12-
<PAGE>
except with respect to the obligation of ATLANTIC to provide instructions and
directions to the Subscription Agent as provided in this Agreement.
SECTION 24. Governing Law. This Agreement and each Rights Certificate
-------------
shall be deemed to be a contract made under the laws of The Commonwealth of
Massachusetts and for all purposes shall be construed in accordance with the
internal laws of said State.
SECTION 25. Benefits of This Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or corporation other than ATLANTIC, the
Subscription Agent and the holders of the Rights Certificates any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of ATLANTIC, the Subscription Agent and
the holders of the Rights Certificates.
SECTION 26. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
SECTION 27. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
-13-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first above written.
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
----------------------------------
Name: Jeffrey A. Klopf
Title: Secretary
THE FIRST NATIONAL BANK OF BOSTON,
Subscription Agent
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE FIRST NATIONAL BANK OF BOSTON, transfer
agent and registrar
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-14-
<PAGE>
Exhibit 10.19
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is entered into as of this ____
---------
day of ___________, 1997 among Security Capital Atlantic Incorporated, a
Maryland corporation ("ATLANTIC"), Security Capital Markets Group Incorporated,
--------
a Delaware corporation ("Capital Markets Group") and The First National Bank of
---------------------
Boston, as escrow agent (the "Bank").
----
WHEREAS, ATLANTIC has caused a Registration Statement on Form S-11 (File
No. 333-27067) (the "Registration Statement") to be filed with the Securities
----------------------
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
----------
amended (the "Act"), relating to a proposed distribution by ATLANTIC of
---
transferable subscription rights (the "Rights") and sale of newly issued shares
------
of common stock, par value $.01 per share (the "Shares"), of ATLANTIC upon the
------
exercise of such Rights or otherwise (the "Rights Offering");
---------------
WHEREAS, ATLANTIC has caused the prospectus contained in the Registration
Statement to be prepared and filed with the Commission under the Act (the
"Prospectus");
- -----------
WHEREAS, Capital Markets Group has been named as placement agent in
connection with the proposed offering to third parties of Shares not subscribed
for pursuant to the exercise of Rights;
WHEREAS, in connection with the Rights Offering and pursuant to a
Subscription Agency Agreement dated the date hereof between ATLANTIC and the
Bank (the "Subscription Agency Agreement"), ATLANTIC has appointed the Bank as
-----------------------------
subscription agent for the Rights Offering;
WHEREAS, in compliance with the Placement Agent Agreement between ATLANTIC
and Capital Markets Group (the "Placement Agent Agreement") and Rule 15c2-4
-------------------------
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
------------
ATLANTIC and Capital Markets Group propose to establish an escrow account with
the Bank;
WHEREAS, subscribers may subscribe for Shares prior to __________, 1997
(the "Expiration Date") by delivering to the Bank properly completed and duly
---------------
executed subscription forms (the "Subscription Forms") together with full
------------------
payment (the Subscription Forms accompanied by full payment are hereinafter
collectively referred to as the "Subscriptions") in accordance with the
-------------
Subscription Agency Agreement;
WHEREAS, if the merger of Security Capital (Atlantic) Incorporated and SCG
Realty Services Atlantic Incorporated with and into a wholly owned subsidiary of
ATLANTIC (the "Merger") does not occur for any reason on or prior to
_____________, 1997 (the "Closing Condition"), the Rights Offering will
-----------------
terminate and no Shares will be sold; and
<PAGE>
WHEREAS, the Bank has agreed to act as escrow agent in connection with the
Rights Offering, pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
SECTION 1. Acting as Escrow Agent. For a period commencing on the date
----------------------
hereof and terminating on the Expiration Date, the Bank shall act as escrow
agent and agrees to receive and disburse the proceeds from the sale of the
Shares in accordance herewith.
SECTION 2. Escrow Account. All moneys received by the Bank pursuant to
--------------
subscriptions in connection with the sale of the Shares shall be deposited in an
escrow account to be established hereunder for this purpose by the Bank.
SECTION 3. Investment of Funds. The Bank shall invest such funds
-------------------
deposited with it pursuant to Section 2 hereof in short-term bank time or demand
deposits, short-term certificates of deposit (including certificates of deposit
or demand deposits of the Bank), short-term United States government securities
or other short-term United States government guaranteed money instruments and
any other investment permitted under Rule 15c2-4 under the Exchange Act as
directed by ATLANTIC to maximize the return on such funds; provided, however,
that such investments shall be made in a manner permitting necessary funds to be
available for transfer to ATLANTIC within three business days after the
Expiration Date (the "Closing Time").
------------
SECTION 4. Release of Funds after Rights Offering. Upon receipt by the
--------------------------------------
Bank of instructions from ATLANTIC at the Closing Time, which instructions may
be conveyed by telephonic or telegraphic means, the Bank shall pay to ATLANTIC
such portion of the deposited funds then held in escrow as are specified in such
instructions with interest on the deposited funds accrued from the date of
deposit; provided, however, that no funds shall be paid pursuant to this Section
4 unless the Closing Condition shall have occurred. At the Closing Time, the
Bank shall also return to subscribers such funds, if any, to be returned to
subscribers as a result of a proration or as a result of such subscriber's
subscription being rejected, in each case without interest and in accordance
with the Subscription Agency Agreement. In lieu of liquidating investments made
pursuant to Section 3 hereof (or payment of such funds), the Bank may transfer
to ATLANTIC such portion of the instruments representing such investments as is
specified in such instructions. The interest on the deposited funds paid to
ATLANTIC will be deemed to be income to ATLANTIC and not part of the capital
contribution of the subscribers, except if returned pursuant to Section 5
hereof.
SECTION 5. Release of Funds if Closing Condition Fails. If the Closing
-------------------------------------------
Condition has not been satisfied by the Expiration Date, then the Bank
shall: (a) so notify ATLANTIC and Capital Markets Group, (b) furnish to
ATLANTIC and the Placement Agent a list containing the name and address of, the
date of deposit of funds of, and the amount received from each subscriber whose
funds have been deposited and (c) return the subscription funds theretofore
received, with a pro rata share of any net interest actually earned thereon, to
the subscribers as named. The Bank shall return
-2-
<PAGE>
such funds to the subscribers not later than the first business day after the
delivery of the notice required in clause (a) above, or as soon as possible
thereafter.
SECTION 6. Release of Bank. In the event that either (a) all the
---------------
events contemplated by Section 4 hereof shall have occurred or (b) the Closing
Condition shall not have been satisfied by the Expiration Date and all
subscribers shall have been repaid the amounts provided for in Section 5 hereof,
the Bank shall be relieved of all liabilities in connection with the escrow
deposits provided for herein.
SECTION 7. Concerning the Bank; Indemnification.
------------------------------------
(a) ATLANTIC agrees to pay to the Bank compensation in accordance with the
standard fee schedule of the Bank for such escrow funds. In the event that the
Closing Time does not occur and the funds received are to be returned to the
subscribers as contemplated by Section 5 hereof, such fee will be paid to the
Bank by ATLANTIC on the date on which the Rights Offering is terminated.
(b) ATLANTIC also agrees to indemnify and hold the Bank harmless against
any losses, claims, damages, liabilities, costs or expenses (including
reasonable fees and disbursements of legal counsel) which the Bank may incur or
become subject to arising from or out of any claim or liability resulting from
actions taken as Bank pursuant to this Agreement; provided, however, that such
covenant and agreement does not extend to, and the Bank shall not be indemnified
or held harmless with respect to, losses, claims, damages, liabilities, costs or
expenses incurred or suffered by the Bank as a result, or arising out, of the
Bank's negligence, misconduct, bad faith or breach of this Agreement. In
connection therewith: (i) in no case shall ATLANTIC be liable with respect to
any claim against the Bank unless the Bank shall have notified ATLANTIC in
writing of the assertion of such claim against it or of any action commenced
against it with respect to such claim, promptly after the Bank shall have notice
of a claim or shall have been served with the summons or other legal process
giving information as to the nature and basis of the claim; (ii) ATLANTIC shall
be entitled to participate at its own expense in the defense of any suit brought
to enforce any such claim and, if ATLANTIC so elects, it shall assume the
defense of any such suit, in which event ATLANTIC shall not be liable for the
fees and expenses of any additional counsel that the Bank may retain, so long as
ATLANTIC shall retain counsel reasonably satisfactory to the Bank, in the
exercise of the Bank's reasonable judgment, to defend such suit; and (iii) the
Bank agrees not to settle any litigation in connection with any claim or
liability with respect to which it may seek indemnification from ATLANTIC
without the prior written consent of ATLANTIC.
(c) The Bank shall be protected and shall incur no liability for or in
respect of any action taken or omitted by it without negligence, misconduct, bad
faith or breach of this Agreement in connection with its administration of this
Agreement in reliance upon any document reasonably believed by it to be genuine
and to be executed and, where necessary, acknowledged or guaranteed by the
proper person or persons.
-3-
<PAGE>
(d) Anything in this Agreement to the contrary notwithstanding, in no event
shall the Bank be liable for special, indirect or consequential loss or damage
of any kind whatsoever (including but not limited to lost profits), even if the
Bank has been advised of the likelihood of such loss or damage and regardless of
the form of action.
SECTION 8. Merger or Consolidation of Bank. Any corporation into which
-------------------------------
the Bank or any successor Bank may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Bank or any successor Bank shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Bank or any
successor Bank, shall be the successor to the Bank under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto.
SECTION 9. Duties of Bank. The Bank undertakes the duties and
--------------
obligations imposed by this Agreement upon the following terms and conditions,
by all of which ATLANTIC and the subscribers shall be bound:
(a) The Bank may consult with legal counsel (who may be, but is not
required to be, legal counsel for ATLANTIC), and the advice or opinion of such
counsel shall be full and complete authorization and protection to the Bank as
to any action taken or omitted by it in good faith and in accordance with such
advice or opinion.
(b) Whenever in the performance of its duties under this Agreement the Bank
shall deem it necessary or desirable that any fact or matter be proved or
established by ATLANTIC or Capital Markets Group prior to taking or omitting to
take any action hereunder, such fact or matter (unless other evidence in respect
thereof is specifically prescribed herein) may be deemed to be conclusively
proved and established by a certificate signed by a Co-Chairman of the Board, a
Managing Director or a Vice President (including any Senior Vice President) and
by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary of ATLANTIC or Capital Markets Group and delivered to the Bank; and
such certificate shall be full authorization to the Bank for any action taken or
omitted in good faith by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Bank shall be liable hereunder only for its own negligence,
misconduct or bad faith.
(d) The Bank shall not be liable for or by reason of any of the statements
of fact or recitals contained in this Agreement or be required to verify the
same, and all such statements and recitals are and shall be deemed to have been
made by ATLANTIC and Capital Markets Group only.
(e) The Bank shall not be under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof (except the due
execution and delivery hereof by the Bank); nor shall it be responsible for any
breach by ATLANTIC or Capital Markets Group of any covenant or condition
contained in this Agreement.
-4-
<PAGE>
(f) ATLANTIC and Capital Markets Group agree that they will perform,
execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further acts, instruments and assurances as
may reasonably be required by the Bank for the carrying out or performing by the
Bank of the provisions of this Agreement.
(g) Nothing herein shall preclude the Bank from acting in any other
capacity for ATLANTIC or Capital Markets Group.
SECTION 10. Notices to ATLANTIC, Capital Markets Group and the Bank.
--------------------------------------------------------
All notices and other communications provided for or permitted hereunder shall
be made by hand delivery, prepaid first-class mail, or telecopier:
(a) if to ATLANTIC, to:
Security Capital Atlantic Incorporated
Six Piedmont Center
Atlanta, Georgia 30305
Attention: Jeffrey A. Klopf
Telecopier: (404) 233-2379
(b) if to Capital Markets Group, to:
Security Capital Markets Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: K. Scott Canon
Telecopier: (505) 982-9292
(c) if to the Bank, to:
The First National Bank of Boston
150 Royall Street M.S. 45-02-53
Canton, Massachusetts 02021
Attention: _________________________
Telecopier: (617) 575-2233
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if mailed as aforesaid; and
when receipt is acknowledged, if telecopied.
SECTION 11. Supplements and Amendments. ATLANTIC and the Bank may from
--------------------------
time to time supplement or amend this Agreement without the approval of any
subscribers in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision contained herein, or to make any other provisions
-5-
<PAGE>
in regard to matters or questions arising hereunder which ATLANTIC and the Bank
may deem necessary or desirable and which shall not adversely affect the
interests of the subscribers.
SECTION 12. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of ATLANTIC, Capital Markets Group or the Bank
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 13. Termination. This Agreement shall terminate at 5:00 p.m.,
-----------
Eastern Daylight Time, on the thirtieth day following the Expiration Date. Upon
termination of this Agreement, ATLANTIC and Capital Markets Group shall be
discharged from all obligations under this Agreement except for their
obligations to the Bank under Section 7 hereof and except with respect to their
obligations to provide instructions and directions to the Bank as provided in
this Agreement.
SECTION 14. Governing Law. This Agreement shall be deemed to be a
-------------
contract made under the laws of The Commonwealth of Massachusetts and for all
purposes shall be construed in accordance with the internal laws of said State.
SECTION 15. Benefits of This Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or corporation other than ATLANTIC, Capital
Markets Group, the Bank and the subscribers any legal or equitable right, remedy
or claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of ATLANTIC, Capital Markets Group, the Bank and the
subscribers.
SECTION 16. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
SECTION 17. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the date first above written by their respective duly authorized officers.
THE FIRST NATIONAL BANK OF BOSTON
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
--------------------------------------
Jeffrey A. Klopf
Secretary
SECURITY CAPITAL MARKETS GROUP INCORPORATED
By:
--------------------------------------
K. Scott Canon
Vice President
-7-
<PAGE>
Exhibit 15
July 1, 1997
Shareholders and Board of Directors
Security Capital Atlantic Incorporated
We are aware of the inclusion in Amendment No. 1 to the Registration Statement
on Form S-11 (No. 333-27067) of Security Capital Atlantic Incorporated for the
registration of rights to subscribe for and purchase its common stock and the
shares issuable upon exercise of the rights of our report dated April 24, 1997,
except for Note 6, as to which the date is May 1, 1997, relating to the
unaudited condensed interim financial statements of Security Capital Atlantic
Incorporated as of March 31, 1997 and for the three-month periods ended
March 31, 1997 and 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
Ernst & Young LLP
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of (a) our report dated February 3, 1997, with respect to the
financial statements at December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 and schedule of Security Capital
Atlantic Incorporated ("ATLANTIC"), (b) our report dated April 26, 1996 with
respect to the combined Historical Summary of Gross Income and Direct
Operating Expenses of the Group C Communities of ATLANTIC, (c) our report
dated August 13, 1996 with respect to the combined Historical Summary of Gross
Income and Direct Operating Expenses of the Group D Communities of ATLANTIC
and (d) our report dated January 31, 1997 with respect to the combined
Historical Summary of Gross Income and Direct Operating Expenses of the Group
E Communities of ATLANTIC, all of which are included in the Registration
Statement of ATLANTIC on Form S-11 and the related Prospectus dated May 14,
1997 for the registration of rights to subscribe for and purchase shares of
its common stock and the shares issuable upon exercise of the rights.
ERNST & YOUNG LLP
Dallas, Texas
May 12, 1997
<PAGE>
EXHIBIT 99.1
[LOGO OF SECURITY CAPITAL ATLANTIC APPEARS HERE]
, 1997
Dear Shareholder:
Security Capital Atlantic Incorporated ("ATLANTIC") has commenced a rights
offering of its shares of common stock. ATLANTIC's shareholders of record on
, 1997 will receive a dividend of one right for each ATLANTIC share
they own. The number of shares of common stock to be offered in the rights
offering, the number of rights required to purchase one share of common stock
and the exercise price per share cannot be determined at this time, but will
be described in the prospectuses and other information to be mailed to
shareholders together with their rights certificates.
Rights certificates and prospectuses will be mailed on or about
, 1997. Shareholders who do not subscribe may attempt to sell their rights
on the New York Stock Exchange until the business day before the rights
expire. We cannot assure anyone that a market for the rights will develop.
The offering will be made only by means of the final prospectus. It will
contain important information regarding ATLANTIC and the rights offering. You
do not need to take any action at this time. We are sending this letter solely
to give you advance notice of the rights offering and to urge you to read the
prospectus carefully when you receive it.
We thank you for your continued support.
Sincerely,
/s/ James C. Potts
James C. Potts
Co-Chairman and
Chief Investment Officer
/s/ Constance B. Moore
Constance B. Moore
Co-Chairman and
Chief Operating Officer
<PAGE>
EXHIBIT 99.2
LOGO
, 1997
Dear Shareholder:
Enclosed with this letter is a Rights Certificate which evidences
transferable Rights ("Rights") to purchase a specified number of shares of
common stock ("Shares") of Security Capital Atlantic Incorporated
("ATLANTIC"). The Rights offering is being made upon all of the terms and
subject to all of the conditions set forth in the enclosed Prospectus dated
, 1997. You should review the Prospectus carefully before making any
investment decision. Rights entitle you to subscribe for and purchase
one Share at a subscription price of $ per share (the "Subscription Price").
The Rights may only be exercised by completing the "Exercise" portion on the
enclosed certificate and returning it, together with the applicable
Subscription Price, so that it is received by The First National Bank of
Boston on or before 5:00 p.m., Eastern Daylight Time, on , 1997,
unless extended (the "Expiration Date"). Alternatively, you may complete the
enclosed "Notice of Guaranteed Delivery" and return it on or before the
Expiration Date. Therefore, you are urged to give your immediate attention to
the enclosed materials. Please read and follow the instructions contained in
the Prospectus and the enclosed instruction letter carefully because a
properly completed and duly executed Rights Certificate is necessary to
exercise, transfer or sell the Rights.
The Rights Certificate also gives you the opportunity to oversubscribe for
additional Shares at the Subscription Price, subject to certain limitations
described in the Prospectus, including proration of available Shares. If you
desire to oversubscribe for additional Shares, please follow the instructions
set forth in the Prospectus and the enclosed instruction letter.
UNLESS YOU EXERCISE, TRANSFER OR SELL YOUR RIGHTS PRIOR TO THE EXPIRATION
DATE, YOUR RIGHTS CERTIFICATE WILL BECOME VALUELESS.
For additional information on the exercise, transfer or sale of the enclosed
Rights Certificate, please call ATLANTIC's information agent, Georgeson &
Company, Inc., at 1-800-223-2064.
Sincerely,
/s/ Constance B. Moore
Constance B. Moore
Co-Chairman and
Chief Operating Officer
/s/ James C. Potts
James C. Potts
Co-Chairman and
Chief Investment Officer
<PAGE>
EXHIBIT 99.3
SECURITY CAPITAL ATLANTIC INCORPORATED
INSTRUCTIONS FOR COMPLETION OF RIGHTS CERTIFICATE
PLEASE READ THE PROSPECTUS BEFORE COMPLETING YOUR RIGHTS CERTIFICATE
GENERAL
As the registered owner of the enclosed Rights Certificate, you are entitled
to subscribe for shares of common stock ("Shares") of Security Capital
Atlantic Incorporated, a Maryland corporation ("ATLANTIC"), in ATLANTIC's
Rights offering at the subscription price (the "Subscription Price") of $
per Share and upon the terms and conditions set forth in the enclosed
Prospectus dated , 1997. The Rights offering is being made upon all
of the terms and subject to all of the conditions set forth in the Prospectus.
Please read it carefully before making any investment decisions.
As a holder of Rights, you may:
1. Purchase Shares through the exercise of part or all of your Rights to
subscribe for one Share at the Subscription Price for every Rights
held by you. You may not purchase fractional Shares.
2. Oversubscribe for as many Shares as desired (the "Oversubscription
Privilege"), at the Subscription Price, subject to the maximum number of
Shares offered in the Rights offering and certain other restrictions
described in the Prospectus, including proration of available Shares, if
you were a holder of Shares on , 1997 (the "Record Date") and if
you have validly exercised all of the Rights initially issued to you to the
extent possible.
3. Transfer part or all of your Rights, as more fully described in the
Prospectus.
4. Sell part or all of your Rights. To sell your Rights, you should see a
securities broker of your choice. There can be no assurance that a public
market will develop or be sustained for the Rights.
5. Allow part or all of your Rights to expire unexercised.
If your proposed action with respect to your Rights will make it necessary
for the Subscription Agent to furnish a new Rights Certificate to you
representing your unexercised Rights, you should make arrangements with the
Subscription Agent in order to ensure the receipt of the new Rights
Certificate in time to be exercised, transferred or sold. Please allow the
Subscription Agent a minimum of three business days to process and issue a new
Rights Certificate. No new Rights Certificates will be issued after
, 1997. UNLESS ARRANGEMENTS ARE MADE FOR RETURN OVERNIGHT DELIVERY, NEW
RIGHTS CERTIFICATES TO BE ISSUED ON OR NEAR , 1997 MIGHT NOT BE
RECEIVED PRIOR TO THE EXPIRATION DATE. ANY ARRANGEMENTS FOR, AND THE RELATED
EXPENSES OF, OVERNIGHT DELIVERY OF NEW RIGHTS CERTIFICATES MUST BE MADE BY THE
INDIVIDUAL HOLDER.
The risk of delivery of the completed Rights Certificate and payment of the
full Subscription Price for all Shares subscribed and oversubscribed for is on
you, not ATLANTIC or the Subscription Agent, and delivery will be deemed
effected only when actually received by the Subscription Agent. If the mail is
used, it is recommended that insured, registered mail, return receipt
requested, be used.
<PAGE>
TO SUBSCRIBE AND OVERSUBSCRIBE FOR SHARES
You may subscribe for Shares in the Rights offering by completing the Rights
Certificate in the following manner:
If you wish to exercise all of your Rights, enter the number of Shares being
subscribed for on line A of Section 1. You are entitled to subscribe for one
Share at the Subscription Price for every Rights held by you. Please be
sure that you own a sufficient number of Rights to subscribe for the Shares
you want to purchase. You may not purchase fractional Shares. Multiply the
number of Shares subscribed for by $ and enter that total next to the
dollar sign ($) on line A.
If you wish to exercise only part of your Rights, enter the number of Shares
being subscribed for on line C of Section 1. You may not purchase fractional
Shares. Multiply the number of Shares subscribed for by $ and enter that
total next to the dollar sign ($) on line C. Subject to the time restrictions
stated in these instructions, the Subscription Agent will issue a new Rights
Certificate representing any remaining unexercised Rights, which can then be
exercised, transferred or sold in the manner described in these instructions.
If you were a holder of Shares on the Record Date and if you have validly
exercised all of the Rights initially issued to you to the extent possible and
wish to oversubscribe for additional Shares pursuant to the Oversubscription
Privilege, enter the number of Shares being oversubscribed for on line B of
Section 1. You may oversubscribe for as many Shares as desired, subject to the
maximum number of Shares offered in the Rights offering and certain other
restrictions described in the Prospectus, including proration of available
Shares. Fractional Shares will be adjusted in any manner ATLANTIC deems
appropriate. Multiply the number of Shares oversubscribed for by $ and
enter that total next to the dollar sign ($) on line B.
Enter the total of the dollar amounts in Section 1 on the line reading
"Total Amount Enclosed," which amount should be enclosed with the Subscription
Form when it is delivered to the Subscription Agent.
Complete Section 2 of the Rights Certificate.
TO TRANSFER RIGHTS
If you wish to transfer part or all of your Rights (but not fractional
Rights), you should allow a sufficient amount of time prior to the Expiration
Date for the Rights to be received by the Subscription Agent, acted upon,
mailed to the transferee, and then acted upon by the transferee. Please refer
to the discussion on the previous page.
If you wish to transfer part or all of your Rights, please complete Section
3 of the Rights Certificate. Your signature(s) must correspond in every
particular, without alteration, with the name(s) printed on the Rights
Certificate and must be guaranteed by a commercial bank, trust company or
credit union having an office, branch or agency in the United States or by a
member of a Stock Transfer Association approved medallion program such as
STAMP, SEMP or MSP.
If you transfer all of your Rights, the Rights Certificate should be
delivered to your transferee. The transferee may exercise the Rights by
completing Section 1 as directed in the section "To Subscribe and
Oversubscribe for Shares," or may transfer the Rights after obtaining a new
Rights Certificate from the Subscription Agent. Unless your transferee was a
shareholder on the Record Date, the transferee will not be entitled to
subscribe for additional Shares under the Oversubscription Privilege.
If you transfer only part of your Rights, the Rights Certificate should be
delivered to the Subscription Agent. The Subscription Agent will issue new
Rights Certificates in the stated amounts to you and the transferee(s). Upon
receipt of the new Rights Certificate, you may thereafter exercise, transfer
or sell the Rights represented by that Rights Certificate in the manner
described in these instructions. Rights may not be transferred to persons who
are not residents of the United States.
2
<PAGE>
TO SELL RIGHTS
If you wish to sell all or some of your Rights, please contact a securities
broker of your choice. Do not complete Section 3 of the Rights Certificate
until instructed by your broker. You may sell some of your Rights and transfer
the remaining Rights to another person. Your broker can give you details for
this procedure; however, please be certain to allow a sufficient amount of
time.
EXECUTION OF RIGHTS CERTIFICATE
The signature(s) on the Rights Certificate should match in every detail the
name of the registered owner(s) printed on the Rights Certificate. If there are
joint owners of a Rights Certificate, each joint owner must sign the Rights
Certificate. All other information on the Rights Certificate should be printed
or typed.
If the Rights Certificate is executed by an executor, administrator, trustee,
guardian or other fiduciary, or by a corporation, and the Rights Certificate is
not registered in the name of such fiduciary or corporation, the person
executing the Rights Certificate must give his or her full title and furnish
proper evidence of authority to act.
If the Rights Certificate is executed by an attorney-in-fact (except where
such execution is by a bank, trust company, or broker as agent for the
subscriber and the Shares are to be registered in the same name as stated on
the Rights Certificate), evidence of authority to act must be furnished.
DELIVERY OF RIGHTS CERTIFICATES
Rights will be deemed to have been exercised only when a properly completed
and duly executed Rights Certificate and payment of the full Subscription Price
with respect to such exercise have been received by the Subscription Agent. The
risk of delivery of all documents and payments is on subscribers, not ATLANTIC
or the Subscription Agent. If the mail is used, it is recommended that insured,
registered mail, return receipt requested be used and that a sufficient number
of days be allowed to ensure delivery to the Subscription Agent before the
Expiration Date. Neither ATLANTIC nor the Subscription Agent shall incur any
liability if a Rights Certificate furnished by the Subscription Agent or
otherwise is not received in time for the subscription to be accepted.
To exercise or transfer your Rights, the properly completed and duly executed
Rights Certificate and payment of the full Subscription Price for all Shares
subscribed and oversubscribed for should be mailed or delivered to the
Subscription Agent as follows:
By Regular Mail: By Hand:
The First National Bank of Boston BancBoston Trust Company of New York
Corporate Reorganization 55 Broadway, Third Floor
P.O. Box 1889 New York, New York
Mail Stop 45-02-53
Boston, Massachusetts 02105
By Facsimile Transmission: By Overnight Courier:
(617) 575-2232 The First National Bank of Boston
(617) 575-2233 Corporate Reorganization
(for Eligible Institutions Only) Mail Stop 45-02-53
Confirm by Telephone 150 Royall Street
617) 575-3120 Canton, Massachusetts 02021
Delivery of Rights Certificates and payments other than as set forth above
will not constitute a valid delivery.
3
<PAGE>
VALIDITY OF SUBSCRIPTION
All questions with respect to the validity and form of the exercise of any
Rights or the Oversubscription Privilege (including time of receipt and
eligibility to participate in the Rights offering) will be determined solely
by ATLANTIC, which determination shall be final and binding. Once made,
subscriptions and directions are irrevocable, and no alternative, conditional
or contingent subscriptions or directions will be accepted. ATLANTIC reserves
the absolute right to reject any subscriptions or directions not properly
submitted or the acceptance of which, in the opinion of ATLANTIC's counsel,
would be unlawful. Any irregularities in connection with subscriptions must be
cured prior to the Expiration Date unless waived by ATLANTIC in its sole
discretion. Neither ATLANTIC nor the Subscription Agent shall be under any
duty to give any notification of defects in subscriptions or incur any
liability for failure to give such notification.
A subscription will be deemed to have been accepted (subject to ATLANTIC's
right to withdraw or terminate the Rights offering) only when a properly
completed and duly executed Rights Certificate and payment of the full
Subscription Price with respect to such subscription have been received by the
Subscription Agent. ATLANTIC's interpretations of the terms and conditions of
the Rights offering (including these instructions) shall be final and binding.
DELIVERY OF SHARES
Certificates for Shares purchased pursuant to the exercise of Rights or the
Oversubscription Privilege will be mailed as soon as practicable after the
Expiration Date and the receipt of all required documents and payment in full
of the Subscription Price due for such Shares. In the case of shareholders
whose Shares are held through the Depository Trust Company, the appropriate
participant account will be credited. Any refund in connection with your
subscription will be mailed as soon as practicable after the Expiration Date
without interest. Certificates and/or checks will be mailed to the address on
the Rights Certificate unless the subscriber gives different instructions on
such Rights Certificate.
INFORMATION
If you have any questions regarding completion, delivery, exercise or
transfer of your Rights Certificates, you may contact ATLANTIC's information
agent, Georgeson & Company, Inc., at 1-800-223-2064.
4
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
FOR SUBSCRIPTIONS FOR SHARES OF COMMON STOCK OF
SECURITY CAPITAL ATLANTIC INCORPORATED
As set forth in the Prospectus dated , 1997 (the "Prospectus") of
Security Capital Atlantic Incorporated ("ATLANTIC"), this form or one
substantially equivalent hereto must be used to exercise a holder's rights
("Rights") to subscribe for shares of common stock ("Shares") of ATLANTIC and
to oversubscribe for additional Shares (the "Oversubscription Privilege"), if
time will not permit all required documents to reach The First National Bank
of Boston (the "Subscription Agent") prior to 5:00 p.m., Eastern Daylight
Time, on , 1997, unless extended (the "Expiration Date"). This form
should be mailed or delivered or (for eligible institutions only) sent by
facsimile transmission to the Subscription Agent as follows:
By Hand:
By Regular Mail: BancBoston Trust Company of New York
The First National Bank of Boston
Corporate Reorganization 55 Broadway, Third Floor
P.O. Box 1889 New York, New York
Mail Stop 45-02-53
Boston, Massachusetts 02105 By Overnight Courier:
The First National Bank of Boston
By Facsimile Transmission: Corporate Reorganization
(617) 575-2232 Mail Stop 45-02-53
(617) 575-2233 150 Royall Street
(for Eligible Institutions Only) Canton, Massachusetts 02021
Confirm by Telephone
(617) 575-3120
Delivery other than as set forth above will not constitute a valid delivery.
The commercial bank, trust company or credit union or member firm which
completes this form must communicate this guarantee and the number of Shares
subscribed for in connection with this guarantee (stating separately the
number of Shares subscribed for pursuant to the exercise of Rights and the
Oversubscription Privilege) to the Subscription Agent and must deliver this
Notice of Guaranteed Delivery to the Subscription Agent prior to 5:00 p.m.,
Eastern Daylight Time, on the Expiration Date, guaranteeing delivery of (a)
payment of the full Subscription Price for all Shares subscribed for pursuant
to the exercise of Rights or the Oversubscription Privilege and (b) a properly
completed and duly executed Rights Certificate (which certificate and full
payment must then be delivered no later than the close of business of the
third business day after the Expiration Date). Failure to do so will result in
a forfeiture of the Rights.
GUARANTEE
The undersigned, a commercial bank, trust company or credit union having an
office, branch or agency in the United States or a member firm of a Stock
Transfer Association approved medallion program such as STAMP, SEMP OR MSP,
guarantees delivery to the Subscription Agent by no later than 5:00 p.m.,
Eastern Daylight Time, on , 1997 of (a) a properly completed and
duly executed Rights Certificate and (b) payment of the full Subscription
Price for all Shares subscribed for pursuant to the exercise of Rights or the
Oversubscription Privilege, as subscription for such Shares is indicated
herein or in the Rights Certificate.
(Continued on reverse side)
<PAGE>
Control Number:______________________
SECURITY CAPITAL ATLANTIC INCORPORATED
1. Exercise of Rights:
$
I subscribe to exercise Rights for Shares X $ =
2. Oversubscription Privilege:
I apply for the Oversubscription Privilege* for Shares X $ =
$
*I have validly exercised all Rights initially issued to me to the
extent possible and was a holder of Shares on , 1997.
3. Total Rights Exercised: Total Shares Subscribed For:
Total Payment: $
METHOD OF PAYMENT
Payment must be made by federal funds wire transfer on , 1997,
unless extended, to:
The First National Bank of Boston, ABA #011000390, Attn.: ATLANTIC Escrow
Account
or, by certified or cashier's check to one of the addresses on side 1 of this
form.
- -------------------------------------------------------------------------------
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address Print NameTitle
- ------------------------------------- -------------------------------------
City StateZIP Code Telephone Number
- ------------------------------------- -------------------------------------
Contact Name Date
- -------------------------------------
DTC Participant Number
- -------------------------------------------------------------------------------
INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY
A Notice of Guaranteed Delivery may be submitted if the Notice is received by
the Subscription Agent by 5:00 p.m., Eastern Daylight Time, on the Expiration
Date.
CONTROL NUMBER
The First National Bank of Boston will assign a control number to this Notice
upon receipt. Such number may be confirmed by inquiry to The First National
Bank of Boston.
ITEM 1. EXERCISE OF RIGHTS
State the number of Rights exercised and the number of Shares subscribed for
pursuant to the exercise of Rights and the corresponding dollar amount. You
are entitled to subscribe for one Share at the Subscription Price of $
for every Rights held by you.
ITEM 2. OVERSUBSCRIPTION PRIVILEGE
State the number of Shares subscribed for pursuant to the Oversubscription
Privilege and the corresponding dollar amount. You may oversubscribe for as
many Shares as desired, subject to the maximum number of Shares offered in the
Rights Offering and certain other restrictions described in the Prospectus,
including proration of available Shares.
ITEM 3. State the total number of Rights exercised and the total number of
Shares subscribed for pursuant to the exercise of Rights and the
Oversubscription Privilege and the dollar amount that the Subscription Agent
will receive from you no later than 5:00 p.m., Eastern Daylight Time, on
, 1997, unless extended.
<PAGE>
EXHIBIT 99.5
SECURITY CAPITAL ATLANTIC INCORPORATED
Institutional Subscription Form for Non-Shareholders Subscribing for Shares
Please read the prospectus before completing this form.
Subscriptions must be received prior to 5:00 p.m., Eastern Daylight Time,
on , 1997 (unless extended).
This form should be mailed or delivered to the Subscription Agent as follows:
By Regular Mail: By Hand or Overnight By Hand in New York
The First National Bank Courier: City:
of Boston The First National Bank Bancboston Trust Co.
Shareholder Services of Boston Attn: Mr. Gerald
Division Shareholder Services Palmieri
Attn: Mr. Mike Monahan Division 55 Broadway, Third
M/S 45-02-53 Attn: Mr. Mike Monahan Floor
P.O. Box 1889 M/S 45-02-53 New York, New York
Boston, Massachusetts 150 Royall Street 10006
02105
Canton, Massachusetts
02021
A copy of this completed form must also be transmitted by Regular Mail, Hand,
Overnight Courier or Facsimile to:
Security Capital Markets Group Incorporated, Attention: Drew Carlin
125 Lincoln Avenue, Santa Fe, NM 87501
(Facsimile Transmission to: (505) 982-7794. Telephone Confirmation to: (505)
986-6506.)
Delivery of the subscription form other than as set forth above will not
constitute a valid delivery.
The undersigned, on behalf of each person, organization or institution
listed on the attached Subscription Form Addendum, irrevocably subscribes for
the following shares of common stock (the "Shares") of Security Capital
Atlantic Incorporated ("ATLANTIC") upon the terms and subject to the
conditions specified in the Prospectus dated , 1997, receipt of which
is hereby acknowledged. The undersigned agrees to have its custodians make
payment for, and receive said Shares, on , 1997, at $ per
Share to The First National Bank of Boston, the Subscription Agent, by wire
transfer of funds via The Depository Trust Company ("DTC") I.D. System or
Delivery-Versus-Payment System, at the option of the undersigned.
The undersigned represents and warrants that it has full power and authority
to subscribe for the Shares pursuant to this Subscription Form on behalf of
each organization or institution listed on the attached Subscription Form
Addendum.
The undersigned understands and recognizes that:
(a) this subscription may be accepted or rejected in whole or in part
by ATLANTIC, in its sole and absolute discretion;
(b) final allocations or notices of rejection will be transmitted to
the undersigned by ATLANTIC on , 1997;
(c) trades will be confirmed on or after , 1997 for
settlement on , 1997.
The undersigned is a (check one): U.S. Citizen Resident Alien Non-
Resident Alien (Country of Residence )
If the undersigned is a Non-Resident Alien, the undersigned certifies under
penalties of perjury, for purposes of backup withholding, that the undersigned
is not a U.S. Resident Alien and that the undersigned is an "exempt foreign
person" as defined under United States Department of Internal Revenue
regulations.
This Subscription Form and all rights hereunder shall be governed by, and
interpreted in accordance with, the laws of the State of Maryland.
- -------------------------------------------------------------------------------
Total Shares Subscribed For:_________
-------------------------------------
Total Purchase Price: $ _____________ Name of Institution
(Total Shares x $ ) -------------------------------------
Authorized Signature
-------------------------------------
Print Name
-------------------------------------
Date
-------------------------------------
Address
-------------------------------------
-------------------------------------
Telephone Number
-------------------------------------
Fax Number
-------------------------------------
Tax ID Number
<PAGE>
Exhibit 99.6
SECURITY CAPITAL ATLANTIC INCORPORATED
Individual Subscription From for Non-Shareholders Subscribing for Shares
Please read the prospectus before completing this form.
Subscriptions must be received prior to 5:00 p.m., Eastern Daylight Time,
on , 1997 (unless extended).
This form should be mailed or delivered to the Subscription Agent as follows:
By Regular Mail: By Hand or Overnight By Hand in New York
The First National Bank Courier: City:
of Boston The First National Bank Bancboston Trust Co.
Shareholder Services of Boston Attn: Mr. Gerald
Division Shareholder Services Palmieri
Attn: Mr. Mike Monahan Division 55 Broadway, Third
M/S 45-02-53 Attn: Mr. Mike Monahan Floor
P.P. Box 1889 M/S 45-02-53 New York, New York,
Boston, Massachusetts 150 Royall Street 10006
02105 Canton, Massachusetts
02021
A copy of this completed form must also be transmitted by Regular Mail, Hand,
Overnight Courier or Facsimile to:
Security Capital Markets Group Incorporated, Attention: Drew Carlin
125 Lincoln Avenue, Santa Fe, NM 87501
(Facsimile Transmission to: (505) 982-7794. Telephone Confirmation to: (505)
986-6506.)
Delivery of the subscription form other than as set forth above will not
constitute a valid delivery.
The undersigned, on behalf of each person, organization or institution
listed on the attached Subscription From Addendum, irrevocably subscribes for
the following shares of Common Stock (the "Shares") of Security Capital
Atlantic Incorporated ("ATLANTIC") upon the terms and subject to the
conditions specified in the Prospectus dated , 1997, receipt of
which is hereby acknowledged. The undersigned agrees to have its custodians
make payment for, and receive said Shares, on , 1997, at $ per
Share to The First National Bank of Boston, the Subscription Agent, by wire
transfer of funds via The Depository Trust Company ("DTC") I.D. System or
Delivery Versus-Payment System, at the option of the undersigned.
The undersigned represents and warrants that it has full power and authority
to subscribe for the Shares pursuant to this Subscription Form on behalf of
each person, organization or institution listed on the attached Subscription
Form Addendum.
The undersigned understands and recognizes that:
(a) this subscription may be accepted or rejected in whole or in part
by ATLANTIC, in its sole and absolute discretion;
(b) final allocations or notices of rejection will be transmitted to
the undersigned by ATLANTIC on , 1997;
(c) trades will be confirmed on or after , 1997 for
settlement on , 1997.
The undersigned is a (check one): U.S. Citizen Resident Alien Non-
Resident Alien (Country of Residence )
If the undersigned is a Non-Resident Alien, the undersigned certifies under
penalties of perjury, for purposes of backup withholding, that the undersigned
is not a U.S. Resident Alien and that the undersigned is a "exempt foreign
person" as defined under United States Department of Internal Revenue
regulations.
This Subscription Form and all rights hereunder shall be governed by, and
interpreted in accordance with, the laws of the State of Maryland.
- -------------------------------------------------------------------------------
-------------------------------------
Total Shares Subscribed For: ________ Name of Subscriber
Total Purchase Price: $ _____________ -------------------------------------
Authorized Signature
(Total Shares X $ )
-------------------------------------
Print Name
-------------------------------------
Date
-------------------------------------
Address
-------------------------------------
-------------------------------------
Telephone Number
-------------------------------------
Fax Number
-------------------------------------
Social Security Number
