Filed pursuant to Rule 424(b)5
Registration No.333-51671
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 20, 1998)
$150,000,000
[HIGHWOODS LOGO HERE]
HIGHWOODS REALTY
LIMITED PARTNERSHIP
8% NOTES DUE 2003
----------------
INTEREST PAYABLE ON JUNE 1 AND DECEMBER 1
----------------
WE MAY, AT ANY TIME, REDEEM THE NOTES AT THE REDEMPTION PRICE DESCRIBED HEREIN.
THE NOTES ARE UNSECURED AND RANK EQUALLY WITH ALL OF OUR OTHER UNSECURED
SENIOR INDEBTEDNESS. WE DO NOT INTEND TO LIST THE NOTES ON
ANY NATIONAL SECURITIES EXCHANGE.
----------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 2 IN THE ACCOMPANYING PROSPECTUS.
----------------
PRICE 99.450% AND ACCRUED INTEREST, IF ANY
----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND OUR
PUBLIC COMMISSIONS PROCEEDS
---------------- --------------- ----------------
<S> <C> <C> <C>
PER NOTE ......... 99.450% .600% 98.850%
TOTAL ............ $149,175,000 $900,000 $148,275,000
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE NOTES TO PURCHASERS ON
NOVEMBER 25, 1998.
----------------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY
NOVEMBER 20, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
PAGE
-----
<S> <C>
Forward-Looking Statements ................................................ S-3
The Operating Partnership ................................................. S-3
Recent Developments ....................................................... S-5
The Properties ............................................................ S-9
Use of Proceeds ........................................................... S-11
Capitalization ............................................................ S-11
Selected Financial Data ................................................... S-12
Description of Notes ...................................................... S-14
Underwriters .............................................................. S-18
Legal Matters ............................................................. S-19
PROSPECTUS
The Company and the Operating Partnership ................................. 2
Risk Factors .............................................................. 2
Use of Proceeds ........................................................... 9
Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends 9
Description of Debt Securities ............................................ 10
Description of Preferred Stock ............................................ 24
Description of Series A Preferred Shares .................................. 30
Description of Series B Preferred Shares .................................. 31
Description of Series D Preferred Shares .................................. 31
Description of Depositary Shares .......................................... 32
Description of Common Stock ............................................... 36
Federal Income Tax Considerations ......................................... 40
Plan of Distribution ...................................................... 53
Experts ................................................................... 54
Legal Matters ............................................................. 55
Available Information ..................................................... 56
Incorporation of Certain Documents by Reference ........................... 56
</TABLE>
----------------
Prospective investors may rely only on the information contained or
incorporated by reference in this Prospectus Supplement or the accompanying
Prospectus. Neither Highwoods Realty Limited Partnership nor any Underwriter
has authorized anyone to provide prospective investors with information
different from that contained or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus. Neither this Prospectus Supplement
nor the accompanying Prospectus is an offer to sell or seeks an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
Neither delivery of this Prospectus Supplement and the accompanying Prospectus
nor any sale of these securities implies that the information contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus is correct as of any time other than the date of this Prospectus
Supplement, the accompanying Prospectus or the date of the document in which it
was first presented, if different.
S-2
<PAGE>
WE REFER TO (1) HIGHWOODS PROPERTIES, INC. AS THE "COMPANY," (2) HIGHWOODS
REALTY LIMITED PARTNERSHIP (FORMERLY HIGHWOODS/FORSYTH LIMITED PARTNERSHIP) AS
THE "OPERATING PARTNERSHIP," (3) THE COMPANY'S COMMON STOCK AS "COMMON
STOCK"AND (4) THE OPERATING PARTNERSHIP'S COMMON PARTNERSHIP INTERESTS AS
"COMMON UNITS."
FORWARD-LOOKING STATEMENTS
SOME OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS MAY CONTAIN
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "CONTINUE" OR OTHER SIMILAR WORDS. THESE STATEMENTS DISCUSS FUTURE
EXPECTATIONS, CONTAIN PROJECTIONS OF RESULTS OF OPERATIONS OR OF FINANCIAL
CONDITION OR STATE OTHER "FORWARD-LOOKING" INFORMATION. WHEN CONSIDERING SUCH
FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS AND OTHER
CAUTIONARY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS AND THE OTHER INFORMATION INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THE RISK FACTORS NOTED
IN THE "RISK FACTORS" SECTION AND OTHER FACTORS NOTED THROUGHOUT THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND THE OTHER INFORMATION
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, COULD CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING
STATEMENT.
THE OPERATING PARTNERSHIP
GENERAL
We are one of the largest owners and operators of office and industrial
properties in the Southeast. At September 30, 1998, we owned or had a majority
interest in 665 in-service office, industrial and retail properties
encompassing approximately 44.9 million rentable square feet and 2,325
apartment units. We refer to our majority-owned in-service properties in this
Prospectus Supplement as "Properties." In addition, at September 30, 1998, we
owned an interest (50% or less) in 18 in-service office and industrial
properties encompassing approximately 1.6 million rentable square feet. Our
properties are located in 21 markets in North Carolina, Florida, Tennessee,
Georgia, Virginia, Missouri, Kansas, Iowa, South Carolina, Maryland and
Alabama. At September 30, 1998, our office, industrial and retail Properties
were 93% leased and our multi-family Properties were 96% leased.
At September 30, 1998, we were developing an additional 52 properties,
which will encompass approximately 6.1 million rentable square feet. As of
September 30, 1998, we also owned 1,647 acres (and had agreed to purchase an
additional 774 acres) of undeveloped land suitable for future development. This
development land, substantially all of which has utility infrastructure already
in place, is zoned and available for office, industrial, retail and/or
multi-family development. We also provide leasing, property management, real
estate development, construction and miscellaneous services for our properties
as well as for third parties.
The Company, a self-administered and self-managed equity REIT that began
operations through a predecessor in 1978, is the sole general partner of the
Operating Partnership. The Operating Partnership conducts substantially all of
the Company's operations, and the Company's ownership interest in the Operating
Partnership represents substantially all of the Company's assets. The Company
owns approximately 85% of the Common Units in the Operating Partnership.
Limited partners (including certain officers and directors of the Company) own
the remaining Common Units. Holders of Common Units may redeem them for the
cash value of one share of Common Stock or, at the Company's option, one share
(subject to certain adjustments) of Common Stock. With each such
S-3
<PAGE>
exchange, the number of Common Units owned by the Company and, therefore, the
Company's percentage interest in the Operating Partnership, will increase.
The Operating Partnership was formed in North Carolina in 1994. Our
executive offices are located at 3100 Smoketree Court, Suite 600, Raleigh,
North Carolina 27604, and our telephone number is (919) 872-4924. We maintain
offices in each of our primary markets.
OPERATING STRATEGY
We believe that we will continue to benefit from the following factors:
DIVERSIFICATION. Since the Company's initial public offering in 1994, we
have significantly reduced our dependence on any particular market, property
type or tenant. For example, since the Company's initial public offering, our
in-service portfolio has expanded from 41 North Carolina office properties (40
of which were in the Research Triangle area of North Carolina) to 683 office,
industrial and retail properties and 2,325 apartment units in 21 markets in the
southeast and midwest. Based on September 1998 results, approximately 27.7% of
the rental revenue of our Properties was derived from properties in North
Carolina (13.1% in the Research Triangle). Our tenants represent a diverse
cross-section of the economy. As of September 30, 1998, our 20 largest tenants
represented approximately 19.9% of the combined rental revenue from our
Properties, and the largest single tenant accounted for approximately 2.7% of
such revenue.
DEVELOPMENT AND ACQUISITION OPPORTUNITIES. We generally seek to engage in
the development of office and industrial projects in our existing geographic
markets, primarily in suburban business parks. We intend to focus our
development efforts on build-to-suit projects and projects where we have
identified sufficient demand. In build-to-suit development, the building is
significantly pre-leased to one or more tenants prior to construction.
Build-to-suit projects often foster strong long-term relationships with
tenants, creating future development opportunities as the facility needs of
tenants increase. As of September 30, 1998, we were developing 52 properties,
which will encompass approximately 6.1 million rentable square feet. We believe
our commercially zoned and unencumbered development land in existing business
parks is an advantage we have over many of our competitors in pursuing
development opportunities. As of September 30, 1998, we owned 1,647 acres (and
had agreed to purchase an additional 774 acres) of such land for future
development.
We also seek to acquire selective suburban office and industrial
properties in our existing geographic markets at prices below replacement cost
that offer attractive returns. These would include acquisitions of
underperforming, high quality properties in our existing markets that offer us
opportunities to improve such properties' operating performance.
MANAGED GROWTH STRATEGY. Our strategy has been to focus our real estate
activities in markets where we believe our extensive local knowledge gives us a
competitive advantage over other real estate developers and operators. As we
expanded into new markets, we continued to maintain this localized approach by
combining with local real estate operators with many years of development and
management experience in their respective markets. Approximately three-quarters
of our properties were either developed by us or are managed on a day-to-day
basis by personnel who previously managed, leased and/or developed those
properties before their acquisition by us.
Our development and acquisition activities also benefit from our local
market presence and knowledge. Our property-level officers have on average over
20 years of real estate experience in their respective markets. Because of this
experience, we are in a better position to evaluate acquisition and development
opportunities. In addition, our relationships with our tenants and those
tenants at properties for which we conduct third-party fee-based services may
lead to development projects when these tenants seek new space.
S-4
<PAGE>
EFFICIENT, CUSTOMER SERVICE-ORIENTED ORGANIZATION. We provide a complete
line of real estate services to our tenants and third parties. We believe that
our in-house development, acquisition, construction management, leasing and
management services allow us to respond to the many demands of our existing and
potential tenant base. We provide our tenants cost-effective services such as
build-to-suit construction and space modification, including tenant
improvements and expansions. In addition, the breadth of our capabilities and
resources provides us with market information not generally available. We
believe that the operating efficiencies achieved through our fully integrated
organization also provide a competitive advantage in setting our lease rates
and pricing other services.
FLEXIBLE AND CONSERVATIVE CAPITAL STRUCTURE. We are committed to
maintaining a flexible and conservative capital structure that: (i) allows
growth through development and acquisition opportunities; (ii) promotes future
earnings growth; and (iii) provides access to the private and public equity and
debt markets on favorable terms. Accordingly, we expect to meet our long-term
liquidity requirements, including funding our development activity, through a
combination of:
o borrowings under our $600 million unsecured revolving credit facility;
o the issuance of unsecured debt securities;
o the issuance of equity securities by both the Company and the Operating
Partnership;
o the selective disposition of non-core assets; and
o the sale or contribution of certain of our wholly owned properties to
strategic joint ventures to be formed with selected institutional
investors.
Assuming completion of this offering, our debt as of September 30, 1998
would have totaled approximately $1.8 billion and would have represented
approximately 44% of total market capitalization.
RECENT DEVELOPMENTS
PENDING JOINT VENTURE
In October 1998, we signed a letter of intent to form a joint venture with
an institutional investor representing certain foreign funds, pursuant to which
we would sell or contribute certain office properties valued at approximately
$150 million to a newly created limited partnership, which we refer to as the
"Joint Venture." Assuming completion of this transaction on the terms set forth
in the letter of intent, the institutional investor would contribute
approximately $55 million for a 72% interest in the Joint Venture, and the
Joint Venture would borrow approximately $75 million from third-party lenders.
We would retain the remaining 28% interest in the Joint Venture, receive cash
proceeds of approximately $129 million and be the sole and exclusive manager
and leasing agent of the Joint Venture's properties, for which we would receive
customary management fees and leasing commissions. We intend to use the cash
proceeds received in the transaction to fund existing development activity
either through direct payments or repayment of borrowings under our revolving
credit facility. Although both parties intend to sign definitive agreements
related to the transaction and to close the transaction by March 31, 1999, we
can provide no assurance that all or part of the transaction will be
consummated.
PENDING AND COMPLETED DISPOSITIONS
In November 1998, we signed a letter of intent to sell certain non-core
office properties in Florida for gross proceeds of approximately $130 million.
Non-core properties generally include single buildings that do not fit our
long-term strategy. Although we believe that the disposition transaction in
Florida will close by January 31, 1999, we can provide no assurance that all or
part of the transaction will be consummated. In addition, we have under
contract to sell or have sold certain other non-core properties for gross
proceeds of $20 million since September 30, 1998.
S-5
<PAGE>
RECENT DEVELOPMENT ACTIVITY
The following tables set forth certain information with respect to the
Operating Partnership's properties under development as of September 30, 1998:
<TABLE>
<CAPTION>
RENTABLE ESTIMATED COST AT
NAME LOCATION SQUARE FEET COSTS 9/30/98
- --------------------------------- ------------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
IN-PROCESS
OFFICE:
10 Glenlakes Atlanta 254,000 $ 35,100 $ 17,802
Highwoods Center at Tradeport Atlanta 45,000 3,717 765
Automatic Data Processing Baltimore 110,000 12,400 10,816
Highwoods I Baltimore 125,000 15,300 3,206
Parkway 11 Charlotte 22,000 1,800 872
Parkway 12 Charlotte 32,000 2,600 607
Parkway Plaza 14 Charlotte 90,000 7,690 898
Lakefront Plaza I Hampton Roads 76,000 7,477 1,006
Valencia Place Kansas City 241,000 34,020 2,632
Southwind Building C Memphis 74,000 7,700 3,743
Southwind Building D Memphis 64,000 6,800 1,037
Caterpillar Financial Center Nashville 313,000 54,000 9,152
Lakeview Ridge III Nashville 131,000 13,100 3,747
Westwood South Nashville 125,000 13,530 3,354
Maitland I (C N A) Orlando 180,000 24,400 11,332
Capital Plaza Orlando 341,000 53,000 3,069
Hard Rock Orlando 63,000 7,000 3,765
Maitland III (C N A) Orlando 78,000 9,885 1,255
Concourse Center One Piedmont Triad 86,000 8,400 1,503
3737 Glenwood Ave. Research Triangle 107,000 16,700 1,835
Highwoods Centre Research Triangle 76,000 8,300 6,149
Overlook Research Triangle 97,000 10,500 6,756
Red Oak Research Triangle 65,000 6,000 3,612
Eastshore II Richmond 76,000 7,842 4,465
Highwoods Common Richmond 49,000 4,840 703
Stony Point II Richmond 133,000 13,881 4,493
Sportsline USA South Florida 80,000 10,000 --
Highwoods Square South Florida 93,000 12,500 5,788
380 Park Place Tampa 83,000 9,000 --
Intermedia Building 1 Tampa 200,000 27,040 --
Intermedia Building 2 Tampa 30,000 4,056 --
Intermedia Building 3 Tampa 170,000 22,984 --
Intermedia Building 4 Tampa 200,000 29,219 --
Intermedia Building 5 Tampa 200,000 29,219 --
Interstate Corporate Center (3) Tampa 309,000 15,600 13,435
Sabal Pavillion Phase I Tampa 121,000 12,500 8,395
Highwoods Centre Virginia Beach 98,000 9,925 4,718
------- -------- --------
IN-PROCESS OFFICE TOTAL OR
WEIGHTED AVERAGE 4,637,000 $568,025 $140,910
========= ======== ========
Industrial:
HIW Distribution Center Richmond 166,000 $ 5,764 $ 1,927
Chastain III Atlanta 54,000 2,098 1,471
Newpoint III Atlanta 84,000 3,000 2,158
Air Park South Warehouse II Piedmont Triad 136,000 4,200 2,361
Air Park South Warehouse VI Piedmont Triad 189,000 8,000 2,093
--------- -------- --------
IN-PROCESS INDUSTRIAL TOTAL OR
WEIGHTED AVERAGE 629,000 $ 23,062 $ 10,010
========= ======== ========
Retail:
Seville Square (3) Kansas City 119,000 $ 32,100 9,377
Valencia Place Kansas City 81,000 14,362 1,128
--------- -------- --------
IN-PROCESS RETAIL TOTAL OR
WEIGHTED AVERAGE 200,000 $ 46,462 $ 10,505
========= ======== ========
TOTAL OR WEIGHTED AVERAGE OF ALL
IN-PROCESS DEVELOPMENT PROJECTS 5,466,000 $637,549 $161,425
========= ======== ========
- ----------
(1) Includes the effect of letters of intent.
(2) The Operating Partnership generally considers a development project to be stabilized
upon the earlier of the first date such project is at least 95% occupied or one year from
the date of completion.
(3) Redevelopment project.
<CAPTION>
PRE-LEASING ESTIMATED ESTIMATED
NAME PERCENTAGE(1) COMPLETION STABILIZATION(2)
- --------------------------------- --------------- ------------ -----------------
<S> <C> <C> <C>
IN-PROCESS
OFFICE:
10 Glenlakes 59% 1Q 99 4Q 99
Highwoods Center at Tradeport 100 1Q 99 2Q 99
Automatic Data Processing 100 4Q 98 4Q 98
Highwoods I -- 2Q 99 4Q 99
Parkway 11 41 1Q 99 3Q 99
Parkway 12 -- 1Q 99 3Q 99
Parkway Plaza 14 53 2Q 99 4Q 99
Lakefront Plaza I 15 2Q 99 1Q 00
Valencia Place 42 1Q 00 2Q 00
Southwind Building C 100 4Q 98 4Q 98
Southwind Building D 20 2Q 99 4Q 99
Caterpillar Financial Center 74 1Q 00 2Q 00
Lakeview Ridge III -- 2Q 99 3Q 99
Westwood South 53 3Q 99 1Q 00
Maitland I (C N A) 100 1Q 99 1Q 99
Capital Plaza 30 1Q 00 4Q 01
Hard Rock 100 4Q 98 4Q 98
Maitland III (C N A) 100 2Q 99 2Q 99
Concourse Center One 25 2Q 99 1Q 00
3737 Glenwood Ave. 56 3Q 99 1Q 00
Highwoods Centre 91 4Q 98 1Q 99
Overlook 54 4Q 98 2Q 99
Red Oak -- 4Q 98 2Q 99
Eastshore II 3 4Q 98 3Q 99
Highwoods Common -- 1Q 99 3Q 99
Stony Point II 32 2Q 99 4Q 99
Sportsline USA 100 3Q 99 3Q 00
Highwoods Square 26 4Q 98 4Q 99
380 Park Place 100 4Q 99 1Q 00
Intermedia Building 1 100 1Q 00 1Q 00
Intermedia Building 2 100 1Q 00 1Q 00
Intermedia Building 3 100 1Q 00 1Q 00
Intermedia Building 4 100 2Q 00 2Q 00
Intermedia Building 5 100 3Q 01 3Q 01
Interstate Corporate Center (3) 90 4Q 98 2Q 99
Sabal Pavillion Phase I 100 4Q 98 4Q 98
Highwoods Centre 36 4Q 98 3Q 99
---
IN-PROCESS OFFICE TOTAL OR
WEIGHTED AVERAGE 64%
===
Industrial:
HIW Distribution Center 33% 4Q 98 3Q 99
Chastain III 75 4Q 98 1Q 99
Newpoint III 74 4Q 98 2Q 99
Air Park South Warehouse II -- 4Q 98 1Q 99
Air Park South Warehouse VI 100 1Q 99 1Q 99
---
IN-PROCESS INDUSTRIAL TOTAL OR
WEIGHTED AVERAGE 55%
===
Retail:
Seville Square (3) 60% 1Q 99 3Q 99
Valencia Place -- 4Q 99 2Q 00
---
IN-PROCESS RETAIL TOTAL OR
WEIGHTED AVERAGE 36%
===
TOTAL OR WEIGHTED AVERAGE OF ALL
IN-PROCESS DEVELOPMENT PROJECTS 62%
===
- ----------
(1) Includes the effect of letters of intent.
(2) The Operating Partnership generally considers a development project to be
stabilized upon the earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
(3) Redevelopment project.
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
RENTABLE ESTIMATED COST AT
NAME LOCATION SQUARE FEET COSTS 9/30/98
- --------------------------------- ------------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
COMPLETED -- NOT STABILIZED
OFFICE:
Ridgefield III Asheville 57,000 $ 5,500 $ 4,129
Situs II Research Triangle 59,000 6,300 4,614
Patewood VI Greenville 107,000 11,400 9,938
Cool Springs I Nashville 153,000 16,800 10,771
Maitland II (C N A) Orlando 50,000 4,950 3,503
------- -------- --------
COMPLETED-NOT STABILIZED OFFICE
TOTAL OR WEIGHTED AVERAGE 426,000 $ 44,950 $ 32,955
======= ======== ========
Industrial:
Chastain II Atlanta 67,000 2,602 1,791
Tradeport 1 Atlanta 87,000 3,100 2,448
Tradeport 2 Atlanta 87,000 3,100 2,449
------- -------- --------
COMPLETED-NOT STABILIZED
INDUSTRIAL TOTAL OR WEIGHTED
AVERAGE 241,000 $ 8,802 $ 6,688
======= ======== ========
TOTAL OR WEIGHTED AVERAGE OF ALL
COMPLETED-NOT STABILIZED
DEVELOPMENT PROJECTS 667,000 $ 53,752 $ 39,643
======= ======== ========
TOTAL OR WEIGHTED AVERAGE OF ALL
DEVELOPMENT PROJECTS 6,133,000 $691,301 $201,068
========= ======== ========
<CAPTION>
Pre-Leasing Estimated Estimated
Name Percentage(1) Completion Stabilization(2)
- --------------------------------- --------------- ------------ -----------------
<S> <C> <C> <C>
COMPLETED -- NOT STABILIZED
OFFICE:
Ridgefield III 29% 3Q 98 3Q 99
Situs II 48 3Q 98 2Q 99
Patewood VI 90 3Q 98 1Q 99
Cool Springs I 50 3Q 98 1Q 99
Maitland II (C N A) 100 3Q 98 1Q 99
---
COMPLETED-NOT STABILIZED OFFICE
TOTAL OR WEIGHTED AVERAGE 63%
===
Industrial:
Chastain II 100% 3Q 98 4Q 98
Tradeport 1 0 3Q 98 1Q 99
Tradeport 2 0 3Q 98 2Q 99
---
COMPLETED-NOT STABILIZED
INDUSTRIAL TOTAL OR WEIGHTED
AVERAGE 28%
===
TOTAL OR WEIGHTED AVERAGE OF ALL
COMPLETED-NOT STABILIZED
DEVELOPMENT PROJECTS 50%
===
TOTAL OR WEIGHTED AVERAGE OF ALL
DEVELOPMENT PROJECTS 60%
===
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) The Operating Partnership generally considers a development project to be
stabilized upon the earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
S-7
<PAGE>
<TABLE>
<CAPTION>
DEVELOPMENT ANALYSIS
RENTABLE ESTIMATED PRE-LEASING
SQUARE FEET COSTS PERCENTAGE(1)
------------------ ------------------ -----------------
(dollars in thousands)
<S> <C> <C> <C>
SUMMARY BY ESTIMATED STABILIZATION DATE:
Fourth Quarter 1998 ................... 435,000 $ 42,202 100%
First Quarter 1999 .................... 1,032,000 83,248 68
Second Quarter 1999 ................... 824,000 58,102 66
Third Quarter 1999 .................... 750,000 83,471 25
Fourth Quarter 1999 ................... 759,000 91,271 37
First Quarter 2000 .................... 877,000 109,187 73
Second Quarter 2000 ................... 835,000 131,601 64
Third Quarter 2000 .................... 80,000 10,000 100
Third Quarter 2001 .................... 200,000 29,219 100
Fourth Quarter 2001 ................... 341,000 53,000 30
----------- ---------- ---
TOTAL OR WEIGHTED AVERAGE ........... 6,133,000 $ 691,301 60%
=========== ========== ===
SUMMARY BY MARKET:
Asheville ............................. 57,000 $ 5,500 29%
Atlanta ............................... 678,000 52,717 54
Baltimore ............................. 235,000 27,700 47
Charlotte ............................. 144,000 12,090 39
Greenville ............................ 107,000 11,400 90
Hampton Roads ......................... 76,000 7,477 15
Kansas City ........................... 441,000 80,482 39
Memphis ............................... 138,000 14,500 63
Nashville ............................. 722,000 97,430 52
Orlando ............................... 712,000 99,235 66
Piedmont Triad ........................ 411,000 20,600 51
Research Triangle ..................... 404,000 47,800 52
Richmond .............................. 424,000 32,327 23
South Florida ......................... 173,000 22,500 60
Tampa ................................. 1,313,000 149,618 98
Virginia Beach ........................ 98,000 9,925 36
----------- ---------- ---
TOTAL OR WEIGHTED AVERAGE ........... 6,133,000 $ 691,301 60%
=========== ========== ===
Build-to-Suit ......................... 1,394,000 $ 185,203 100%
Multi-Tenant .......................... 4,739,000 506,098 49%
----------- ---------- ---
TOTAL OR WEIGHTED AVERAGE ........... 6,133,000 $ 691,301 60%
=========== ========== ===
AVERAGE RENTABLE AVERAGE AVERAGE
SQUARE FEET ESTIMATED COSTS PRE-LEASING(1)
------------------ ------------------ --------------
BY PROPERTY TYPE:
Office ................................ 120,548 $ 14,595 64%
Industrial ............................ 108,750 3,983 48
Retail ................................ 100,000 23,231 36
----------- ---------- --------------
TOTAL OR WEIGHTED AVERAGE ........... 117,942 $ 13,294 60%
=========== ========== ==============
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
S-8
<PAGE>
THE PROPERTIES
GENERAL
As of September 30, 1998, the Operating Partnership owned or had a
majority interest in 665 in-service office, industrial and retail properties
encompassing approximately 44.9 million rentable square feet and 2,325
apartment units. The following table sets forth certain information about the
Properties at September 30, 1998 in each of the Operating Partnership's 21
markets:
<TABLE>
<CAPTION>
PERCENTAGE OF ANNUALIZED RENTAL REVENUE (3)
RENTABLE ----------------------------------------------------------
SQUARE FEET (1) OCCUPANCY (2) OFFICE INDUSTRIAL RETAIL MULTI-FAMILY TOTAL
------------------ --------------- ---------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Research Triangle, NC ......... 5,094,000 93% 12.8% 0.3% -- -- 13.1%
Tampa, FL ..................... 4,536,000 92 11.0 0.5 -- -- 11.5
Kansas City ................... 3,190,000(4) 94 3.1 0.3 4.6% 3.2% 11.2
Atlanta, GA ................... 5,551,000 94 8.3 2.1 -- -- 10.4
Piedmont Triad, NC ............ 9,180,000 95 5.8 4.4 -- -- 10.2
South Florida ................. 3,189,000 91 8.2 0.6 -- -- 8.8
Orlando, FL ................... 2,478,000 92 6.0 -- -- -- 6.0
Nashville, TN ................. 2,052,000 94 5.1 0.6 -- -- 5.7
Charlotte, NC ................. 2,232,000 93 3.5 0.7 -- -- 4.2
Richmond, VA .................. 1,633,000 91 3.6 0.2 -- -- 3.8
Jacksonville, FL .............. 1,477,000 92 3.3 -- -- -- 3.3
Greenville, SC ................ 1,113,000 95 2.4 0.2 -- -- 2.6
Memphis, TN ................... 705,000 98 2.4 -- -- -- 2.4
Baltimore, MD ................. 653,000 93 1.9 -- -- -- 1.9
Des Moines, IA ................ 410,000 97 0.8 -- -- 0.6 1.4
Tallahassee, FL ............... 410,000 97 1.2 -- -- -- 1.2
Columbia, SC .................. 425,000 91 1.1 -- -- -- 1.1
Hampton Roads, VA ............. 266,000 98 0.4 0.1 -- -- 0.5
Birmingham, AL ................ 115,000 100 0.4 -- -- -- 0.4
Asheville, NC ................. 124,000 100 0.1 0.1 -- -- 0.2
Ft. Myers, FL ................. 52,000 61 0.1 -- -- -- 0.1
----------- --- ---- ---- --- --- -----
44,885,000(4) 93% 81.5% 10.1% 4.6% 3.8% 100.0%
============ === ==== ==== === === =====
</TABLE>
- ----------
(1) Excludes 1,907 apartment units in Kansas City and 418 apartment units in
Des Moines.
(2) Excludes Kansas City's apartment units occupancy of 96% and Des Moines'
apartment units occupancy of 99%.
(3) Annualized Rental Revenue is September 1998 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(4) Excludes 535,000 square feet of basement space.
S-9
<PAGE>
TENANTS
The following table sets forth information concerning the 20 largest
tenants of the Properties as of September 30, 1998:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER ANNUALIZED ANNUALIZED
TENANT OF LEASES RENTAL REVENUE (1) RENTAL REVENUE
- -------------------------------------------- ----------- -------------------- -----------------
(dollars in thousands)
<S> <C> <C> <C>
1. IBM .................................... 15 $ 14,645 2.7%
2. Federal Government ..................... 54 13,251 2.4
3. Bell South ............................. 55 9,665 1.8
4. The Racal Corporation .................. 13 7,216 1.3
5. US Airways ............................. 8 6,464 1.2
6. AT&T ................................... 6 6,417 1.2
7. Northern Telecom Inc. .................. 3 5,193 1.0
8. State of Florida ....................... 25 5,161 1.0
9. Sara Lee ............................... 9 4,832 0.9
10. Sprint ................................. 13 4,513 0.8
11. NationsBank ............................ 28 4,047 0.7
12. GTE .................................... 9 3,658 0.7
13. PricewaterhouseCoopers ................. 1 3,658 0.7
14. Prudential ............................. 18 3,448 0.6
15. MCI Worldcom ........................... 23 3,385 0.6
16. ClinTrials Research .................... 1 2,790 0.5
17. First Union ............................ 8 2,596 0.5
18. International Paper .................... 9 2,520 0.5
19. Gatx Logistics, Inc. ................... 7 2,290 0.4
20. Jacobs-Sirrene Engineers, Inc. ......... 1 2,236 0.4
-- -------- ----
Total .................................. 306 $107,985 19.9%
=== ======== ====
</TABLE>
- ----------
(1) Annualized Rental Revenue is September 1998 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
LEASE EXPIRATIONS OF THE PROPERTIES
The following table sets forth scheduled lease expirations for leases in
place at the office, industrial and retail Properties as of September 30, 1998,
for each of the next 10 years beginning with the year ended December 31, 1998,
assuming no tenant exercises renewal options or is terminated due to default:
<TABLE>
<CAPTION>
RENTABLE PERCENTAGE OF PERCENTAGE OF
SQUARE FEET TOTAL LEASED ANNUALIZED TOTAL ANNUALIZED
NUMBER SUBJECT TO SQUARE FEET RENTAL REVENUE RENTAL REVENUE
OF LEASES EXPIRING REPRESENTED BY UNDER EXPIRING REPRESENTED BY
LEASE EXPIRING EXPIRING LEASES EXPIRING LEASES LEASES (1) EXPIRING LEASES
- ----------------------------- ----------- ------------- ----------------- ---------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Remainder of 1998 ........... 675 2,740,058 6.5% $ 29,213 5.6%
1999 ........................ 1,164 6,715,348 15.9 75,922 14.6
2000 ........................ 1,132 6,595,164 15.6 78,518 15.0
2001 ........................ 954 6,003,224 14.2 75,055 14.4
2002 ........................ 701 5,398,464 12.8 71,258 13.7
2003 ........................ 534 4,225,013 10.0 58,699 11.3
2004 ........................ 128 2,702,843 6.4 28,414 5.5
2005 ........................ 95 1,438,352 3.4 20,384 3.9
2006 ........................ 63 1,577,471 3.7 21,475 4.1
2007 ........................ 41 1,420,636 3.4 16,351 3.1
2008 and thereafter ......... 114 3,423,033 8.1 45,618 8.8
----- --------- ----- -------- -----
5,601 42,239,606 100.0% $520,907 100.0%
===== ========== ===== ======== =====
</TABLE>
- ----------
(1) Annualized Rental Revenue is September 1998 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
S-10
<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Operating Partnership of the Notes offered
hereby (the "Offering") are expected to be approximately $148.1 million, after
deducting underwriting discounts and commissions and other estimated offering
expenses payable by the Operating Partnership. The total amount of compensation
to be paid to the Underwriters in connection with the Offering consists of
underwriting discounts of $900,000. Other expenses of the Offering (including
the registration fee and the fees of financial printers, counsel and the
trustee) payable by the Operating Partnership are expected to be approximately
$150,000. The Operating Partnership intends to use the net proceeds of the
Offering to fund existing development activity, either through direct payments
or repayment of borrowings under its $600 million unsecured revolving credit
facility (the "Revolving Loan"). As of November 20, 1998, approximately $476.5
million of indebtedness attributable to the Operating Partnership was
outstanding on the Revolving Loan, which bore interest at a weighted average
rate of 6.12%. (The Company and an unconsolidated subsidiary of the Operating
Partnership have approximately $108.5 million of additional borrowings
outstanding under the Revolving Loan.) The amounts under the Revolving Loan to
be repaid with the proceeds of the Offering were incurred within the last year
to fund the Operating Partnership's development and acquisition activities.
An affiliate of NationsBanc Montgomery Securities LLC, one of the
Underwriters, is a lender and agent under the Revolving Loan and will receive a
portion of the proceeds of the Offering. See "Underwriters."
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of September 30, 1998 and as adjusted to give effect to the
issuance and sale of the Notes and the application of the net proceeds
therefrom as described in "Use of Proceeds." The capitalization table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference herein and the
Operating Partnership's financial statements and notes thereto incorporated by
reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------
HISTORICAL AS ADJUSTED
------------ ------------
(in thousands)
<S> <C> <C>
Debt:
Revolving Loan ....................... $ 399,000 $ 250,875
Other unsecured debt ................. 756,253 906,253
Secured debt ......................... 622,760 622,760
---------- ----------
Total debt .......................... 1,778,013 1,779,888
---------- ----------
Redeemable Common Units:
Class A Common Units ................. 280,607 280,607
Class B Common Units (1) ............. 8,096 8,096
Partners' Capital:
Series A Preferred Units ............. 121,809 121,809
Series B Preferred Units ............. 166,346 166,346
Series D Preferred Units ............. 96,842 96,842
General Partner Common Units ......... 15,414 15,414
Limited Partner Common Units ......... 1,526,003 1,526,003
---------- ----------
Total capitalization ................ $3,993,130 $3,995,005
========== ==========
</TABLE>
- ----------
(1) Class B Common Units differ from other Common Units in that they are not
eligible for cash distribution from the Operating Partnership. The Class B
Common Units convert to regular Class A Common Units in 25% annual
installments commencing one year from the date of issuance. Prior to such
conversion, such Common Units will not be redeemable for cash or Common
Stock.
S-11
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and
operating data for the Operating Partnership on a historical basis. The
following information for the nine months ended September 30, 1997 and 1998 is
unaudited and reflects all adjustments that are, in the opinion of management,
necessary for a fair presentation of such information for the interim periods.
Certain of the other data was derived from unaudited information maintained by
the Operating Partnership. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" incorporated by reference herein and the Operating
Partnership's financial statements and notes thereto incorporated by reference
herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1997 1996 1995
-------------- -------------- -------------- -------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenue ................................... $ 359,557 $ 181,951 $ 273,165 $ 132,302 $ 73,522
Rental property operating
expenses (1) .................................. 108,493 48,995 76,743 33,657 17,049
General and administrative ...................... 14,074 6,694 10,216 5,636 2,737
Interest expense ................................ 63,639 34,771 47,394 25,230 13,720
Depreciation and amortization ................... 61,740 30,915 47,260 21,105 11,082
----------- ----------- ----------- ----------- ----------
Income before extraordinary item ................ 111,611 60,576 91,552 46,674 28,934
Extraordinary item-loss on early
extinguishment of debt ........................ (370) (5,534) (6,945) (2,432) (1,068)
----------- ----------- ----------- ----------- ----------
Net income ...................................... 111,241 55,042 84,607 44,242 27,866
Dividends on preferred units .................... (21,946) (6,972) (13,117) -- --
----------- ----------- ----------- ----------- ----------
Net income available for
Common Units .................................. $ 89,295 $ 48,070 $ 71,490 $ 44,242 $ 27,866
----------- ----------- ----------- ----------- ----------
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of accumulated depreciation..... $ 3,895,439 $ 1,717,404 $ 2,601,211 $ 1,364,606 $ 593,066
Total assets .................................... 4,100,397 1,964,889 2,707,240 1,429,488 621,134
Total mortgages and notes payable ............... 1,778,013 649,188 978,558 555,876 182,736
OTHER DATA:
FFO(2) .......................................... 151,862 84,519 125,695 68,179 40,016
Cash flow provided by (used in)
Operating activities .......................... 189,318 94,242 127,346 69,878 43,169
Investing activities .......................... (823,704) (169,015) (523,256) (486,626) (136,032)
Financing activities .......................... 646,653 238,201 394,108 420,528 93,443
EBIDA (3) ....................................... 236,990 126,262 186,206 93,009 53,736
Ratio of earnings to combined fixed charges
and preferred unit dividends (4) .............. 1.81x 2.09x 2.05x 2.55x 3.11x
Ratio of FFO before fixed charges to fixed
charges (5) ................................... 3.46x 3.55x 3.78x 3.92x 4.31x
Number of in-service properties ................. 665 369 481 292 191
Total rentable square feet ...................... 45,420,000 21,904,000 30,721,000 17,455,000 9,215,000
</TABLE>
- ----------
(1) Rental property operating expenses include salaries, real estate taxes,
insurance, repairs and maintenance, property management, security,
utilities, leasing, development and construction expenses.
(2) Funds From Operations ("FFO") is defined as net income, computed in
accordance with generally accepted accounting principles ("GAAP"),
excluding gains (losses) from debt restructuring and sales of property,
plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Management generally
considers FFO to be a useful financial performance measurement because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate its ability to incur and service debt and to
fund acquisitions and other capital expenditures. FFO does not represent
net income or cash flows from operating, investing or financing activities
as defined by GAAP. It should not be considered as an alternative to net
income as an indicator of the Operating Partnership's operating
performance or to cash flows as a measure of liquidity. FFO does not
measure whether cash
S-12
<PAGE>
flow is sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to partners. Further, funds from
operations statistics as disclosed by other REITs may not be comparable to
the Operating Partnership's calculation of FFO.
(3) EBIDA means earnings before interest expense, depreciation and
amortization. EBIDA is computed as income before extraordinary item plus
interest expense, depreciation and amortization. The Operating Partnership
believes that in addition to cash flows and net income, EBIDA is a useful
financial performance measurement for assessing its operating performance
because, together with net income and cash flows, EBIDA provides investors
with an additional basis to evaluate its ability to incur and service debt
and to fund acquisitions and other capital expenditures. To evaluate EBIDA
and the trends it depicts, the components of EBIDA, such as rental
revenues, rental expenses, real estate taxes and general and
administrative expenses, should be considered. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
incorporated by reference in the accompanying Prospectus. Excluded from
EBIDA are financing costs such as interest as well as depreciation and
amortization, each of which can significantly affect the Operating
Partnership's results of operations and liquidity and should be considered
in evaluating its operating performance. Further, EBIDA does not represent
net income or cash flows from operating, financing and investing
activities as defined by GAAP and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered
as an alternative to net income as an indicator of the Operating
Partnership's operating performance or to cash flows as a measure of
liquidity.
(4) The ratio of earnings to combined fixed charges and preferred unit
dividends is computed as income from operations before extraordinary items
plus fixed charges (excluding capitalized interest) divided by fixed
charges and preferred unit dividends. Fixed charges and preferred unit
dividends consist of interest costs, including amortization of debt
discount and deferred financing fees, whether capitalized or expensed, the
interest component of rental expense, plus any dividends on outstanding
preferred units.
(5) The ratio of FFO before fixed charges to fixed charges is calculated as FFO
plus fixed charges (consisting primarily of interest expense), excluding
amortization of debt discount and deferred financing fees divided by fixed
charges. The Operating Partnership believes that in addition to the ratio
of earnings to fixed charges, this ratio provides a useful measure of its
ability to service its debt because of the exclusion of non-cash items
such as depreciation and amortization from the definition of FFO. This
ratio differs from a GAAP-based ratio of earnings to fixed charges and
should not be considered as an alternative to that ratio. Further, funds
from operations statistics as disclosed by other REITs may not be
comparable to the Operating Partnership's calculation of FFO.
S-13
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The 8% Notes due December 1, 2003 (the "Notes") constitute a series of
Debt Securities (which are more fully described in the accompanying Prospectus)
to be issued under the Indenture, dated as of December 1, 1996, as amended or
supplemented from time to time (the "Indenture"), among the Operating
Partnership, the Company and First Union National Bank, as trustee (the
"Trustee"), which is more fully described in the accompanying Prospectus. The
Indenture does not limit the aggregate principal amount of Debt Securities that
may be issued thereunder. The following description of the terms of the Notes
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus. The following summaries of certain provisions of the
Notes and the Indenture do not purport to be complete and are qualified in
their entirety by reference to the actual provisions of the Notes and the
Indenture, including the definitions therein of certain terms.
The Notes will be direct, unsecured and unsubordinated obligations of the
Operating Partnership and will rank PARI PASSU with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. However, the Notes will be effectively subordinated to mortgages
and other secured indebtedness of the Operating Partnership. As of September
30, 1998, the Operating Partnership had outstanding $1.2 billion of unsecured,
unsubordinated indebtedness, $623 million of secured indebtedness and $2.9
billion of unencumbered assets. Because the proceeds of this Offering will be
used to repay unsecured, unsubordinated indebtedness, such amounts will be
virtually unchanged after giving effect to the completion of this Offering.
Subject to certain limitations set forth in the Notes and the Indenture
described in the Prospectus under the caption "Description of Debt Securities
- -- Certain Covenants," the Indenture will permit the Operating Partnership to
incur additional secured and unsecured indebtedness.
The Notes will be issued only in fully registered, book-entry form, in
denominations of $1,000 and integral multiples thereof, except under the limited
circumstances described below under " -- Book-Entry System."
The Trustee is one of the lenders under the Revolving Loan.
PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES
Interest on the Notes will accrue at the rate set forth on the cover page
of this Prospectus Supplement from November 25, 1998, or the most recent
Interest Payment Date (as defined below) to which interest has been paid or
provided for, and will be payable in U.S. Dollars semi-annually in arrears on
June 1 and December 1 of each year (each, an "Interest Payment Date"),
commencing June 1, 1999. The interest so payable will be paid to the person
(the "Holder") in whose name the Note is registered at the close of business on
the date (whether or not a Business Day, as defined below) 15 calendar days
preceding the applicable Interest Payment Date (each, a "Regular Record Date").
The principal of the Notes will be paid in U.S. Dollars against presentation
and surrender thereof on the Maturity Date at the office of the Trustee,
located at 230 South Tryon Street, Ninth Floor, Charlotte, North Carolina
27288-1179. Interest on the Notes will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
MATURITY
The Notes will mature on December 1, 2003 (the "Maturity Date"). The Notes
may be redeemed at the option of the Operating Partnership at any time. See "
- -- Optional Redemption." The Notes will not be entitled to the benefit of any
sinking fund.
S-14
<PAGE>
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or from time to time in part, at
the option of the Operating Partnership on any date (a "Redemption Date"), at a
redemption price (the "Redemption Price") equal to the greater of (i) 100% of
the principal amount of the Notes to be redeemed and (ii) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon (exclusive of interest accrued to such Redemption Date) discounted to
such Redemption Date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus, in
either case, accrued and unpaid interest on the principal amount being redeemed
to such Redemption Date; provided that installments of interest on Notes which
are due and payable on an Interest Payment Date falling on or prior to the
relevant Redemption Date shall be payable to the holders of such Notes, or one
or more predecessor Notes, registered as such at the close of business on the
relevant Regular Record Date according to their terms and the provisions of the
Indenture.
"Treasury Rate" means, with respect to any Redemption Date for the Notes,
(i) the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which
is published weekly by the Board of Governors of the Federal Reserve System and
which establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities,"
for the maturity corresponding to the Comparable Treasury Issue (if no maturity
is within three months before or after the Maturity Date, yields for the two
published maturities most closely corresponding to the Comparable Treasury
Issue shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight line basis, rounding to the nearest
month) or (ii) if such release (or any successor release) is not published
during the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date. The Treasury Rate shall be
calculated on the third Business Day preceding the Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated
or, if such firm is unwilling or unable to select the Comparable Treasury
Issue, an independent investment banking institution of national standing
appointed by the Trustee after consultation with the Operating Partnership.
"Comparable Treasury Price" means with respect to any Redemption Date for
the Notes to be redeemed (i) the average of four Reference Treasury Dealer
Quotations for such Redemption Date, after excluding the highest and lowest
such Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer
than four such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, NationsBanc
Montgomery Securities LLC and Salomon Smith Barney Inc. and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Operating Partnership will substitute therefor another Primary
Treasury Dealer.
S-15
<PAGE>
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such Redemption Date.
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice,
such Notes (or any portion thereof) will cease to bear interest on the date
fixed for such redemption specified in such notice and the only right of the
Holders of such Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes (or any portion thereof)
will be given to Holders at their addresses, as shown in the security register
for such Notes, not more than 60 nor less than 30 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to
be redeemed.
The Operating Partnership will notify the Trustee at least 60 days prior
to giving notice of redemption (or such shorter period as is satisfactory to
the Trustee) of the aggregate principal amount of such Notes to be redeemed and
their redemption date. If less than all of the Notes are to be redeemed at the
option of the Operating Partnership, the Trustee shall select, in such manner
as it shall deem fair and appropriate, such Notes to be redeemed in whole or in
part.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article Four of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of Debt Securities
- -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus, will apply to the Notes. Each of the covenants described under
"Description of Debt Securities -- Certain Covenants" in the accompanying
Prospectus will be subject to covenant defeasance.
NO PERSONAL LIABILITY
No past, present or future director or partner of the Operating
Partnership or any successor thereof shall have any liability for any
obligation or agreement of the Operating Partnership contained under the Notes,
the Indenture or other debt obligations. Each Holder of Notes by accepting such
Notes waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Notes.
BOOK-ENTRY SYSTEM
Upon issuance, the Notes will be represented by a single global note (the
"Global Security"). The Global Security will be deposited with, or on behalf
of, The Depository Trust Company (the "Depositary"). Upon the issuance of the
Global Security, the Depositary or its nominee will credit the accounts of
persons held with it with the respective principal or face amounts of the Notes
represented by the Global Security. Ownership of beneficial interests in the
Global Security will be limited to persons that have accounts with the
Depositary ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests by participants in the Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depositary. Ownership of beneficial
interests in the Global Security by persons that hold through participants will
be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of
S-16
<PAGE>
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to acquire or transfer beneficial interests in the Global
Security.
Payment of principal of and interest on the Notes will be made to the
Depositary or its nominee, as the case may be, as the sole registered owner and
holder of the Global Security for all purposes under the Indenture. Neither the
Operating Partnership, the Trustee nor any agent of the Operating Partnership
or the Trustee will have any responsibility or liability for any aspect of the
Depositary's records relating to or payments made on account of beneficial
ownership interests in the Global Security or for maintaining, supervising or
reviewing any of the Depositary's records relating to such beneficial ownership
interests.
The Operating Partnership has been advised by the Depositary that upon
receipt of any payment of principal of or interest on the Global Security, the
Depositary will immediately credit, on its book-entry registration and transfer
system, the accounts of participants with payments in amounts proportionate to
their respective beneficial interests in the principal or face amount of the
Global Security as shown on the records of the Depositary. Payments by
participants to owners of beneficial interests in the Global Security held
through such participants will be governed by standing instructions and
customary practices as is now the case with securities held for customer
accounts registered in "street name" and will be the sole responsibility of
such participants.
The Global Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary. The Global Security is exchangeable
for certificated Notes only if (x) the Depositary notifies the Operating
Partnership that it is unwilling or unable to continue as depositary for the
Global Security or if at any time the Depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934 and the Operating
Partnership fails within 90 days thereafter to appoint a successor, (y) the
Operating Partnership in its sole discretion determines that the Global
Security shall be exchangeable or (z) there shall have occurred and be
continuing an Event of Default or an event which with the giving of notice or
lapse of time, or both, would constitute an Event of Default with respect to
the Notes. In such event, the Operating Partnership will issue Notes in
certificated form in exchange for the Global Security. In any such instance, an
owner of a beneficial interest in the Global Security will be entitled to
physical delivery in certificated form of Notes equal in principal amount to
such beneficial interest and to have such Notes registered in its name. Notes
issued in certificated form will be issued in denominations of $1,000 or any
larger amount that is an integral multiple thereof, and will be issued in
registered form only, without coupons. Subject to the foregoing, the Global
Security is not exchangeable, except for a Global Security for the same series
of Notes of like denomination to be registered in the name of the Depositary or
its nominee.
So long as the Depositary, or its nominee, is the registered owner of the
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by the Global
Security for the purposes or receiving payment on such securities, receiving
notices and for all other purposes under the Indenture and such securities.
Beneficial interests in the Notes will be evidenced only by, and transfers
thereof will be effected only through, records maintained by the Depositary and
its participants. Except as provided herein, owners of beneficial interests in
the Global Security will not be entitled to and will not be considered the
Holders thereof for any purposes under the Indenture. Accordingly, each person
owning a beneficial interest in the Global Security must rely on the procedures
of the Depositary, and, if such person is not a participant, on the procedures
of the participant through which such persons owns its interest, to exercise
any rights of a Holder under the Indenture. The Depositary will not consent or
vote with respect to the Global Security. Under its usual procedure, the
Depositary mails an Omnibus Proxy to the Operating Partnership as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s (the Depositary's partnership nominee) consenting or voting rights to
those
S-17
<PAGE>
participants to whose accounts the Notes are credited on the applicable record
date (identified in a listing attached to the Omnibus Proxy).
The Depositary has advised the Operating Partnership that the Depositary
is a limited-purpose trust company organized under New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered under
the Exchange Act. The Depositary was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations some of whom (and/or their representatives) own
the Depositary. Access to the Depositary's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to the Depositary and its
participants are on file with the Securities and Exchange Commission.
UNDERWRITERS
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Underwriting Agreement"), dated
November 20, 1998, the Operating Partnership has agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of the Underwriters has
severally agreed to purchase, the respective principal amount of the Notes set
forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NAME OF NOTES
- ------------------------------------------------------------ --------------
<S> <C>
Morgan Stanley & Co. Incorporated .......................... $ 90,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated ......... 20,000,000
NationsBanc Montgomery Securities LLC ...................... 20,000,000
Salomon Smith Barney Inc. .................................. 20,000,000
------------
Total ...................................... .......... $150,000,000
============
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes offered hereby if any are purchased.
The Underwriters propose initially to offer part of the Notes to the
public at the public offering price set forth on the cover page hereof and in
part to certain dealers at a price that represents a concession not in excess
of .35% of the principal amount of the Notes. Any Underwriter may allow, and
such dealers may reallow, a concession not in excess of .25% of the principal
amount of the Notes to certain other dealers. After the initial offering of the
Notes, the offering price and other selling terms may from time to time be
varied by the Underwriters.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Notes. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the Offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
S-18
<PAGE>
The Notes are a new issue of securities with no established trading
market. The Operating Partnership has been advised by the Underwriters that
they intend to make a market in the Notes but they are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.
The Operating Partnership and the Company have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to make contribution to certain payments
in respect thereof.
In the ordinary course of their respective businesses, the Underwriters
provide investment banking, advisory and other financial services to the
Operating Partnership and its affiliates for which they receive customary fees.
NationsBank, N.A., an affiliate of NationsBanc Montgomery Securities LLC, is a
lender and agent under the Revolving Loan, for which it has received customary
fees. In addition, the Operating Partnership intends to use more than 10% of
the net proceeds from the sale of the Notes to repay indebtedness owed by it to
NationsBank, N.A. Accordingly, the Offering is being made in compliance with
the requirements of Rule 2710(c)(8) of the National Association of Securities
Dealers, Inc. NationsBanc Montgomery Securities LLC is participating in the
Offering on the same terms as the other Underwriters and will not receive any
benefit in connection with the Offering other than customary managing,
underwriting and selling fees.
The total amount of compensation to be paid to the Underwriters in
connection with the Offering consists of underwriting discounts of $900,000.
Other expenses of the Offering (including the registration fee and the fees of
financial printers, counsel, accountants and the Trustee) payable by the
Operating Partnership are expected to be approximately $150,000.
LEGAL MATTERS
The legality of the Notes will be passed upon for the Operating
Partnership by Alston & Bird LLP, Raleigh, North Carolina, and for the
Underwriters by Andrews & Kurth L.L.P., Washington, D.C., who will rely on the
opinion of Alston & Bird LLP as to matters of North Carolina law.
S-19
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
PROSPECTUS
$1,318,012,249
HIGHWOODS PROPERTIES, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
HIGHWOODS REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN ANY OF THE SECURITIES DESCRIBED
IN THIS PROSPECTUS.
This Prospectus may be used to offer and sell any series of securities only if
accompanied by a prospectus supplement for that series.
HIGHWOODS PROPERTIES, INC. may from time to time offer
up to $898,012,249 of
o common stock;
o preferred stock; and
o preferred stock represented by depositary shares.
HIGHWOODS REALTY LIMITED PARTNERSHIP may from time to
time offer up to $420,000,000 of debt securities.
THE COVER PAGE OF THE PROSPECTUS SUPPLEMENT will state
the following information about the offered
securities:
o title and amount;
o offering price, underwriting discounts and
commissions and our net proceeds;
o market listing and trading symbol, if any; and
o names of lead or managing underwriters and
description of underwriting arrangements.
Our mailing address and telephone number are:
Highwoods Properties, Inc.
Highwoods Realty Limited Partnership
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604
(919) 872-4924
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus is November 20, 1998.
<PAGE>
THE COMPANY AND THE OPERATING PARTNERSHIP
WE REFER TO (1) HIGHWOODS PROPERTIES, INC. AS THE "COMPANY," (2) HIGHWOODS
REALTY LIMITED PARTNERSHIP (FORMERLY HIGHWOODS/FORSYTH LIMITED PARTNERSHIP) AS
THE "OPERATING PARTNERSHIP," (3) THE COMPANY'S COMMON STOCK AS "COMMON STOCK"
AND (4) THE OPERATING PARTNERSHIP'S COMMON PARTNERSHIP INTERESTS AS "COMMON
UNITS."
The Company is a self-administered and self-managed equity REIT that began
operations through a predecessor in 1978. At September 30, 1998, we
o owned or had a majority interest in 665 in-service office, industrial and
retail properties encompassing approximately 44.9 million rentable square
feet and 2,325 apartment units;
o owned an interest (50% or less) in 18 in-service office and industrial
properties encompassing approximately 1.6 million rentable square feet;
o owned 1,647 acres (and had agreed to purchase an additional 774 acres) of
undeveloped land suitable for future development; and
o were developing an additional 52 properties, which will encompass
approximately 6.1 million rentable square feet.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At September 30, 1998, the Company owned
85% of the Common Units in the Operating Partnership. Limited partners
(including certain officers and directors of the Company) own the remaining
Common Units. Holders of Common Units may redeem them for the cash value of one
share of the Company's Common Stock or, at the Company's option, one share
(subject to certain adjustments) of Common Stock.
We also provide leasing, property management, real estate development,
construction and miscellaneous services for our properties as well as for third
parties. We conduct our third-party fee-based services through Highwoods
Services, Inc., a subsidiary of the Operating Partnership, and through
Highwoods/Tennessee Properties, Inc., a wholly owned subsidiary of the Company.
RISK FACTORS
BEFORE YOU INVEST IN OUR SECURITIES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS, TOGETHER WITH ALL OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS AND ANY ATTACHED PROSPECTUS SUPPLEMENT, BEFORE YOU DECIDE TO
PURCHASE OUR SECURITIES.
SOME OF THE INFORMATION IN THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE,"
"CONTINUE" OR OTHER SIMILAR WORDS. THESE STATEMENTS DISCUSS FUTURE
EXPECTATIONS, CONTAIN PROJECTIONS OF RESULTS OF OPERATIONS OR OF FINANCIAL
CONDITION OR STATE OTHER "FORWARD-LOOKING" INFORMATION. WHEN CONSIDERING SUCH
FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS AND OTHER
CAUTIONARY STATEMENTS IN THIS PROSPECTUS. THE RISK FACTORS NOTED IN THIS
SECTION AND OTHER FACTORS NOTED THROUGHOUT THIS PROSPECTUS COULD CAUSE OUR
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING
STATEMENT.
OUR OPERATING PERFORMANCE IS DEPENDENT ON SOUTHEASTERN MARKETS
Local economic and real estate conditions may affect our revenues and the
value of our properties. Business layoffs or downsizing, industry slowdowns,
changing demographics and other similar
2
<PAGE>
factors may adversely affect a local economic climate. The oversupply of or
reduced demand for office, industrial and other competing commercial properties
may adversely affect the real estate market in particular geographic areas. On
September 30, 1998, we owned properties in 21 markets in Alabama, Florida,
Georgia, Iowa, Kansas, Maryland, Missouri, North Carolina, South Carolina,
Tennessee and Virginia. Our performance and ability to make distributions to
stockholders is dependent on the economic and real estate conditions in the
southeast and in Florida and North Carolina in particular. We cannot assure you
that the economies in our southeastern markets will remain stable or continue
to grow.
CONFLICTS OF INTEREST COULD RESULT IN DECISIONS NOT IN YOUR BEST INTEREST
POTENTIAL TAX CONSEQUENCES UPON SALE OR REFINANCING OF PROPERTIES. Holders
of Common Units may suffer adverse tax consequences upon certain of our
properties' sales or refinancings. Therefore, holders of Common Units,
including certain of our officers and directors, may have different objectives
regarding the appropriate pricing and timing of a property's sale or
refinancing. Although the Company, as the sole general partner of the Operating
Partnership, has the exclusive authority to sell or refinance an individual
property, officers and directors who hold Common Units may influence the
Company not to sell or refinance certain properties even if such sale or
refinancing might be financially advantageous to the Company's stockholders.
POTENTIAL INABILITY TO ELIMINATE CONFLICTS OF INTERESTS. We have adopted
certain policies to eliminate conflicts of interest. These policies include a
bylaw provision requiring all transactions in which executive officers or
directors have a conflicting interest to be approved by a majority of the
Company's independent directors or by a majority of the shares of capital stock
that disinterested stockholders hold. We cannot assure you that our policies
will be successful in eliminating the influence of such conflicts. If our
policies are not successful, we may make decisions that fail to reflect the
interests of all stockholders.
STOCKHOLDERS' ABILITY TO EFFECT A CHANGE IN CONTROL MAY BE LIMITED
LIMITATION ON OWNERSHIP OF THE COMPANY'S CAPITAL STOCK. The Company's
articles of incorporation prohibit any person from owning more than 9.8% of the
Company's outstanding capital stock. This restriction may delay, defer or
prohibit a third party from acquiring control of the Company without the
consent of the board of directors, even if a change in control would be in your
(the stockholders') best interest.
REQUIRED CONSENT OF THE OPERATING PARTNERSHIP FOR SIGNIFICANT CORPORATE
ACTION. The Company may not engage in certain transactions that would result in
a change of control of the Company without the approval of the holders of a
majority of the Operating Partnership's outstanding Common Units. If the
Company ever owns less than a majority of the outstanding Common Units, this
voting requirement might limit the possibility of a change in control of the
Company, even if a change in control would be in your best interest. On
September 30, 1998, the Company owned approximately 85% of the Common Units.
DIFFICULTY IN REMOVING CURRENT DIRECTORS. The Company's board of directors
has three classes of directors. Generally, stockholders elect each director
class for a three-year term. The staggered directors' terms may affect the
stockholders' ability to change control of the Company even if such a change in
control would be in your best interest.
ANTI-TAKEOVER PROTECTIONS OF OPERATING PARTNERSHIP AGREEMENT. The
Operating Partnership's limited partnership agreement contains certain
provisions that may require a potential acquiror to maintain the Operating
Partnership structure and maintain the limited partners' right to continue to
hold Common Units with future redemption rights. These provisions might limit
the possibility of a change in control of the Company, even if such change in
control would be in your best interest.
3
<PAGE>
DILUTIVE EFFECT OF SHAREHOLDERS' RIGHTS PLAN. On October 4, 1997, the
Company's board of directors adopted a shareholders' rights plan and declared a
distribution of one preferred share purchase right for each outstanding share
of Common Stock. The rights were issued on October 16, 1997 to each
stockholder of record on such date and attach to shares of Common Stock
subsequently issued. The rights have certain anti-takeover effects. The rights
would cause substantial dilution to a person or group that attempts to acquire
the Company on terms not approved by the Company's board of directors. The
rights should not interfere with any merger or other business combination the
board of directors approves since the Company may redeem the rights for $.01
per right, prior to the time that a person or group has acquired beneficial
ownership of 15% or more of the Common Stock.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
We believe that we operate in a manner that enables the Company to remain
qualified as a REIT for Federal income tax purposes. We have not requested, and
do not plan to request, a ruling from the Internal Revenue Service that we
qualify as a REIT. The law firm of Alston & Bird LLP, however, has delivered an
opinion that we met the requirements for qualification as a REIT for the
taxable years ended December 31, 1994 through 1997, and that we will be in a
position to continue such qualification for the taxable year that will end
December 31, 1998, if we satisfy certain requirements throughout the year and
for the year as a whole. See "Federal Income Tax Considerations -- Taxation of
the Company as a REIT," beginning on page 40.
You should be aware that opinions of counsel are not binding on the
Internal Revenue Service or any court. Furthermore, the conclusions stated in
the opinion are based solely on factual representations of ours and are
conditioned on, and our continued qualification as a REIT will depend on, our
meeting various requirements. Such requirements are discussed in more detail
under the heading "Federal Income Tax Considerations -- Requirements for
Qualification" beginning on page 42.
If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to stockholders in computing our taxable income and we would be
subject to Federal income tax at regular corporate rates. We also could be
subject to the Federal alternative minimum tax. Unless we are entitled to
relief under specific statutory provisions, we could not elect to be taxed as a
REIT for four taxable years following the year during which we were
disqualified. Therefore, if we lose our REIT status, the funds available for
distribution to you would be reduced substantially for each of the years
involved. See "Federal Income Tax Considerations -- Failure to Qualify," on
page 46.
RISKS RELATED TO OWNERSHIP OF REAL ESTATE
POTENTIAL ADVERSE EFFECT OF COMPETITION ON OPERATING PERFORMANCE. Numerous
properties compete with our properties in attracting tenants to lease space.
Some of these competing properties are newer or better located than some of our
properties. Significant office or industrial property development in a
particular area could have a material effect on our ability to lease space in
our properties and on the rents we charge.
BANKRUPTCY OR WEAK FINANCIAL CONDITION OF TENANTS. At any time, one of our
commercial tenants may seek the protection of the bankruptcy laws. This could
result in the rejection and termination of that tenant's lease and thereby
reduce our cash flows. Although we have not experienced material losses from
tenant bankruptcies, we cannot assure you that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
affirm their leases and continue to make rental payments in a timely manner. In
addition, a tenant from time to time may experience a downturn in its business,
which may weaken its financial condition and result in its failure to make
timely rental payments. If a bankrupt tenant does not affirm its lease, or if a
tenant's financial condition weakens, our income and stockholder distributions
may be adversely affected.
4
<PAGE>
UNCERTAINTY IN RENEWAL OF LEASES AND RELETTING OF SPACE. When our tenants
decide not to renew their leases, we may not be able to relet the space. Even
if the tenants do renew or we can relet the space to other tenants, the terms
of renewal or reletting (including the cost of required renovations) may be
less favorable than current lease terms. If we were unable to relet or renew
promptly the leases for all, or a substantial portion, of this space, or if the
rental rates upon such renewal or reletting were significantly lower than
expected rates, then our cash flow and ability to make expected distributions
to you may be adversely affected.
ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit our ability to vary our portfolio
promptly in response to changes in economic or other conditions. In addition,
Federal tax laws limit our ability to sell properties we hold for less than
four years. This limitation may affect our ability to sell properties at a time
that would otherwise be in your best interests. It may also affect our ability
to sell properties without adversely affecting our financial performance.
POTENTIAL ADVERSE EFFECT ON RESULTS OF OPERATIONS DUE TO CHANGES IN LAWS.
Because increases in income, service or transfer taxes are generally not passed
through to tenants under leases, such increases may adversely affect our cash
flow and our ability to make distributions to you. Our properties are also
subject to various Federal, state and local regulatory laws, such as the
Americans with Disabilities Act and state and local fire and safety
requirements. If we fail to comply with these requirements, governmental
agencies could impose fines, or private litigants could be awarded damages. We
believe our properties comply in all material respects with such regulatory
requirements. However, if these requirements change or if authorities impose
new requirements, we may incur significant unanticipated expenditures that
could adversely affect our cash flow and expected distributions.
POTENTIAL PROBLEMS WITH JOINT OWNERSHIP OF ASSETS. We may enter into
certain partnerships or joint ventures with selected investors. Under certain
circumstances, this type of investment may involve risks not otherwise present,
including the possibility that a partner or co-venturer might become bankrupt
or that a partner or co-venturer might have business interests or goals
inconsistent with ours. Also, such a partner or co-venturer may be in a
position to take action contrary to our instructions or requests or contrary to
our policies or objectives, including actions that could adversely affect our
qualification as a REIT. We may also risk an impasse on decisions because
neither party involved in the partnership or joint venture would have full
control over the partnership or joint venture.
PROBLEMS MAY ARISE IN CONNECTION WITH DEVELOPMENT, CONSTRUCTION AND ACQUISITION
ACTIVITIES
We intend to continue developing and constructing office and industrial
properties. Our development and construction activities may be subject to
certain risks, including the following:
o a property's construction costs could exceed original estimates, possibly
making the property uneconomical;
o occupancy rates and rents at a newly completed property may be insufficient
to make the property profitable;
o financing may not be available on favorable terms to develop a property;
and
o construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs.
In addition, new development activities, regardless of whether or not they
are ultimately successful, typically require a substantial portion of
management's time and attention. Our development activities may also be subject
to risks relating to the inability to obtain, or delays in obtaining, all
5
<PAGE>
necessary zoning, land-use, building, occupancy and other required governmental
permits and authorizations. These risks may adversely affect our results of
operations and ability to make distributions to you.
We also intend to continue to acquire selective office and industrial
properties. At any particular time, we may be involved in negotiations (at
various stages) to acquire one or more properties or portfolios. Such
acquisitions may fail to perform in accordance with our expectations, which
could adversely affect our operations and stockholder distributions. Estimates
of the costs to bring an acquired property up to market standards may prove
inaccurate.
POTENTIAL PROBLEMS ASSOCIATED WITH NEW MARKETS
We have generally limited our development, acquisition, management and
leasing business to suburban office and industrial properties in southeastern
markets. However, we have recently moved into certain midwestern markets and
have acquired several retail properties and multifamily communities in those
markets. We may not possess the same level of familiarity with these new
geographic areas and property types to develop, manage or lease those newly
acquired properties as profitably as we do for our other properties. We cannot
guarantee that we will succeed in integrating these newly acquired properties
into our property portfolio. Failure to successfully integrate these newly
acquired properties could adversely affect our operational results.
POTENTIAL ADVERSE EFFECTS OF INCURRENCE OF DEBT
POTENTIAL INFLEXIBILITY OF DEBT FINANCING. Our business is subject to
risks normally associated with debt financing. Cash flow could be insufficient
to pay distributions at expected levels and meet required payments of principal
and interest. We may not be able to refinance existing indebtedness (which in
virtually all cases requires substantial principal payments at maturity). Even
if we can, the terms of such refinancing might not be as favorable as the terms
of existing indebtedness. We may attempt to raise proceeds from capital
transactions, such as new equity capital, to refinance, extend or pay principal
payments due at maturity. If we cannot successfully complete capital
transactions, our cash flow may be insufficient in all years to repay all
maturing debt. Additionally, prevailing interest rates or other factors at the
time of refinancing (such as the possible reluctance of lenders to make
commercial real estate loans) may result in higher interest rates. This would
increase our interest expense, which would adversely affect cash flow and our
ability to service debt and make distributions to you.
ADVERSE EFFECT OF POTENTIAL INCREASE IN MARKET INTEREST RATES. We have
incurred and expect in the future to incur variable-rate indebtedness in
connection with developing and acquiring properties. Also, additional
indebtedness that we may incur under our existing revolving credit facility
will bear interest at variable rates. We may purchase interest rate protection
arrangements relating to variable-rate debt. But if we do not, increases in
interest rates would increase our interest costs, which would adversely affect
our results of operations.
POSSIBLE ENVIRONMENTAL LIABILITIES
In connection with owning or operating our properties, we may be liable
for certain costs due to possible environmental liabilities. Under various
laws, ordinances and regulations, such as the Comprehensive Environmental
Response Compensation and Liability Act, and common law, an owner or operator
of real estate is liable for the costs to remove or remediate certain hazardous
or toxic chemicals or substances on or in the property. Owners or operators are
also liable for certain other costs, including governmental fines and injuries
to persons and property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
the hazardous or toxic chemicals or substances. The presence of such
substances, or the failure to remediate such substances properly, may adversely
affect the owner's or operator's
6
<PAGE>
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal, treatment or transportation
of hazardous or toxic chemicals or substances may also be liable for the same
types of costs at a disposal, treatment or storage facility, whether or not
that person owns or operates that facility.
Certain environmental laws also impose liability for releasing
asbestos-containing materials. Third parties may seek recovery from owners or
operators of real property for personal injuries associated with
asbestos-containing materials. A number of our properties contain asbestos-
containing materials or material that we presume to be asbestos-containing
materials. In connection with owning and operating our properties, we may be
liable for such costs.
In addition, it is not unusual for property owners to encounter on-site
contamination caused by off-site sources. The presence of hazardous or toxic
chemicals or substances at a site close to a property could require the
property owner to participate in remediation activities or could adversely
affect the value of the property. Contamination from adjacent properties has
migrated onto at least three of our properties; however, based on current
information, we do not believe that any significant remedial action is
necessary at these affected sites.
As of the date of this Prospectus, we have obtained Phase I environmental
assessments (and, in certain instances, Phase II environmental assessments) on
substantially all of our in-service properties. These assessments have not
revealed, nor are we aware of, any environmental liability at our properties
that we believe would materially adversely affect our financial position,
operations or liquidity taken as a whole. This projection, however, could be
incorrect depending on certain factors. For example, material environmental
liabilities may have arisen after the assessments were performed or our
assessments may not have revealed all environmental liabilities or may have
underestimated the scope and severity of environmental conditions observed.
There may also be unknown environmental liabilities at properties for which we
have not obtained a Phase I environmental assessment or have not yet obtained a
Phase II environmental assessment. In addition, we base our assumptions
regarding environmental conditions, including groundwater flow and the
existence and source of contamination, on readily available sampling data. We
cannot guarantee that such data is reliable in all cases. Moreover, we cannot
assure you (i) that future laws, ordinances, or regulations will not impose a
material environmental liability or (ii) that tenants, the condition of land or
operations in the vicinity of our properties, or unrelated third parties will
not affect the current environmental condition of our properties.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. In their leases, we require these tenants to
comply with all applicable laws and to be responsible to us for any damages
resulting from their use of the property. We are not aware of any material
environmental problems resulting from tenants' use or generation of hazardous
or toxic chemicals or substances. We cannot assure you, however, that all
tenants will comply with the terms of their leases or remain solvent. If
tenants do not comply or do not remain solvent, we may at some point be
responsible for contamination caused by such tenants.
POTENTIAL DILUTION OF CAPITAL STOCK OR DECREASE OF LIQUIDITY IN CONNECTION WITH
SETTLEMENT OF FORWARD CONTRACT
On August 28, 1997, we entered into a purchase agreement with UBS AG,
London Branch ("UB-LB") involving the sale of 1.8 million shares of Common
Stock and a related forward contract providing for certain purchase price
adjustments. The forward contract generally provides that if the Market Price
(as defined below) of a share of Common Stock on the maturity date is less than
a certain amount, which we refer to as the "Forward Price," we must pay UB-LB
the difference times 1.8 million. (Similarly, if the Market Price of a share of
Common Stock is above the Forward Price, UB-LB must pay us the difference in
shares of Common Stock.) If we choose not to or cannot
7
<PAGE>
settle in freely tradable shares of Common Stock, we must repurchase the 1.8
million shares at the Forward Price in cash. The Forward Price is approximately
$32.16 and will be adjusted by LIBOR plus 75 basis points, minus any dividends
received on the shares. (As of August 28, 1998, the Forward Price had increased
by $.04 since August 28, 1997.)
In addition, the forward contract provides for quarterly payments of
collateral equal to 1.8 million times 110% of the amount by which the market
price of a share of Common Stock is below the Forward Price. The collateral may
be in the form of cash or freely tradeable shares of Common Stock. As a result
of the difference between the closing price of a share of Common Stock on
August 28, 1998 and the Forward Price, we gave UB-LB cash collateral of $12.8
million on September 12, 1998. UB-LB will return the cash with interest for
freely tradeable shares of Common Stock of equal value.
The maturity date of the forward contract is February 28, 1999; however,
if the closing price of the Common Stock falls below $19.28, UB-LB has the
right to force a complete settlement under the forward contract. UBS also has
the right to force a complete settlement under the forward contract if, among
other things, we (i) are in default with respect to certain financial covenants
under the forward contract, (ii) are in default under our $600 million credit
facility with a syndicate of lenders or any other unsecured lending agreement
or (iii) fail to post sufficient cash collateral.
In order to have the option of settling the forward contract or paying
collateral in shares of Common Stock, the shares must be freely tradeable by
UB-LB pursuant to an effective registration statement. We can provide no
assurance that a registration statement will be effective at the time of any
settlement or collateral payment.
Quarterly payments of collateral and the ultimate settlement of the
forward contract could adversely affect our liquidity or dilute our Common
Stock. If the Market Price (defined as the average closing price of the Common
Stock for the 35-trading-day period beginning February 28, 1999) is lower than
the Forward Price, settlement in shares of Common Stock would cause our
outstanding shares of Common Stock to represent a smaller ownership interest in
the Company with no increase in the value of the Company. The table below shows
the change in the value of a share of Common Stock as a result of settling the
forward contract at various Market Prices:
<TABLE>
<CAPTION>
INCREASE/(DILUTION) IN VALUE
MARKET PRICE OF COMMON STOCK (1)
- --------------- -----------------------------
<S> <C>
$40 ......... .5%
$35 ......... .2%
$30 ......... ( .2%)
$25 ......... ( .7%)
$20 ......... (1.6%)
</TABLE>
- ----------
(1) Assumes no change in our capital stock except for redemption of all Common
Units. Also assumes a Forward Price of $32.16.
Settlement of the forward contract in cash would reduce our liquidity.
Settlement in cash would involve the repurchase of 1.8 million shares at a
price per share equal to the Forward Price. Assuming the Forward Price remains
at $32.16, our repurchase price would total approximately $57.9 million. Having
already paid $12.8 million as collateral, settlement in cash would require the
Company to pay approximately $45.1 million in additional funds. We expect to
obtain these funds from one or more of several sources:
o our existing $600 million credit facility;
o other borrowings;
o the disposition of certain non-core assets; and
o equity offerings.
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USE OF PROCEEDS
Unless otherwise specified in an applicable supplement to this Prospectus
(a "Prospectus Supplement"), the Company intends to use the net proceeds from
the sale of Common Stock, shares of preferred stock, $.01 par value per share
("Preferred Stock"), and shares of Preferred Stock represented by depositary
shares (the "Depositary Shares"), and the Operating Partnership intends to use
the net proceeds from the sale of one or more series of unsecured
non-convertible debt securities ("Debt Securities" and, together with Common
Stock, Preferred Stock and Depositary Shares, the "Securities"), for general
corporate purposes, including the development and acquisition of additional
properties and other acquisition transactions, the payment of certain
outstanding debt, and improvements to certain properties in the Company's
portfolio. The Company is required, by the terms of the partnership agreement
of the Operating Partnership (the "Operating Partnership Agreement"), to invest
the net proceeds of any sale of Common Stock, Preferred Stock or Depositary
Shares in the Operating Partnership in exchange for additional partnership
interests.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The ratios of earnings to fixed charges for the Company and the Operating
Partnership for the nine months ended September 30, 1998 were 2.33x and 2.34x,
respectively. The ratios of earnings to fixed charges for the Company for the
years ended December 31, 1997 and 1996 were 2.56x and 2.53x, respectively. The
ratios of earnings to fixed charges for the Operating Partnership for the years
ended December 31, 1997 and 1996 were 2.54x and 2.55x, respectively. The ratios
of earnings to fixed charges for both the Company and the Operating Partnership
for the year ended December 31, 1995 and the period from June 14, 1994 to
December 31, 1994 were 3.00x and 2.43x, respectively. Earnings were inadequate
to cover fixed charges by $171,000 for the year ended December 31, 1993. This
deficiency occurred prior to the Company's initial public offering (the "IPO")
of Common Stock in June 1994. Prior to the completion of the IPO, the Company's
predecessor (the "Highwoods Group") operated in a manner as to minimize taxable
income to the owners. As a result, although its properties generated positive
net cash flow, the Highwoods Group had a net loss for the year ended December
31, 1993. The IPO allowed the Company to deleverage its properties
significantly and improve its ratio of earnings to fixed charges.
On February 12, 1997, the Company issued 125,000 8 5/8% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares"), which
was its first issuance of Preferred Stock. See "Description of Series A
Preferred Shares." On September 25, 1997, the Company issued 6,900,000 8%
Series B Cumulative Redeemable Preferred Shares (the "Series B Preferred
Shares"), which was its second issuance of Preferred Stock. See "Description of
Series B Preferred Shares." On April 23, 1998, the Company issued 4,000,000
Depositary Shares, each representing 1/10 of an 8% Series D Cumulative
Redeemable Preferred Share (the "Series D Preferred Shares"), which was its
third issuance of Preferred Stock. See "Description of Series D Preferred
Shares." For the nine months ended September 30, 1998, the ratio of earnings to
combined fixed charges and preferred stock dividends was 1.80x for the Company
and 1.81x for the Operating Partnership. For the year ended December 31, 1997,
the ratio of earnings to combined fixed charges and preferred stock dividends
was 2.07x for the Company and 2.05x for the Operating Partnership.
The ratio of earnings to combined fixed charges and preferred stock
dividends is computed as income from operations before extraordinary items plus
fixed charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges and preferred stock dividends consist
of interest costs, including amortization and debt discount and deferred
financing fees, whether capitalized or expensed, the interest component of
rental expense, plus any dividends on outstanding preferred stock.
9
<PAGE>
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will be issued under an indenture dated as of December 1, 1996
(the "Indenture"), between the Operating Partnership, the Company and First
Union National Bank, as trustee (together with any other trustees appointed in
a supplemental indenture with respect to a particular series, the "Trustee").
The Indenture has been filed as an exhibit to the registration statement of
which this Prospectus is a part and is available for inspection at the
corporate trust office of the Trustee or as described below under "Available
Information." The Indenture is subject to, and governed by, the Trust Indenture
Act of 1939, as amended (the "TIA"). The statements made hereunder relating to
the Indenture and the Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Indenture and such Debt Securities. All section references appearing herein are
to sections of the Indenture, and capitalized terms used but not defined herein
shall have the respective meanings set forth in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership and will rank equally with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. At September 30, 1998, the total
outstanding debt of the Operating Partnership was approximately $1.8 billion,
approximately $623 million of which was secured debt. The Debt Securities may
be issued without limit as to aggregate principal amount, in one or more
series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the board of directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series (Section 301).
If any Debt Securities are rated below investment grade at the time of
issuance, such Debt Securities will be fully and unconditionally guaranteed by
the Company as to payment of principal, premium, if any, and interest (the
"Guarantees").
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by a
Trustee may be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is Trustee
under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
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<PAGE>
(4) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or dates,
from which any interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which any such date shall be determined, the
person to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange
and notices or demands to or upon the Operating Partnership in respect
of such Debt Securities and the Indenture may be served;
(8) the period or periods within which, the price or prices at which and
the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Operating
Partnership, if the Operating Partnership is to have such an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay
or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the
period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
(10) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency
unit or units or composite currency or currencies) and the manner in
which such amounts shall be determined;
(12) the events of default or covenants of such Debt Securities, to the
extent different from or in addition to those described herein;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(14) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(15) with respect to any series of Debt Securities rated below investment
grade at the time of issuance, the Guarantees (the "Guaranteed
Securities");
(16) if the defeasance and covenant defeasance provisions described herein
are to be inapplicable or any modification of such provisions;
(17) whether and under what circumstances the Operating Partnership will pay
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental
11
<PAGE>
charge and, if so, whether the Operating Partnership will have the
option to redeem such Debt Securities in lieu of making such payment;
(18) with respect to any Debt Securities that provide for optional redemption
or prepayment upon the occurrence of certain events (such as a change of
control of the Operating Partnership), (i) the possible effects of such
provisions on the market price of the Operating Partnership's or the
Company's securities or in deterring certain mergers, tender offers or
other takeover attempts, and the intention of the Operating Partnership
to comply with the requirements of Regulation 14E under the Exchange Act
and any other applicable securities laws in connection with such
provisions; (ii) whether the occurrence of the specified events may give
rise to cross-defaults on other indebtedness such that payment on such
Debt Securities may be effectively subordinated; and (iii) the existence
of any limitation on the Operating Partnership's financial or legal
ability to repurchase such Debt Securities upon the occurrence of such
an event (including, if true, the lack of assurance that such a
repurchase can be effected) and the impact, if any, under the Indenture
of such a failure, including whether and under what circumstances such a
failure may constitute an Event of Default;
(19) if other than the Trustee, the identify of each security registrar
and/or paying agent; and
(20) any other terms of such Debt Securities.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). If material or applicable, special U.S.
Federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under " -- Merger, Consolidation or Sale" and " --
Certain Covenants" or as may be set forth in any Prospectus Supplement, the
Indenture does not contain any other provisions that would limit the ability of
the Operating Partnership to incur indebtedness or that would afford holders of
the Debt Securities protection in the event of (i) a highly leveraged or
similar transaction involving the Operating Partnership, the management of the
Operating Partnership or the Company, or any affiliate of any such party, (ii)
a change of control, or (iii) a reorganization, restructuring, merger or
similar transaction involving the Operating Partnership or the Company. In
addition, subject to the limitations set forth under " -- Merger, Consolidation
or Sale," the Operating Partnership or the Company may, in the future, enter
into certain transactions, such as the sale of all or substantially all of its
assets or the merger or consolidation of the Operating Partnership or the
Company, that would increase the amount of the Operating Partnership's
indebtedness or substantially reduce or eliminate the Operating Partnership's
assets, which may have an adverse effect on the Operating Partnership's ability
to service its indebtedness, including the Debt Securities. In addition,
restrictions on ownership and transfers of the Company's Common Stock and
Preferred Stock which are designed to preserve its status as a real estate
investment trust ("REIT") may act to prevent or hinder a change of control. See
"Description of Common Stock -- Certain Provisions Affecting Change of Control"
and "Description of Preferred Stock -- Restrictions on Ownership." Reference is
made to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of or additions to the events of default or
covenants that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
Reference is made to " -- Certain Covenants" below and to the description
of any additional covenants with respect to a series of Debt Securities in the
applicable Prospectus Supplement. Except as otherwise described in the
applicable Prospectus Supplement, compliance with such covenants generally may
not be waived with respect to a series of Debt Securities by the board of
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<PAGE>
directors of the Company as sole general partner of the Operating Partnership
or by the Trustee unless the Holders of at least majority in principal amount
of all outstanding Debt Securities of such series consent to such waiver,
except to the extent that the defeasance and covenant defeasance provisions of
the Indenture described under " -- Discharge, Defeasance and Covenant
Defeasance" below apply to such series of Debt Securities. See " --
Modification of the Indenture."
GUARANTEES
The Company will fully, unconditionally and irrevocably guarantee the due
and punctual payment of principal, premium, if any, and interest on any Debt
Securities rated below investment grade at the time of issuance by the
Operating Partnership, and the due and punctual payment of any sinking fund
payments thereon, when and as the same shall become due and payable, whether at
a maturity date, by declaration of acceleration, call for redemption or
otherwise. In addition, Debt Securities rated investment grade may also be
accompanied by a Guarantee to the extent and on the terms described in the
applicable Prospectus Supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series that are registered securities, other than
registered securities issued in global form (which may be of any denomination),
shall be issuable in denominations of $1,000 and any integral multiple thereof
and the Debt Securities that are bearer securities, other than bearer
securities issued in global form (which may be of any denomination), shall be
issuable in denominations of $5,000 (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee,
provided that, at the option of the Operating Partnership, payment of interest
may be made by check mailed to the address of the Person entitled thereto as it
appears in the applicable Security Register or by wire transfer of funds to
such Person at an account maintained within the United States (Sections 301,
307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Trustee or the Operating Partnership
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Operating Partnership with respect to any series of
Debt Securities, the Operating Partnership may at any time rescind the
designation of any such transfer agent or approve a change in the location
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<PAGE>
through which any such transfer agent acts, except that Operating Partnership
will be required to maintain a transfer agent in each place of payment for such
series. The Operating Partnership may at any time designate additional transfer
agents with respect to any series of Debt Securities (Section 1002).
Neither the Operating Partnership nor the Trustee shall be required (i) to
issue, register the transfer of or exchange any Debt Security if such Debt
Security may be among those selected for redemption during a period beginning
at the opening of business 15 days before selection of the Debt Securities to
be redeemed and ending at the close of business on the day of such selection,
or (ii) to register the transfer of or exchange any Registered Security so
selected for redemption in whole or in part, except, in the case of any
Registered Security to be redeemed in part, the portion thereof not to be
redeemed, or (iii) to exchange any Bearer Security so selected for redemption
except that such a Bearer Security may be exchanged for a Registered Security
of that series and like tenor, provided that such Registered Security shall be
simultaneously surrendered for redemption, or (iv) to issue, register the
transfer of or exchange any Security which has been surrendered for repayment
at the option of the Holder, except the portion, if any, of such Debt Security
not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership or the Company may not consolidate with, or
sell, lease or convey all or substantially all of its assets to, or merge into,
any other entity, unless (a) the successor entity formed by such consolidation
or into which the Operating Partnership or the Company is merged or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest on all the Debt Securities and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; (b) immediately after giving effect to
such transaction, no Event of Default under the Indenture, and no event which,
after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's
certificate and legal opinion covering such conditions shall be delivered to
the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other
than intercompany debt (representing Debt to which the only parties are the
Company, the Operating Partnership and any of their Subsidiaries (but only so
long as such Debt is held solely by any of the Company, the Operating
Partnership and any Subsidiary) that is subordinate in right of payment to the
Debt Securities) if, immediately after giving effect to the incurrence of such
additional Debt, the aggregate principal amount of all outstanding Debt of the
Operating Partnership and its Subsidiaries on a consolidated basis determined
in accordance with generally accepted accounting principles is greater than 60%
of the sum of (i) the Operating Partnership's Total Assets (as defined below)
as of the end of the calendar quarter covered in the Operating Partnership's
annual report on Form 10-K or quarterly report on Form 10-Q, as the case may
be, most recently filed with the Commission (or, if such filing is not
permitted under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with the Trustee) prior to the incurrence of such additional Debt and
(ii) the increase in Total Assets from the end of such quarter including,
without limitation, any increase in Total Assets resulting from the incurrence
of such additional Debt (such increase together with the Operating
Partnership's Total Assets shall be referred to as the "Adjusted Total Assets")
(Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur
any Debt secured by any mortgage, lien,
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<PAGE>
charge, pledge, encumbrance or security interest of any kind upon any of the
property of the Operating Partnership, or any Subsidiary ("Secured Debt"),
whether owned at the date of the Indenture or thereafter acquired, if,
immediately after giving effect to the incurrence of such additional Secured
Debt, the aggregate principal amount of all outstanding Secured Debt of the
Operating Partnership and its Subsidiaries on a consolidated basis is greater
than 40% of the Operating Partnership's Adjusted Total Assets (Section 1011).
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur
any Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5 to 1.0 on a pro forma
basis after giving effect to the incurrence of such Debt and to the application
of the proceeds therefrom, and calculated on the assumption that (i) such Debt
and any other Debt incurred by the Operating Partnership or its Subsidiaries
since the first day of such four-quarter period and the application of the
proceeds therefrom, including to refinance other Debt, had occurred at the
beginning of such period, (ii) the repayment or retirement of any other Debt by
the Operating Partnership or its Subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period), (iii) the income earned on any
increase in Adjusted Total Assets since the end of such four-quarter period had
been earned, on an annualized basis, during such period, and (iv) in the case
of any acquisition or disposition by the Operating Partnership or any
Subsidiary of any asset or group of assets since the first day of such
four-quarter period, including, without limitation, by merger, stock purchase
or sale, or asset purchase or sale, such acquisition or disposition or any
related repayment of Debt had occurred as of the first day of such period with
the appropriate adjustments with respect to such acquisition or disposition
being included in such pro forma calculation (Section 1011).
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership and its Subsidiaries on a consolidated basis whenever the Operating
Partnership and its Subsidiaries on a consolidated basis shall create, assume,
guarantee or otherwise become liable in respect thereof.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 200% of the
aggregate outstanding principal amount of all outstanding Unsecured Debt
(Section 1012).
EXISTENCE. Except as permitted under " -- Merger, Consolidation or Sale,"
the Operating Partnership and the Company are required to do or cause to be
done all things necessary to preserve and keep in full force and effect their
existence, rights and franchises; provided, however, that neither the Operating
Partnership nor the Company shall be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities (Section 1007).
MAINTENANCE OF PROPERTIES. The Operating Partnership is required to cause
all of its material properties used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Operating Partnership may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at
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<PAGE>
all times; PROVIDED, HOWEVER, that the Operating Partnership and its
Subsidiaries shall not be prevented from selling or otherwise disposing for
value their respective properties in the ordinary course of business (Section
1005).
INSURANCE. The Operating Partnership is required to, and is required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurance companies (Section 1006).
PAYMENT OF TAXES AND OTHER CLAIMS. Each of the Operating Partnership and
the Company is required to pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon it or any Subsidiary or upon its
income, profits or property or that of any Subsidiary, and (ii) all lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
lien upon the property of the Operating Partnership, the Company, or any
Subsidiary; PROVIDED, HOWEVER, that the Operating Partnership and the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity
is being contested in good faith by appropriate proceedings (Section 1013).
PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership. Whether or not the Operating Partnership is subject to
Section 13 or 15(d) of the Exchange Act and for so long as any Debt Securities
are outstanding, the Operating Partnership will, to the extent permitted under
the Exchange Act, be required to file with the Securities and Exchange
Commission (the "Commission") the annual reports, quarterly reports and other
documents that the Operating Partnership would have been required to file with
the Commission pursuant to such Section 13 or 15(d) (the "Financial
Statements") if the Operating Partnership were so subject, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Operating Partnership would have been required so
to file such documents if the Operating Partnership were so subject. The
Operating Partnership will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as
their names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Operating
Partnership would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such Sections and (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents that the Operating Partnership
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Operating Partnership with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1014).
As used herein and in the Prospectus Supplement:
"ANNUAL SERVICE CHARGE" as of any date means the amount that is expensed
in any 12-month period for interest on Debt.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of the Operating Partnership and its
Subsidiaries (i) plus amounts which have been deducted for (a) interest on Debt
of the Operating Partnership and its Subsidiaries, (b) provision for taxes of
the Operating Partnership and its Subsidiaries based on income, (c)
amortization of debt discount, (d) depreciation and amortization, (e) the
effect of any noncash charge resulting from a change in accounting principles
in determining Consolidated Net Income for such
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period, (f) amortization of deferred charges, (g) provisions for or realized
losses on properties and (h) charges for early extinguishment of debt and (ii)
less amounts that have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles ("GAAP").
"DEBT" means any indebtedness, whether or not contingent, in respect of
(i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable or (iv) any lease of property
which would be reflected on a consolidated balance sheet as a capitalized lease
in accordance with GAAP, in the case of items of indebtedness under (i) through
(iii) above to the extent that any such items (other than letters of credit)
would appear as a liability on a consolidated balance sheet in accordance with
GAAP, and also includes, to the extent not otherwise included, any obligation
to be liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), indebtedness of
another person.
"SUBSIDIARY" means a corporation, partnership or limited liability
company, a majority of the outstanding voting stock, partnership interests or
membership interests, as the case may be, of which is owned or controlled,
directly or indirectly, by the Operating Partnership or by one or more other
subsidiaries of the Operating Partnership. For the purposes of this definition,
"voting stock" means stock having the voting power for the election of
directors, general partners, managers or trustees, as the case may be, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"TOTAL ASSETS" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivable).
"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance and (ii) all other assets of the
Operating Partnership and its Subsidiaries not subject to an encumbrance
determined in accordance with GAAP (but excluding intangibles and accounts
receivable).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"UNSECURED DEBT" means Debt of the Operating Partnership or any Subsidiary
that is not secured by any mortgage, lien, charge, pledge or security interest
of any kind upon any of the properties owned by the Operating Partnership or
any of its Subsidiaries.
ADDITIONAL COVENANTS. Any additional or different covenants of the
Operating Partnership or the Company with respect to any series of Debt
Securities will be set forth in the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default
for 30 days in the payment of any installment of interest on any Debt Security
of such series; (b) default in the payment of the principal of (or
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premium, if any on) any Debt Security of such series at its maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance of any other covenant of the
Operating Partnership or the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), such default having
continued for 60 days after written notice as provided in the Indenture; (e)
default in the payment of an aggregate principal amount exceeding $5,000,000 of
any evidence of recourse indebtedness of the Operating Partnership or the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled, such default having continued for 10 days after notice as provided in
the Indenture; (f) certain events of bankruptcy, insolvency or reorganization,
or court appointment of a receiver, liquidator or trustee of the Operating
Partnership, the Company or any Significant Subsidiary or any of their
respective property; and (g) any other Event of Default provided with respect
to a particular series of Debt Securities. The term "Significant Subsidiary"
means each significant subsidiary (as defined in Regulation S-X promulgated
under the Securities Act of 1933, as amended (the "Securities Act")) of the
Operating Partnership or the Company (Section 501).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than 25% in principal amount
of the Outstanding Debt Securities of that series may declare the principal
amount (or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may
be specified in the terms thereof) of all of the Debt Securities of that series
to be due and payable immediately by written notice thereof to the Operating
Partnership and the Company (and to the Trustee if given by the Holders);
provided, that in the case of an Event of Default described under provision (f)
of the preceding paragraph, acceleration is automatic. However, at any time
after such a declaration of acceleration with respect to Debt Securities of
such series (or of all Debt Securities then outstanding under the Indenture, as
the case may be) has been made, but before a judgment or decree for payment of
the money due has been obtained by the Trustee, the Holders of not less than a
majority in principal amount of Outstanding Debt Securities of such series (or
of all Debt Securities then Outstanding under the Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Operating Partnership or the Company shall have deposited with the Trustee all
payments of the principal of (and premium, if any) and interest on the Debt
Securities of such series (or of all Debt Securities then Outstanding under the
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the Trustee and (b) all Events of Default, other than the
non-payment of accelerated principal of (or specified portion thereof), or
premium (if any) or interest on the Debt Securities of such series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) have
been cured or waived as provided in the Indenture (Section 502). The Indenture
also provides that the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series (or of all Debt Securities
then Outstanding under the Indenture, as the case may be) may waive any past
default with respect to such series and its consequences, except a default (x)
in the payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or (y) in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holder of each Outstanding Debt Security affected thereby (Section 513).
The Trustee will be required to transmit notice to the Holders of a series
of Debt Securities within 90 days of a default under the Indenture unless such
default has been cured or waived; PROVIDED, HOWEVER, that the Trustee may
withhold notice to the Holders of any series of Debt Securities
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of any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified Responsible Officers of the Trustee
consider such withholding to be in the interest of such Holders (Section 602).
The Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it (Section
507). This provision will not prevent, however, any holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
The Trustee is under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any Holders of any series of
Debt Securities then Outstanding under the Indenture, unless such Holders shall
have offered to the Trustee thereunder reasonable security or indemnity
(Section 601). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred upon
the Trustee with respect to the Debt Securities of such series. However, the
Trustee may refuse to follow any direction which is in conflict with any law or
the Indenture or would subject the Trustee to personal liability, or which may
be unduly prejudicial to the Holders of Debt Securities of such series not
joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Debt Securities are Guaranteed Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and
the nature and status thereof (Sections 1009 and 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities or series of Outstanding Debt
Securities that are affected by such modification or amendment; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or premium (if any) or any installment of
interest on, any such Debt Security, reduce the principal amount of, or the
rate or amount of interest on, or any premium payable on redemption of, any
such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right or repayment of the holder of any such Debt
Security, change the place of payment, or the coin or currency, for payment of
principal of, premium, if any, or interest on any such Debt Security or impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (b) reduce the above-stated percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the Indenture; (c) modify or affect in any manner
adverse to the Holders the terms and conditions of the obligations of the
Company in respect of the payment of principal (and premium, if any) and
interest on any Guaranteed Securities; or (d) modify any of the foregoing
provisions or any of the provisions relating to the waiver of certain past
defaults or certain covenants, except to increase the required percentage to
effect such
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action or to provide that certain other provisions may not be modified or
waived without the consent of the Holder of such Debt Security (Section 902).
The Indenture provides that the Holders of not less than a majority in
principal amount of a series of Outstanding Debt Securities have the right to
waive compliance by the Operating Partnership and/or the Company with certain
covenants relating to such series of Debt Securities in the Indenture (Section
1008).
Modifications and amendments of the Indenture will be permitted to be made
by the Operating Partnership, the Company and the Trustee without the consent
of any Holder of Debt Securities for any of the following purposes: (i) to
evidence the succession of another Person to the Operating Partnership as
obligor or the Company as guarantor under the Indenture; (ii) to add to the
covenants of the Operating Partnership or the Company for the benefit of the
Holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Operating Partnership or the Company in the Indenture;
(iii) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities; (iv) to add or change any provisions of the
Indenture to facilitate the issuance of, or to liberalize certain terms of,
Debt Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that such action shall not
adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect; (v) to add to, delete from or revise the
conditions, limitations and restrictions on the authorized amount, terms or
purposes of issue, authorization and delivery of Debt Securities; (vi) to
secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series; (viii) to provide for the acceptance of appointment
by a successor Trustee to facilitate the administration of the trusts under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any
material respect; (x) to supplement any of the provisions of the Indenture to
the extent necessary to permit or facilitate defeasance and discharge of any
series of such Debt Securities, provided that such action shall not adversely
affect the interests of the Holders of the Debt Securities of any series in any
material respect; or (xi) to amend or supplement any provisions of the
Indenture, provided that no such amendment or supplement shall materially
adversely affect the interests of the Holders of any Debt Securities then
Outstanding (Section 901). In addition, with respect to Guaranteed Securities,
without the consent of any Holder of Debt Securities, the Company, or a
Subsidiary thereof, may directly assume the due and punctual payment of the
principal of, any premium and interest on all the Guaranteed Securities and the
performance of every covenant of the Indenture on the part of the Operating
Partnership to be performed or observed. Upon any such assumption, the Company
or such subsidiary shall succeed to, and be substituted for and may exercise
every right and power of, the Operating Partnership under the Indenture with
the same effect as if the Company or such subsidiary had been the issuer of the
Guaranteed Securities and the Operating Partnership shall be released from all
obligations and covenants with respect to the Guaranteed Securities. No such
assumption shall be permitted unless the Company has delivered to the Trustee
(i) an officer's certificate and an opinion of counsel, stating, among other
things, that the Guarantee and all other covenants of the Company in the
Indenture remain in full force and effect and (ii) an opinion of independent
counsel that the Holders of Guaranteed Securities shall have no United States
Federal tax consequences as a result of such assumption, and that, if any Debt
Securities are then listed on the New York Stock Exchange ("NYSE"), that such
Debt Securities shall not be delisted as a result of such assumption (Section
805).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be
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deemed to be Outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon declaration
of acceleration of the maturity thereof, (ii) the principal amount of a Debt
Security denominated in a foreign currency that shall be deemed Outstanding
shall be the U.S. dollar equivalent, determined on the issue date for such Debt
Security, of the principal amount (or, in the case of an Original Issue
Discount Security, the U.S. dollar equivalent on the issue date of such Debt
Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed Outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to the
Indenture, and (iv) Debt Securities owned by the Operating Partnership, the
Company or any other obligor upon the Debt Securities or any affiliate of the
Operating Partnership, the Company or of such other obligor shall be
disregarded.
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting will be permitted to be
called at any time by the Trustee, and also, upon request, by the Operating
Partnership, the Company (in respect of a series of Guaranteed Securities) or
the holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in
the Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments
of the Indenture, any resolution presented at a meeting or adjourned meeting
duly reconvened at which a quorum is present will be permitted to be adopted by
the affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the Holders of such
specified percentage in principal amount of the Outstanding Debt Securities of
that series. Any resolution passed or decision taken at any meeting of Holders
of Debt Securities of any series duly held in accordance with the Indenture
will be binding on all Holders of Debt Securities of that series. The quorum at
any meeting called to adopt a resolution, and at any reconvened meeting, will
be Persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; PROVIDED, HOWEVER, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, any action to be taken at a
meeting of Holders of Debt Securities of any series with respect to any action
that the Indenture expressly provides may be taken by the Holders of a
specified percentage which is less than a majority in principal amount of the
Outstanding Debt Securities of a series may be taken at a meeting at which a
quorum is present by the affirmative vote of Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of such
series (Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities
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are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest to the
date of such deposit (if such Debt Securities have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be (Section 401).
Unless otherwise provided in the applicable Prospectus Supplement, the
Operating Partnership may elect either (a) to defease and discharge itself and
the Company (if such Debt Securities are Guaranteed Securities) from any and
all obligations with respect to such Debt Securities (except for the obligation
to pay additional amounts, if any, upon the occurrence of certain events of
tax, assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such
Debt Securities, to replace temporary or mutilated, destroyed, lost or stolen
Debt Securities, to maintain an office or agency in respect of such Debt
Securities and to hold moneys for payment in trust) ("defeasance") or (b) to
release itself and the Company (if such Debt Securities are Guaranteed
Securities) from their obligations with respect to such Debt Securities under
certain sections of the Indenture (including the restrictions described under "
- -- Certain Covenants") and if provided pursuant to Section 301 of the
Indenture, their obligations with respect to any other covenant, and any
omission to comply with such obligations shall not constitute a default or an
Event of Default with respect to such Debt Securities ("covenant defeasance"),
in either case upon the irrevocable deposit by the Operating Partnership or the
Company (if the Debt Securities are Guaranteed Securities) with the Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities that through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor (Section 402).
Such a trust will only be permitted to be established if, among other
things, the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has delivered to the Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States Federal income tax law
occurring after the date of the Indenture (Section 402).
"GOVERNMENT OBLIGATIONS" means securities that are (i) direct obligations
of the United States of America or the government that issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government that issued
the foreign currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, and that,
in either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian
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in respect of the Government Obligation or the specific payment of interest on
or principal of the Government Obligation evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Operating Partnership or the Company (if the Debt Securities are
Guaranteed Securities) has deposited funds and/or Government Obligations to
effect defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been,
and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such Conversion Event based on the applicable market exchange rate
(Section 402). "Conversion Event" means the cessation of use of (i) a currency,
currency unit or composite currency both by the government of the country that
issued such currency and for the settlement of transactions by a central bank
or other public institutions of or within the international banking community,
(ii) the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii)
any currency unit or composite currency other than the ECU for the purposes for
which it was established. Unless otherwise provided in the applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest on any Debt Security that is payable in a foreign currency that ceases
to be used by its government of issuance shall be made in U.S. dollars.
If the Operating Partnership effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (d) under " -- Events of Default, Notice and
Waiver" with respect to Sections no longer applicable to such Debt Securities
or described in clause (g) under " -- Events of Default, Notice and Waiver"
with respect to any other covenant as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable, and Government Obligations on deposit
with the Trustee, will be sufficient to pay amounts due on such Debt Securities
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on such Debt Securities at the time of the acceleration resulting from such
Event of Default. However, the Operating Partnership and the Company (if such
Debt Securities are Guaranteed Securities) would remain liable to make payment
of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the applicable Prospectus Supplement relating to such series. Global
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Securities may be issued in either registered or bearer form and in either
temporary or permanent form. The specific terms of the depositary arrangement
with respect to a series of Debt Securities will be described in the applicable
Prospectus Supplement relating to such series.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Company is authorized to issue 50,000,000 shares of preferred stock,
$.01 par value per share, of which 125,000 Series A Preferred Shares, 6,900,000
Series B Preferred Shares and 400,000 Series D Preferred Shares have been
issued and are outstanding as of the date hereof. See "Description of Series A
Preferred Shares," "Description of Series B Preferred Shares" and "Description
of Series D Preferred Shares."
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and bylaws and any applicable
amendment to the Articles of Incorporation designating terms of a series of
Preferred Stock (a "Designating Amendment").
TERMS
Subject to the limitations prescribed by the Articles of Incorporation,
the board of directors is authorized to fix the number of shares constituting
each series of Preferred Stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the board of directors. The Preferred
Stock will, when issued, be fully paid and nonassessable by the Company and
will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) the title and stated value of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) the date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) the provision for a sinking fund, if any, for such Preferred Stock;
(7) the provision for redemption, if applicable, of such Preferred Stock;
(8) any listing of such Preferred Stock on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including
the conversion price or manner of calculation thereof;
(10) whether interests in such Preferred Stock will be represented by
Depositary Shares;
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(11) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) a discussion of Federal income tax considerations applicable to such
Preferred Stock;
(13) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(14) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term
"equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the board of directors of the Company, out of
assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the board of directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the board of directors of the Company
fails to declare a dividend payable on a dividend payment date on any series of
the Preferred Stock for which dividends are non-cumulative, then the holders of
such series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series. When dividends are not paid in full (or a sum sufficient for such full
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payment is not so set apart) upon Preferred Stock of any series and the shares
of any other series of Preferred Stock ranking on a parity as to dividends with
the Preferred Stock of such series, all dividends declared upon Preferred Stock
of such series and any other series of Preferred Stock ranking on a parity as
to dividends with such Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share of Preferred Stock of such series and
such other series of Preferred Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of Preferred Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Preferred Stock of such series that may be
in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in shares of Common Stock or other
capital shares ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Common Stock,
or any other capital shares of the Company ranking junior to or on a parity
with the Preferred Stock of such series as to dividends or upon liquidation,
nor shall any shares of Common Stock, or any other capital shares of the
Company ranking junior to or on a parity with the Preferred Stock of such
series as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any such shares) by the Company (except by
conversion into or exchange for other capital shares of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital shares of the Company, the terms of such
Preferred Stock may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable capital shares
of the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
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Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends of the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of any
series of Preferred Stock shall be redeemed unless all outstanding Preferred
Stock of such series is simultaneously redeemed; PROVIDED, HOWEVER, that the
foregoing shall not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Preferred Stock of such series. In addition, unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividends periods and
the then current dividend period, and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for capital shares of the Company ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation);
PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase or
acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held or for which redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder. If notice of redemption of any Preferred
Stock has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any
Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such Preferred Stock, and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock or any other class or series of
capital shares of the Company ranking junior to the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company,
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the holders of each series of Preferred Stock shall be entitled to receive out
of assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to
all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Preferred Stock will have no right or claim to any of the remaining assets
of the Company. If, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding Preferred
Stock and the corresponding amounts payable on all shares of other classes or
series of capital shares of the Company ranking on a parity with the Preferred
Stock in the distribution of assets, then the holders of the Preferred Stock
and all other such classes or series of capital shares shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders
of Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital shares ranking
junior to the Preferred Stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case according
to their respective number of shares. For such purposes, the consolidation or
merger of the Company with or into any other corporation, trust or entity, or
the sale, lease or conveyance of all or substantially all of the property or
business of the Company, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors of the Company at a special meeting called by the holders of record
of at least 10% of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire board of directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company will not, without
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized
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capital stock of the Company into such shares, or create, authorize or issue
any obligation or security convertible into or evidencing the right to purchase
any such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or
voting power of such series of Preferred Stock or the holders thereof;
PROVIDED, HOWEVER, with respect to the occurrence of any of the Events set
forth in (ii) above, so long as the Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Stock and provided further that (x) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into shares of Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
STOCKHOLDER LIABILITY
As discussed below under "Description of Common Stock -- General,"
applicable Maryland law provides that no stockholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- OWNERSHIP LIMITATIONS AND
RESTRICTIONS ON TRANSFERS," for the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year, and such shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year. To
ensure that the Company remains a qualified REIT, the Articles of Incorporation
provide that no holder (other than persons approved by the directors at their
option and in their discretion) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of the issued and
outstanding capital stock of the Company. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a
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single person of the Company's outstanding equity securities, including any
Preferred Stock of the Company. Therefore, the Designating Amendment for each
series of Preferred Stock may contain provisions restricting the ownership and
transfer of the Preferred Stock. The applicable Prospectus Supplement will
specify any additional ownership limitation relating to a series of Preferred
Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF SERIES A PREFERRED SHARES
The following description of the Company's 8 5/8% Series A Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series A Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series A
Preferred Shares. The Company is authorized to issue 143,750 Series A Preferred
Shares, 125,000 of which were issued and outstanding as of the date hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series A Preferred Shares rank pari passu with the Series B Preferred Shares,
the Series D Preferred Shares and any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with
the Series A Preferred Shares and rank senior to the Common Stock and any other
equity securities of the Company that by their terms rank junior to the Series
A Preferred Shares. Dividends on the Series A Preferred Shares are cumulative
from the date of original issue and are payable quarterly on or about the last
day of February, May, August and November of each year commencing May 31, 1997,
at the rate of 8 5/8% of the liquidation preference per annum (equivalent to
$86.25 per annum per share). Dividends on the Series A Preferred Shares will
accrue whether or not the Company has earnings, whether or nor there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. The Series A Preferred Shares have a liquidation
preference of $1,000 per share, plus an amount equal to any accrued and unpaid
dividends.
The Series A Preferred Shares are not redeemable prior to February 12,
2027. On and after February 12, 2027, the Series A Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at
$1,000 per share, plus any accrued and unpaid dividends thereon to the date
fixed for redemption. The redemption price (other than the portion thereof
consisting of accrued and unpaid dividends) is payable solely out of the sale
proceeds of other capital stock of the Company, which may include other series
of Preferred Stock, and from no other source.
If dividends on the Series A Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series A Preferred Shares (voting separately as a class with all
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors to serve on the board of directors of the Company until
all dividend arrearages have been paid.
The Series A Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series A Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes. See "Description of Preferred
Stock -- Restrictions on Ownership" and "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- OWNERSHIP LIMITATIONS AND
RESTRICTIONS ON TRANSFERS."
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DESCRIPTION OF SERIES B PREFERRED SHARES
The following description of the Company's 8% Series B Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series B Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series B
Preferred Shares. The Company is authorized to issue 6,900,000 Series B
Preferred Shares, all of which were issued and outstanding as of the date
hereof.
With respect to the payment of dividends and amounts upon liquidation, the
Series B Preferred Shares rank pari passu with the Series A Preferred Shares,
the Series D Preferred Shares and any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with
the Series B Preferred Shares and rank senior to the Common Stock and any other
equity securities of the Company which by their terms rank junior to the Series
B Preferred Shares. Dividends on the Series B Preferred Shares are cumulative
from the date of original issue and are payable quarterly on March 15, June 15,
September 15 and December 15 of each year, commencing December 15, 1997, at the
rate of 8% of the $25 liquidation preference per annum (equivalent to $2.00 per
annum per share). Dividends on the Series B Preferred Shares will accrue
whether or not the Company has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. The Series B Preferred Shares have a liquidation preference of
$25 per share, plus an amount equal to any accrued and unpaid dividends.
The Series B Preferred Shares are not redeemable prior to September 25,
2002. On and after September 25, 2002, the Series B Preferred Shares will be
redeemable for cash at the option of the Company, in whole or in part, at $25
per share, plus any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price (other than the portion thereof consisting of
accrued and unpaid dividends) is payable solely out of the sale proceeds of
other capital stock of the Company, which may include other series of Preferred
Stock, and from no other source.
If dividends on the Series B Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of the Series B Preferred Shares (voting separately as a class with all
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors to serve on the board of directors of the Company until
all dividend arrearages have been paid.
The Series B Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series B Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for Federal income tax purposes. See "Description of Preferred
Stock -- Restrictions on Ownership" and "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- OWNERSHIP LIMITATIONS AND
RESTRICTIONS ON TRANSFERS."
DESCRIPTION OF SERIES D PREFERRED SHARES
The following description of the Company's 8% Series D Cumulative
Redeemable Preferred Shares, par value $.01 per share (the "Series D Preferred
Shares"), is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Company's Articles of
Incorporation, including the Articles Supplementary applicable to the Series D
Preferred Shares. The Company is authorized to issue 400,000 Series D Preferred
Shares, all of which were issued and outstanding as of the date hereof.
In April 1998, the Company offered and sold 4,000,000 depositary shares
(the "Series D Depositary Shares"), each representing a 1/10 fractional
interest in a Series D Preferred Share. The
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Series D Preferred Shares were deposited with First Union National Bank, as
preferred share depositary (the "Series D Depositary"), under a Deposit
Agreement, dated April 23, 1998 (the "Series D Deposit Agreement"), among the
Company, the Series D Depositary and the holders from time to time of the
depositary receipts (the "Series D Depositary Receipts") issued by the Series D
Depositary thereunder. The Series D Depositary Receipts evidence the Series D
Depositary Shares. Subject to the terms of the Series D Deposit Agreement, each
holder of a Series D Depositary Receipt evidencing a Series D Depositary Share
will be entitled to all the rights and preferences of a 1/10 fractional
interest in a Series D Preferred Share (including dividend, voting, redemption
and liquidation rights and preferences).
With respect to the payment of dividends and amounts upon liquidation, the
Series D Preferred Shares rank PARI PASSU with the Series A Preferred Shares,
the Series B Preferred Shares and any other equity securities of the Company
the terms of which provide that such equity securities rank on a parity with
the Series D Preferred Shares and rank senior to the Common Stock and any other
equity securities of the Company that by their terms rank junior to the Series
D Preferred Shares. Dividends on the Series D Preferred Shares represented by
the Series D Depositary Shares are cumulative from the date of original issue
and are payable quarterly in arrears on or about the last day of January,
April, July and October of each year, commencing July 31, 1998, at the rate of
8% of the liquidation preference per annum (equivalent to $20.00 per annum per
Series D Preferred Share). Dividends on the Series D Preferred Shares will
accrue whether or not the Company has earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. The Series D Preferred Shares have a liquidation
preference of $250 per share (equivalent to $25.00 per Series D Depositary
Share), plus an amount equal to any accrued and unpaid dividends.
The Series D Preferred Shares are not redeemable prior to April 23, 2003.
On and after April 23, 2003, the Series D Preferred Shares will be redeemable
for cash at the option of the Company, in whole or in part, at $250 per share,
plus any accrued and unpaid dividends thereon to the date fixed for redemption.
The redemption price (other than the portion thereof consisting of accrued and
unpaid dividends) is payable solely out of the sale proceeds of other capital
stock of the Company, which may include other series of Preferred Stock, and
from no other source.
If dividends on the Series D Preferred Shares are in arrears for six or
more quarterly periods, whether or not such quarterly periods are consecutive,
holders of Series D Depositary Shares representing the Series D Preferred
Shares (voting separately as a class with all other series of Preferred Stock
upon which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors to serve on the
board of directors of the Company until all dividend arrearages have been paid.
The Series D Preferred Shares are not convertible or exchangeable for any
other property or securities of the Company. The Series D Preferred Shares are
subject to certain restrictions on ownership intended to preserve the Company's
status as a REIT for federal income tax purposes. See "Description of Preferred
Stock -- Restrictions on Ownership" and "Description of Common Stock -- Certain
Provisions Affecting Change of Control -- OWNERSHIP LIMITATIONS AND
RESTRICTIONS ON TRANSFERS."
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by
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Depositary Shares will be deposited under a separate deposit agreement (each, a
"Deposit Agreement") among the Company, the depositary named therein (a
"Preferred Stock Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the applicable Deposit Agreement,
each owner of a Depositary Receipt will be entitled, in proportion to the
fractional interest of a share of a particular series of Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipt, to
all the rights and preferences of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Stock by the Company to a Preferred
Stock Depositary, the Company will cause such Preferred Stock Depositary to
issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained
from the Company upon request, and the statements made hereunder relating to
Deposit Agreements and the Depositary Receipts to be issued thereunder are
summaries of certain anticipated provisions thereof and do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of the provisions of the applicable Deposit Agreement and related
Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay
certain charges and expenses to such Preferred Stock Depositary, unless such
Preferred Stock Depositary determines that it is not feasible to make such
distribution, in which case such Preferred Stock Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock that has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock
on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to
deliver to such holder at the same time a new Depositary Receipt evidencing
such excess number of Depositary Shares.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in
full to such Preferred Stock Depositary the redemption price of the Preferred
Stock to be redeemed plus an amount equal to any accrued and unpaid dividends
thereon to the date fixed for redemption. The redemption price per Depositary
Share will be equal to the redemption price and any other amounts per share
payable with respect to the Preferred Stock. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be
selected pro rata (as nearly as may be practicable without creating fractional
Depositary Shares) or by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue,
the Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
that represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining
to the amount of Preferred Stock represented by such holder's Depositary
Shares. Such Preferred Stock Depositary will be required to vote the amount of
Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action that may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will
be entitled to the fraction of the liquidation preference accorded each share
of Preferred Stock represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by
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holders thereof to the applicable Preferred Stock Depositary with written
instructions to such Preferred Stock Depositary to instruct the Company to
cause conversion of the Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipts into whole shares of Common Stock, other
shares of Preferred Stock of the Company or other shares of stock, and the
Company will agree that upon receipt of such instructions and any amounts
payable in respect thereof, it will cause the conversion thereof utilizing the
same procedures as those provided for delivery of Preferred Stock to effect
such conversion. If the Depositary Shares evidenced by a Depositary Receipt are
to be converted in part only, a new Depositary Receipt or Receipts will be
issued for any Depositary Shares not to be converted. No fractional shares of
Common Stock will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional interest based upon the closing
price of the Common Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares that will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary
Receipts then outstanding. No amendment shall impair the right, subject to
certain anticipated exceptions in the Deposit Agreements, of any holder of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with law.
Every holder of an outstanding Depositary Receipt at the time any such
amendment becomes effective shall be deemed, by continuing to hold such
Depositary Receipt, to consent and agree to such amendment and to be bound by
the applicable Deposit Agreement as amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less that 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's
status as a REIT or (ii) a majority of each series of Preferred Stock affected
by such termination consents to such termination, whereupon such Preferred
Stock Depositary will be required to deliver or make available to each holder
of Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange.
In addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company
and such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
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CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of a
Preferred Stock Depositary for any duties required by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company that are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under a Deposit Agreement. The obligations
of the Company and a Preferred Stock Depositary under a Deposit Agreement will
be limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such information, and on documents believed in good faith to be genuine
and signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on
the one hand, and the Company, on the other hand, such Preferred Stock
Depositary shall be entitled to act on such claims, requests or instructions
received from the Company.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company includes 200 million shares of
Common Stock, $.01 par value per share. Each outstanding share of Common Stock
entitles the holder to one vote on all matters presented to stockholders for a
vote. Holders of Common Stock have no preemptive rights. As of September 30,
1998, there were approximately 59.3 million shares of Common Stock outstanding,
and approximately 10.4 million shares reserved for issuance upon exchange of
outstanding Common Units.
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Shares of Common Stock currently outstanding are listed for trading on the
NYSE. The Company will apply to the NYSE to list the additional shares of
Common Stock to be sold pursuant to any Prospectus Supplement.
All shares of Common Stock issued will be duly authorized, fully paid, and
non-assessable. Distributions may be paid to the holders of Common Stock if and
when declared by the board of directors of the Company out of funds legally
available therefor. The Company intends to continue to pay quarterly dividends.
Under Maryland law, stockholders are generally not liable for the
Company's debts or obligations. If the Company is liquidated, subject to the
right of any holders of Preferred Stock, if any, to receive preferential
distributions, each outstanding share of Common Stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company.
The Articles of Incorporation provide for the board of directors to be
divided into three classes of directors, each class to consist as nearly as
possible of one-third of the directors. At each annual meeting of stockholders,
the class of directors to be elected at such meeting will be elected for a
three-year term and the directors in the other two classes will continue in
office. The overall effect of the provisions in the Articles of Incorporation
with respect to the classified board may be to render more difficult a change
of control of the Company or removal of incumbent management. Holders of Common
Stock have no right to cumulative voting for the election of directors.
Consequently, at each annual meeting of stockholders, the holders of a
plurality of the shares of Common Stock are able to elect all of the successors
of the class of directors whose term expires at that meeting. Directors may be
removed only for cause and only with the affirmative vote of the holders of
two-thirds of the shares of capital stock entitled to vote in the election of
directors.
CERTAIN PROVISIONS AFFECTING CHANGE OF CONTROL
GENERAL. Pursuant to the Articles of Incorporation and the Maryland
general corporation law (the "MGCL"), the Company cannot merge into or
consolidate with another corporation or enter into a statutory share exchange
transaction in which it is not the surviving entity or sell all or
substantially all of the assets of the Company unless the board of directors
adopts a resolution declaring the proposed transaction advisable and a majority
of stockholders entitled to vote thereon (voting together as a single class)
approve the transaction.
MARYLAND BUSINESS COMBINATION AND CONTROL SHARE STATUTES. The MGCL
establishes special requirements with respect to business combinations between
Maryland corporations and interested stockholders unless exemptions are
applicable. Among other things, the law prohibits for a period of five years a
merger and other specified or similar transactions between a company and an
interested stockholder and requires a supermajority vote for such transactions
after the end of the five-year period. The Articles of Incorporation contain a
provision exempting the Company from the requirements and provisions of the
Maryland business combination statute. There can be no assurance that such
provision will not be amended or repealed at any point in the future.
The MGCL also 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 owned by the acquiror or by officers or directors who
are employees of the Company. The control share acquisition statute does not
apply to shares acquired in a merger, consolidation or share exchange if the
Company is a party to the transaction, or to acquisitions approved or exempted
by the Articles of Incorporation or bylaws of the Company. The Company's bylaws
contain a provision exempting from the control share acquisition statute any
and all acquisitions by any person of the Company's stock. There can be no
assurance that such provision will not be amended or repealed, in whole or in
part, at any point in the future.
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The Articles of Incorporation (including the provision exempting the
Company from the Maryland business combination statute) may not be amended
without the affirmative vote of at least a majority of the shares of capital
stock outstanding and entitled to vote thereon voting together as a single
class, provided that certain provisions of the Articles of Incorporation may
not be amended without the approval of the holders of two-thirds of the shares
of capital stock of the Company outstanding and entitled to vote thereon voting
together as a single class. The Company's bylaws may be amended by the board of
directors or a majority of the shares cast of capital stock entitled to vote
thereupon at a duly constituted meeting of stockholders.
If either of the foregoing exemptions in the Articles of Incorporation or
bylaws is amended, the Maryland business combination statute or the control
share acquisition statute could have the effect of discouraging offers to
acquire the Company and of increasing the difficulty of consummating any such
offer.
OWNERSHIP LIMITATIONS AND RESTRICTIONS ON TRANSFERS. For the Company to
remain qualified as a REIT under the Code, not more than 50% in value of its
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year, and such shares must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year. To ensure that
the Company remains a qualified REIT, the Articles of Incorporation provide
that no holder (other than persons approved by the directors at their option
and in their discretion) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the issued and outstanding capital stock of the Company. The board of directors
may waive the Ownership Limit if evidence satisfactory to the board of
directors and the Company's tax counsel is presented that the changes in
ownership will not jeopardize the Company's status as a REIT.
If any stockholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or the
stockholder knows that such transfer would cause the transferee to hold more
than the Ownership Limit, the purported transfer shall be null and void, and
the stockholder will be deemed not to have transferred the shares. In addition,
if any person holds shares of capital stock in excess of the Ownership Limit,
such person will be deemed to hold the excess shares in trust for the Company,
will not receive distributions with respect to such shares and will not be
entitled to vote such shares. The person will be required to sell such shares
to the Company for the lesser of the amount paid for the shares and the average
closing price for the 10 trading days immediately preceding the redemption or
to sell such shares at the direction of the Company, in which case the Company
will be reimbursed for its expenses in connection with the sale and will
receive any amount of such proceeds that exceeds the amount such person paid
for the shares. If the Company repurchases such shares, it may pay for the
shares with Common Units. The foregoing restrictions on transferability and
ownership will not apply if the board of directors and the stockholders (by the
affirmative vote of the holders of two-thirds of the outstanding shares of
capital stock entitled to vote on the matter) determine that it is no longer in
the best interests of the Company to continue to qualify as a REIT.
All certificates representing shares of Common Stock bear a legend
referring to the restrictions described above.
Every beneficial owner of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) of the issued and outstanding
shares of capital stock must file a written notice with the Company no later
than January 30 of each year, containing the name and address of such
beneficial owner, the number of shares of Common Stock and/or Preferred Stock
owned and a description of how the shares are held. In addition, each
stockholder shall be required upon demand to disclose to the Company in writing
such information as the Company may request in order to
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determine the effect of such stockholder's direct, indirect and constructive
ownership of such shares on the Company's status as a REIT.
These ownership limitations could have the effect of precluding
acquisition of control of the Company by a third party unless the board of
directors and the stockholders determine that maintenance of REIT status is no
longer in the best interest of the Company.
OPERATING PARTNERSHIP AGREEMENT. The Operating Partnership Agreement
requires that any merger (unless the surviving entity contributes substantially
all of its assets to the Operating Partnership for Common Units) or sale of all
or substantially all of the assets of the Operating Partnership be approved by
a majority of the holders of Common Units (including Common Units owned by the
Company). The Operating Partnership Agreement also contains provisions relating
to a limited partner's redemption right in the event of certain changes of
control of the Company and under certain circumstances allows for limited
partners to continue to hold Common Units in the Operating Partnership
following such a change of control, thereby maintaining the tax basis in their
Common Units. The covered changes of control (each, a "Trigger Event") are: (i)
a merger involving the Company in which the Company is not the surviving
entity; (ii) a merger involving the Company in which the Company is the
survivor but all or part of the Company's shares are converted into securities
of another entity or the right to receive cash; and (iii) the transfer by the
Company to another entity of substantially all of the assets or earning power
of the Company or the Operating Partnership.
Upon occurrence of a Trigger Event, the rights of a limited partner to
receive a share of the Company's common stock (a "REIT Share") or cash equal to
the fair market value of a REIT Share upon redemption of a Common Unit is
converted into the right to receive a share (a "Replacement Share") or cash
equal to the fair market value thereof of the acquiror or a parent of the
acquiror. If the acquiror does not have publicly traded securities and a parent
of the acquiror does, the publicly traded equity securities of the parent
entity with the highest market capitalization will be the Replacement Shares.
If neither the acquiror nor any parent has publicly traded equity securities,
the Replacement Shares will be the equity securities of the entity with the
highest market capitalization. The number of Replacement Shares to be received
by a limited partner (or to be used to calculate the cash payment due) upon a
redemption of Common Units shall be equal to the number of REIT Shares issuable
prior to the Trigger Event multiplied by (i) the number of Replacement Shares
the holder of a single REIT Share would have received as a result of the
Trigger Event or, if the Replacement Shares have not been publicly traded for
one year, (ii) a fraction, the numerator of which is the Average Trading Price
(as defined in the Operating Partnership Agreement) of a REIT Share as of the
Trigger Event and the denominator of which is the Average Trading Price of a
Replacement Share as of the Trigger Event.
If the acquiror in a Trigger Event is a REIT, it must make provision to
preserve an operating partnership structure with terms no less favorable to the
limited partners than currently in place. In addition, the Operating
Partnership Agreement provides that, if a distribution of cash or property is
made in respect of a Replacement Share, the Operating Partnership will
distribute the same amount in respect of a Common Unit as would have been
received by a limited partner had such partner's Common Units been redeemed for
Replacement Shares prior to such distribution.
Because the Operating Partnership Agreement requires an acquiror to make
provision under certain circumstances to maintain the Operating Partnership
structure and maintain a limited partner's right to continue to hold Common
Units with future redemption rights, the terms of the Operating Partnership
Agreement could also have the effect of discouraging a third party from making
an acquisition proposal for the Company.
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These provisions of the Operating Partnership Agreement may only be waived
or amended upon the consent of limited partners holding at least 75% of the
Common Units (excluding those held by the Company).
SHAREHOLDERS' RIGHTS PLAN. On October 4, 1997, the Company's board of
directors adopted a Shareholders' Rights Plan and declared a distribution of
one preferred share purchase right (a "Right") for each outstanding share of
Common Stock. The Rights were issued on October 16, 1997 to each shareholder of
record on such date and attach to shares of Common Stock subsequently issued.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's board of directors. The Rights should
not interfere with any merger or other business combination approved by the
board of directors since the Rights may be redeemed by the Company for $.01 per
Right prior to the time that a person or group has acquired beneficial
ownership of 15% or more of the Common Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain Federal income tax considerations to the
Company is based on current law, is for general purposes only, and is not tax
advice. The summary addresses the material Federal income tax considerations
relating to the Company's REIT status, as well as material Federal income tax
considerations relating to the Operating Partnership. The tax treatment of a
holder of any of the Securities will vary depending upon the terms of the
specific securities acquired by such holder, as well as his or her particular
situation, and this discussion does not attempt to address any aspects of
Federal income taxation relating to holders of Securities. Certain Federal
income tax considerations relevant to holders of the Securities will be
provided in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE
OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
Commencing with its taxable year ended December 31, 1994, the Company has
elected to be taxed as a real estate investment trust under Sections 856
through 860 of the Code. The Company believes that, commencing with its taxable
year ended December 31, 1994, it has been organized and has operated in such a
manner as to qualify for taxation as a REIT under the Code, and the Company
intends to continue to operate in such a manner, but no assurance can be given
that it has operated or will operate in a manner so as to qualify or remain
qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the Federal income
tax treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretation thereof.
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Alston & Bird LLP has acted as tax counsel to the Company in connection
with the offering of the Securities and the Company's election to be taxed as a
REIT. Alston & Bird LLP is of the opinion that the Company has been organized
and has operated in conformity with the requirements for qualification and
taxation as a REIT under the Code for its taxable years ended December 31, 1994
through 1997, and that the Company is in a position to continue its
qualification and taxation as a REIT within the definition of Section 856(a) of
the Code for the taxable year that will end December 31, 1998. This opinion is
based solely on factual representations of the Company concerning its business
operations and its properties and Alston & Bird LLP has not independently
verified these facts. In addition, the Company's status as a REIT at any time
during 1998 is dependent, among other things, upon the Company meeting the
requirements of Section 856 through 860 of the Code throughout the year and for
the year as a whole. Accordingly, because the Company's satisfaction of such
requirements will depend upon future events, including the precise terms and
conditions of proposed transactions, the final determination of operational
results and the effect of certain provisions contained in the President's
Budget Proposal for the Fiscal Year 1999 on the Company's REIT status, no
assurance can be given that the Company will satisfy the requirements to be a
REIT during the taxable year that will end December 31, 1998.
FEDERAL INCOME TAXATION OF THE COMPANY
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its stockholders, substantially eliminating the Federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
stockholder level when distributed) that usually results from investments in a
corporation. Nevertheless, the Company will be subject to Federal income tax as
follows. First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" as a consequence of its items of tax preference.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails either the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its ordinary income for such
year, (ii) 95% of its capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain
on the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period
(the "Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the Internal Revenue Service
("IRS") (the "Built-In Gain Rules").
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REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must
meet the requirements, discussed below, relating to the Company's organization,
sources of income, and nature of assets.
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association: (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares or
by transferable certificates of beneficial interest, (iii) that would be
taxable as a domestic corporation but for the REIT requirements, (iv) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (v) the beneficial ownership of which is held by 100 or
more persons, (vi) during the last half of each taxable year, not more than 50%
in value of the outstanding stock of which is owned, directly or indirectly,
through the application of certain attribution rules, by five or fewer
individuals (as defined in the Code to include certain entities), (vii) files
an election or continues such election to be taxed as a REIT on its return for
each taxable year, and (viii) satisfies the 95% and 75% income tests and the
75%, 25%, 10%, and 5% asset tests, as described below. The Code provides that
conditions (i) through (iv), inclusive, must be met during the entire taxable
year and that condition (v) must be met during at least 335 days of a taxable
year of 12 months or during a proportionate part of a taxable year of less than
12 months. For purposes of condition (v), certain pension funds and other
tax-exempt entities are treated as persons. For purposes of condition (vi), the
beneficiaries of a pension or profit-sharing trust under section 401(a) of the
Code are treated as REIT stockholders. In addition, the Articles of
Incorporation currently include certain restrictions regarding transfer of its
Common Stock, which restrictions are intended (among other things) to assist
the Company in continuing to satisfy conditions (v) and (vi) above.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and asset tests. Thus, the
Company's proportionate share of the assets, liabilities, and items of income
of the Operating Partnership (including the Operating Partnership's share of
the assets, liabilities, and items of income with respect to any partnership in
which it holds an interest) will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described
herein.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property, including investments in other REITs or mortgages on
real property (including "rents from real property" and, in certain
circumstances, interest). Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must be derived from such real property investments, dividends, interest, and
gain from the sale or disposition of stock or securities (or from any
combination of the foregoing). In addition, for taxable years ended on or
before December 31, 1997, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions). The Taxpayer Relief Act of 1997, enacted August 5, 1997
("Taxpayer Relief Act"), repealed the 30% gross income test for taxable years
beginning after August 5, 1997. Accordingly, the 30% gross income test will not
apply to the Company beginning with its taxable year that will end December 31,
1998.
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Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person but can be based on a
fixed percentage of gross receipts or gross sales. Second, "rents from real
property" excludes any amount received directly or indirectly from any tenant
if the Company, or an owner of 10% of more of the Company, directly or
constructively, owns 10% or more of such tenant taking into consideration the
applicable attribution rules (a "Related Party Tenant"). Third, rent
attributable to personal property is excluded from "rents from real property"
except where such personal property is leased in connection with a lease of
real property and the rent attributable to such personal property is less than
or equal to 15% of the total rent received under the lease. Finally, amounts
that are attributable to services furnished or rendered in connection with the
rental of real property, whether or not separately stated, will not constitute
"rents from real property" unless such services are customarily provided in the
geographic area. Customary services that are not provided to a particular
tenant (e.g., furnishing heat and light, the cleaning of public entrances, and
the collection of trash) can be provided directly by the Company. Where, on the
other hand, such services are provided primarily for the convenience of the
tenants or are provided to such tenants, such services must be provided by an
independent contractor. In the event that an independent contractor provides
such services, the Company must adequately compensate the independent
contractor, the Company must not derive any income from the independent
contractor, and neither the independent contractor nor certain of its
shareholders may, directly or indirectly, own more than 35% of the Company,
taking into consideration the applicable ownership rules. Pursuant to the
Taxpayer Relief Act and beginning with the Company's taxable year that will end
December 31, 1998, the Company's rental income will not cease to qualify as
"rents from real property" merely because the Company performs a de minimis
amount of impermissible services to the tenants. For purposes of the preceding
sentence, (i) the amount of income received from such impermissible services
cannot exceed one percent of all amounts received or accrued during such
taxable year, directly or indirectly, by the Company with respect to such
property and (ii) the amount treated as received by the Company for such
impermissible services cannot be less than 150 percent of the direct cost of
the Company in furnishing or rendering such services.
The Company does not currently charge and does not anticipate charging
rent that is based in whole or in part on the income or profits of any person.
The Company also does not anticipate either deriving rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents or receiving rent from Related Party Tenants.
The Operating Partnership does provide certain services with respect to
the Properties. The Company believes that the services with respect to the
Properties that are and will be provided directly are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants and, therefore, that the provision of
such services will not cause rents received with respect to the Properties to
fail to qualify as rents from real property. Services with respect to the
Properties that the Company believes may not be provided by the Company or the
Operating Partnership directly without jeopardizing the qualification of rent
as "rents from real property" are and will be performed by independent
contractors.
The Operating Partnership and the Company receive fees in consideration of
the performance of property management and brokerage and leasing services with
respect to certain Properties not owned entirely by the Operating Partnership.
Such fees will not qualify under the 75% or the 95% gross income test. The
Operating Partnership also may receive certain other types of income with
respect to the properties it owns that will not qualify for either of these
tests. In addition, dividends on the Operating Partnership's stock in Highwoods
Services will not qualify under the 75% gross
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income test. The Company believes, however, that the aggregate amount of such
fees and other non-qualifying income in any taxable year will not cause the
Company to exceed the limits on non-qualifying income under either the 75% or
the 95% gross income test.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under a certain provision of the Code. This relief
provision generally will be available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii)
the Company attaches a schedule of the nature and amount of each item of income
to its Federal income tax return and (iii) the inclusion of any incorrect
information on such schedule is not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of this relief provision. For example, if the
Company fails to satisfy the gross income tests because non-qualifying income
that the Company intentionally incurs exceeds the limits on such income, the
IRS could conclude that the Company's failure to satisfy the tests was not due
to reasonable cause. As discussed above in " -- Federal Income Taxation of the
Company," even if this relief provision applies, a 100% tax would be imposed
with respect to the portion of the Company's taxable income that fails the 75%
or 95% gross income test.
ASSET TESTS. At the close of each quarter of its taxable year, the Company
also must satisfy four tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash and cash items (including receivables),
and government securities. Second, no more than 25% of the value of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, not more than 5% of the value of the Company's assets
may consist of securities of any one issuer (other than those securities
includible in the 75% asset test). Fourth, not more than 10% of the outstanding
voting securities of any one issuer may be held by the Company (other than
those securities includible in the 75% asset test).
The 5% test generally must be met for any quarter in which the Company
acquires securities of an issuer. Thus, this requirement must be satisfied not
only on the date on which the Company through the Operating Partnership
acquired the securities of Highwoods Services, Inc. ("Highwoods Services"), but
also each time the Company increases its ownership of its respective securities
(including as a result of increasing its interest in the Operating Partnership
as limited partners exercise their redemption rights). Although the Company
plans to take steps to ensure that it satisfies the 5% value test for any
quarter with respect to which retesting is to occur, there can be no assurance
that such steps will always be successful or will not require a reduction in
the Company's overall interest in Highwoods Services.
The Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of Highwoods Services, and by virtue of its ownership of Common
Units, the Company will be considered to own its pro rata share of such stock.
See "The Company and the Operating Partnership." Neither the Company nor the
Operating Partnership, however, will own more than 1% of the voting securities
of Highwoods Services. In addition, the Company and its senior management do
not believe that the Company's pro rata share of the value of the securities of
Highwoods Services exceeds 5% of the total value of the Company's assets. The
Company's belief is based in part upon its analysis of the estimated value of
the securities of Highwoods Services owned by the Operating Partnership
relative to the estimated value of the other assets owned by the Operating
Partnership. No independent appraisals will be obtained to support this
conclusion, and Alston & Bird LLP, in rendering its opinion as to the
qualification and taxation of the Company as a REIT, is relying on the
conclusions of the Company and its senior management as to the value of the
securities of Highwoods Services. There can be no assurance, however, that the
IRS might not contend that the value of such securities held by the Company
(through the Operating Partnership) exceeds the 5% value limitation.
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After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, the Company is required to make
distributions (other than capital gain distributions) to its stockholders in an
amount at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable
income" (computed without regard to the dividends-paid deduction and the
Company's capital gain) and (ii) 95% of the net income, if any, from
foreclosure property in excess of the special tax on income from foreclosure
property, minus (b) the sum of certain items of non-cash income. Such
distributions must be paid in the taxable year to which they relate. Dividends
paid in the subsequent year, however, will be treated as if paid in the prior
year for purposes of such prior year's 95% distribution requirement if one of
the following two sets of criteria are satisfied: (i) the dividends were
declared in October, November, or December, the dividends were payable to
stockholders of record on a specified date in such a month, and the dividends
were actually paid during January of the subsequent year; or (ii) the dividends
were declared before the Company timely files its Federal income tax return for
such year, the dividends were distributed in the twelve month period following
the close of the prior year and not later than the first regular dividend
payment after such declaration, and the Company elected on its Federal income
tax return for the prior year to have a specified amount of the subsequent
dividend treated as if paid in the prior year. Even if the Company satisfies
the foregoing distribution requirements, the Company will be subject to tax
thereon at regular capital gains or ordinary corporate tax rates to the extent
that it does not distribute all of its net capital gain or "REIT taxable
income" as adjusted. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (a) 85% of its ordinary income
for that year, (b) 95% of its capital gain net income for that year, and (c)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. In addition, during its Recognition Period, if
the Company disposes of any asset subject to the Built-In Gain Rules, the
Company will be required, pursuant to guidance issued by the IRS, to distribute
at least 95% of the Built-In Gain (after tax), if any, recognized on the
disposition of the asset.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the Operating Partnership
Agreement authorizes the Company, as general partner, to take such steps as may
be necessary to cause the Operating Partnership to distribute to its partners
an amount sufficient to permit the Company to meet these distribution
requirements.
It is expected that the Company's REIT taxable income will be less than
its cash flow due to the allowance of depreciation and other non-cash charges
in computing REIT taxable income. Accordingly, the Company anticipates that it
generally will have sufficient cash or liquid assets to enable it to satisfy
the 95% distribution requirement. It is possible, however, that the Company,
from time to time, may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement or to distribute such greater amount as may be
necessary to avoid income and excise taxation. In such event, the Company may
find it necessary to arrange for borrowings or, if possible, pay taxable stock
dividends in order to meet the distribution requirement.
In the event that the Company is subject to an adjustment to its REIT
taxable income (as defined in Section 860(d)(2) of the Code) resulting from an
adverse determination by either a final
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court decision, a closing agreement between the Company and the IRS under
Section 7121 of the Code, or an agreement as to tax liability between the
Company and an IRS district director, the Company may be able to rectify any
resulting failure to meet the 95% annual distribution requirement by paying
"deficiency dividends" to stockholders that relate to the adjusted year but
that are paid in a subsequent year. To qualify as a deficiency dividend, the
distribution must be made within 90 days of the adverse determination and the
Company also must satisfy certain other procedural requirements. If the
statutory requirements of Section 860 of the Code are satisfied, a deduction is
allowed for any deficiency dividend subsequently paid by the Company to offset
an increase in the Company's REIT taxable income resulting from the adverse
determination. The Company, however, will be required to pay statutory interest
on the amount of any deduction taken for deficiency dividends to compensate for
the deferral of the tax liability.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of positive current and
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income, except that, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless the Company is entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief. For
example, if the Company fails to satisfy the gross income tests because
non-qualifying income that the Company intentionally incurs exceeds the limit
on such income, the IRS could conclude that the Company's failure to satisfy
the tests was not due to reasonable cause.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that (for Federal income tax purposes) (a) is a citizen or resident of the
United States, (b) is a corporation or partnership (including an entity treated
as a corporation or partnership for United States Federal income tax purposes)
created or organized in or under the laws of the United States or of any
political subdivision thereof, (c) is an estate, the income of which is subject
to Federal income taxation regardless of its source or (d) is any trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust, and one or more United States persons have the
authority to control all substantial decisions of the trust. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts
distributed to taxable U.S. Stockholders will be taxed as discussed below.
DISTRIBUTIONS GENERALLY. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will constitute dividends up to the
amount of the Company's positive current and accumulated earnings and profits
and, to that extent, will be taxable to the U.S. Stockholders as ordinary
income. These distributions are not eligible for the dividends-received
deduction for corporations. To the extent that the Company makes a distribution
in excess of its positive current and accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital, reducing
the tax basis in the U.S. Stockholder's Common Stock, and then the distribution
in excess of such basis will be taxable as gain realized from the sale of its
Common Stock. Dividends
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declared by the Company in October, November, or December of any year payable
to a U.S. Stockholder of record on a specified date in any such month shall be
treated as both paid by the Company and received by the stockholders on
December 31 of the year, provided that the dividends are actually paid by the
Company during January of the following calendar year. U.S. Stockholders are
not allowed to include on their own Federal income tax returns any tax losses
of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed
in " -- Federal Income Taxation of the Company" above.
CAPITAL GAIN DISTRIBUTIONS. Distributions to U.S. Stockholders that are
properly designated by the Company as capital gain distributions will be
treated as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain) for the taxable year without regard to the
period for which the U.S. Stockholder has held his or her stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Capital gain dividends are not eligible for
the dividends-received deduction for corporations.
Pursuant to the Taxpayer Relief Act and beginning with the Company's
taxable year that will end December 31, 1998, the Company may elect to retain
and pay income tax on net long-term capital gain that it received during the
tax year. If such election is made, (i) the U.S. Stockholders will include in
their income their proportionate share of the undistributed long-term capital
gains as designated by the Company; (ii) the U.S. Stockholders will be deemed
to have paid their proportionate share of the tax, which would be credited or
refunded to such stockholders, and (iii) the basis of the U.S. Stockholders'
shares will be increased by the amount of the undistributed long-term capital
gains (less the amount of capital gains tax paid by the Company) included in
such stockholders' long-term capital gains.
As a result of the changes made to the capital gain rates by the Taxpayer
Relief Act (See " -- CERTAIN DISPOSITIONS OF SHARES"), the IRS issued Notice
97-64 outlining when a REIT may designate its dividends as capital gain
dividends until Treasury Regulations are issued. When a REIT designates a
distribution as a capital gain dividend, which is attributable to a taxable
year ending after May 7, 1997, for purposes of the annual distribution
requirement, the REIT also may designate such dividend as a 20% rate gain
distribution or as unrecaptured section 1250 gain distribution. These
additional designations by the REIT are effective only to the extent that they
do not exceed certain limitations. For example, the maximum amount of each
distribution that can be classified as a particular type of distribution must
be calculated in accordance with the Code and the IRS Notice. The additional
28% tax rate group identified by IRS Notice 97-64 has effectively been
eliminated by the Internal Revenue Restructuring Reform Act of 1998 (the "IRS
Restructuring Act").
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS. Distributions
from the Company and gain from the disposition of Common Stock will not be
treated as passive activity income and, therefore, U.S. Stockholders will not
be able to apply any "passive losses" against such income. Dividends from the
Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of the investment interest
limitation. Net capital gain from the disposition of Common Stock or capital
gain dividends generally will be excluded from investment income unless the
U.S. Stockholder elects to have such gain taxed at ordinary income rates.
CERTAIN DISPOSITIONS OF SHARES. In general, U.S. Stockholders will realize
capital gain or loss on the disposition of Common Stock equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition, and (ii) such stockholders' adjusted basis in
such Common Stock. Losses incurred on the sale or exchange of Common Stock held
for less than six months (after applying certain holding period rules) will be
deemed long-term capital loss to the extent of any capital gain dividends
received by the selling U.S. Stockholder from those
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shares. As a result of the Taxpayer Relief Act and the IRS Restructuring Act,
the maximum rate of tax on net capital gains on individuals, trusts, and
estates from the sale or exchange of assets held for more than one year has
been reduced to 20%, and such maximum rate is further reduced to 18% for assets
acquired after December 31, 2000, and held for more than five years. For 15%
percent bracket taxpayers, the maximum rate on net capital gains is reduced to
10%, and such maximum rate is further reduced to 8% for assets sold after
December 31, 2000, and held for more than five years. The maximum rate for net
capital gains attributable to the sale of depreciable real property held for
more than one year is 25% to the extent of the deductions for depreciation with
respect to such property. Long-term capital gain allocated to U.S. Stockholders
by the Company will be subject to the 25% rate to the extent that the gain does
not exceed depreciation on real property sold by the Company. The taxation of
capital gains of corporations was not changed by the Taxpayer Relief Act or the
IRS Restructuring Act.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS. Distributions from the Company to a
tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry its Common Stock.
Qualified trusts that hold more than 10% (by value) of the shares of
pension-held REITs may be required to treat a certain percentage of such a
REIT's distributions as UBTI. This requirement will apply only if (i) the REIT
would not qualify as such for Federal income tax purposes but for the
application of a "look-through" exception to the five or fewer requirement
applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if
either (i) at least one qualified trust holds more than 25% by value of the
REIT interests or (ii) one or more qualified trusts, each owning more than 10%
by value of the REIT interests, hold in the aggregate more than 50% of the REIT
interests. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (a) the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to (b) the total gross
income (less certain associated expenses) of the REIT. In the event that this
ratio is less than 5% for any year, then the qualified trust will not be
treated as having received UBTI as a result of the REIT dividend. For these
purposes, a qualified trust is any trust described in Section 401(a) of the
Code and exempt from tax under Section 501(a) of the Code. The restrictions on
ownership of Common Stock in the Articles of Incorporation generally will
prevent application of the provisions treating a portion of REIT distributions
as UBTI to tax-exempt entities purchasing Common Stock, absent a waiver of the
restrictions by the board of directors.
SPECIAL TAX CONSIDERATIONS FOR NON-U.S. STOCKHOLDERS
The rules governing United States income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of these rules. This discussion is
based on current law, which is subject to change, and assumes that the Company
qualifies for taxation as a REIT. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of Federal, state,
local, and foreign income tax laws on an investment in the Company, including
any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular United States
Federal income tax with respect to their investment in the Company if the
income from such investment is "effectively connected" with the Non-U.S.
Stockholder's conduct of a trade or business in the United States. A corporate
Non-U.S. Stockholder that receives income that is (or is treated as)
effectively connected with a U.S. trade or business also may be subject to the
branch profits tax under Section 884 of the Code, which is imposed in addition
to regular United States Federal income tax generally at the rate of 30%,
subject to reduction under a tax treaty, if applicable. Certain certification
requirements must be met in order for effectively connected income to be exempt
from withholding. The following
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discussion will apply to Non-U.S. Stockholders whose income from their
investments in the Company is not so effectively connected (except to the
extent that the FIRPTA rules discussed below treat such income as effectively
connected income).
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain distribution will be
treated as an ordinary income dividend to the extent that it is made out of
current or accumulated earnings and profits of the Company. Generally, any
ordinary income dividend will be subject to a Federal income tax equal to 30%
of the gross amount of the dividend, withheld by the Company, unless this tax
is reduced by an applicable tax treaty. Such a distribution in excess of the
Company's earnings and profits will be treated first as a return of capital
that will reduce a Non-U.S. Stockholder's basis in its Common Stock (but not
below zero) and then as gain from the disposition of such shares, the tax
treatment of which is described under the rules discussed below with respect to
dispositions of Common Stock.
Distributions by the Company that are attributable to gain from the sale
or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Such distributions
also may be subject to a 30% branch profits tax when made to a foreign
corporation that is not entitled to an exemption or reduced branch profits tax
rate under an income tax treaty.
Although tax treaties may reduce the Company's withholding obligations,
the Company generally will be required to withhold from distributions to
Non-U.S. Stockholders, and remit to the IRS, (i) 35% of designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could be
designated as capital gain dividends) and (ii) 30% of ordinary dividends paid
out of earnings and profits, unless reduced by an applicable tax treaty. In
addition, if the Company designates prior distributions as capital gain
dividends, subsequent distributions, up to the amount of such prior
distributions that were designated as capital gains dividends, will be treated
as capital gain dividends for purposes of withholding. In addition, the Company
may be required to withhold 10% of distributions in excess of the Company's
current and accumulated earnings and profits. If the amount of tax withheld by
the Company with respect to a distribution to a Non-U.S. Stockholder exceeds
the stockholder's United States tax liability with respect to such
distribution, the Non-U.S. Stockholder may file for a refund of such excess
from the IRS.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to Federal income taxation. The
Common Stock will not constitute a United States real property interest if the
Company is a "domestically-controlled REIT." A domestically-controlled REIT is
a REIT in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders. It
currently is anticipated that the Company will be a domestically-controlled
REIT and, therefore, that the sale of Common Stock will not be subject to
taxation under FIRPTA. However, because the Common Stock will be publicly
traded, no assurance can be given that the Company will be a
domestically-controlled REIT. If the Company were not a domestically-controlled
REIT, a Non-U.S. Stockholder's sale of Common Stock would be subject to tax
under FIRPTA as a sale of a United States real property interest unless the
Common Stock were "regularly traded" on an established securities market (such
as the NYSE) on which the Common Stock will be listed and the selling
stockholder owned no more than 5% of the Common Stock throughout the applicable
testing period. If the gain on the sale of Common Stock were subject to
taxation under FIRPTA, the Non-U.S. Stockholder would be subject to the same
treatment as a U.S.
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Stockholder with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Notwithstanding the foregoing, capital gains not subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is
a nonresident alien individual who is present in the United States for 183 days
or more during the taxable year and certain other conditions apply, in which
case the nonresident alien individual will be subject to a 30% tax on his or
her U.S. source capital gains.
A purchaser of Common Stock from a Non-U.S. Stockholder will not be
required to withhold under FIRPTA on the purchase price if the purchased Common
Stock is "regularly traded" on an established securities market or if the
Company is a domestically-controlled REIT. Otherwise, the purchaser of Common
Stock from a Non-U.S. Stockholder may be required to withhold 10% of the
purchase price and remit this amount to the IRS. The Company's Common Stock
currently is a regularly traded security on the NYSE. The Company believes that
it qualifies under both the regularly traded and the domestically-controlled
REIT exceptions to withholding but cannot provide any assurance to that effect.
Upon the death of a nonresident alien individual, such individual's Common
Stock will be treated as part of such individual's U.S. estate for purposes of
the U.S. estate tax, except as may be otherwise provided in an applicable
estate tax treaty.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
(i) the payee fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security Number)
to the payor as required, (ii) the IRS notifies the payor that the taxpayer
identification number furnished by the payee is incorrect, (iii) the IRS has
notified the payee that such payee has failed to properly include reportable
interest and dividends in the payee's return or has failed to file the
appropriate return and the IRS has assessed a deficiency with respect to such
underreporting, or (iv) the payee has failed to certify to the payor, under
penalties of perjury, that the payee is not subject to withholding. In
addition, backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
U.S. Stockholder will be allowed as a credit against the U.S. Stockholder's
United States Federal income tax liability and may entitle the U.S. Stockholder
to a refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. For example, on October 7, 1997, the
Treasury Department issued new regulations (the "New Regulations") that make
certain modifications to the withholding, backup withholding, and information
reporting rules. On March 27, 1998, the Treasury Department and the IRS
released Notice 98-16, which announced that the effective date of the New
Regulations will be extended to apply generally to payments made to foreign
persons after December 31, 1999. Non-U.S. Stockholders should consult their tax
advisors with regard to U.S. information reporting and backup withholding.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
General. Substantially all of the Company's investments are held through
the Operating Partnership. In general, partnerships are "pass-through" entities
which are not subject to Federal income
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tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction, and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. The Company includes in its income its
proportionate share of the foregoing Operating Partnership items for purposes
of the various REIT income tests and in the computation of its REIT taxable
income. Moreover, for purposes of the REIT asset tests, the Company includes
its proportionate share of assets held by the Operating Partnership.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Code, income, gain, loss, and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated
in a manner such that the contributing partner is charged with, or benefits
from the unrealized gain or unrealized loss, respectively, associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for Federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property (including the Properties). Consequently, the Operating
Partnership Agreement requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the partners who have contributed partnership interests in the
Properties to the Operating Partnership (the "Contributing Partners") will be
allocated lower amounts of depreciation deductions for tax purposes than such
deductions would be if determined on a pro rata basis. In addition, in the
event of the disposition of any of the contributed assets (including the
Properties) that have a Book-Tax Difference, all taxable income attributable to
such Book-Tax Difference generally will be allocated to the Contributing
Partners, and the Company generally will be allocated only its share of capital
gains attributable to appreciation, if any, occurring after the closing of the
acquisition of such properties. This will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) of the Code do not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific
taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership will cause the
Company to be allocated lower depreciation and other deductions and possibly
amounts of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result of such sale.
This may cause the Company to recognize taxable income in excess of cash
proceeds, which might adversely affect the Company's ability to comply with the
REIT distribution requirements. See " -- Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including the "traditional method" that may leave some of the Book-Tax
Differences unaccounted for, or the election of certain methods which would
permit any distortions caused by a Book-Tax Difference at this time to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the Properties contributed to the Partnership. As a
result of such determination, distributions to stockholders will be comprised
of a greater portion of taxable income rather than a return of capital. The
Operating Partnership and the Company have not determined which of the
alternative methods of accounting for Book-Tax Differences will be elected with
respect to Properties contributed to the Partnership in the future.
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With respect to any property purchased by the Operating Partnership, such
property initially will have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share
of the Operating Partnership's income and (b) its allocable share of
indebtedness of the Operating Partnership and (iii) will be reduced, but not
below zero, by the Company's allocable share of (a) losses suffered by the
Operating Partnership, (b) the amount of cash distributed to the Company, and
(c) constructive distributions resulting from a reduction in the Company's
share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners) exceed the Company's adjusted tax basis,
such excess distributions (including such constructive distributions)
constitute taxable income to the Company. Such taxable income normally will be
characterized as a capital gain if the Company's interest in the Operating
Partnership has been held for longer than one year, subject to reduced tax
rates described above (See " -- Taxation of U.S. Stockholders -- CAPITAL GAIN
DISTRIBUTIONS"). Under current law, capital gains and ordinary income of
corporations generally are taxed at the same marginal rates.
SALE OF THE PROPERTIES. The Company's share of gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See " -- Requirements for Qualification -- Income Tests." Such
prohibited transaction income also may have an adverse effect upon the
Company's ability to satisfy the income tests for qualification as a REIT.
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of the Operating Partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating Partnership intends
to hold the Properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating the
Properties (and other properties) and to make such occasional sales of the
Properties, including peripheral land, as are consistent with the Operating
Partnership's investment objectives.
OTHER TAX CONSIDERATIONS
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from the Operating Partnership through distributions on
stock of Highwoods Services held by the Operating Partnership. Highwoods
Services will not qualify as a REIT and will pay Federal, state, and local
income taxes on its taxable income at normal corporate rates. Any Federal,
state, or local income taxes that Highwoods Services is required to pay will
reduce the cash available for distribution by the Company to its stockholders.
As described above, the value of the securities of Highwoods Services held
by the Company cannot exceed 5% of the value of the Company's assets at a time
when a Common Unit holder in the Operating Partnership exercises his or her
redemption right (or the Company otherwise is considered to acquire additional
securities of Highwoods Services). See " -- Federal Income Taxation
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of the Company." This limitation may restrict the ability of Highwoods Services
to increase the size of its business unless the value of the assets of the
Company is increasing at a commensurate rate.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
various states and localities, including those in which it or they transact
business, own property, or reside. The tax treatment of the Company and the
stockholders in such jurisdictions may differ from the Federal income tax
treatment described above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Common Stock of the Company.
PROPOSED LEGISLATION
Under current law, the Company cannot own more than 10% of the outstanding
voting securities (other than those securities includible in the 75% asset
test) of any one issuer and qualify for taxation as a REIT. See " --
Requirements for Qualification -- ASSET TESTS". For example, the Operating
Partnership owns 100% of the nonvoting stock and 1% of the voting stock of
Highwoods Services, and by virtue of its ownership of Common Units, the Company
is considered to own its pro rata share of such stock. Neither the Company nor
the Operating Partnership, however, own more than 1% of the voting securities
of Highwoods Services and the 10% test is satisfied.
The Company conducts its third-party fee-based services (I.E., leasing,
property management, real estate development, construction and other
miscellaneous services) through Highwoods Services. The President's Budget
Proposal for Fiscal Year 1999 ("Budget Proposal") includes a provision to
restrict these types of activities conducted by REITs under current law by
expanding the ownership limitation from no more than 10% of the voting
securities of an issuer to no more than 10% of the vote or value of all classes
of the issuer's stock. The Company, therefore, could not own stock (either
directly or indirectly through the Operating Partnership) possessing more than
10% of the vote or value of all classes of any issuer's stock.
The Budget Proposal would be effective only with respect to stock directly
or indirectly acquired by the Company on or after the date of first committee
action. To the extent that the Company's stock ownership in Highwoods Services
is grandfathered by virtue of this effective date, that grandfathered status
will terminate if Highwoods Services engages in a trade or business that it is
not engaged in on the date of first committee action or acquires substantial
new assets on or after that date. Such restriction, if enacted, would adversely
affect the ability to expand the business of Highwoods Services. The Budget
Proposal, however, will not become effective until legislation is duly passed
by Congress and signed by the President. Consequently, it is not possible to
determine at this time all the ramifications that would result from legislation
based on the Budget Proposal.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to one
or more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents or through a combination of
any such method of sale. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
The distribution of Securities may be effected from time to time in
transactions at a fixed price or prices, which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Company and the Operating Partnership also
may, from time to time, authorize underwriters acting as their agents to offer
and sell the Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Securities,
underwriters may be deemed to have received compensation
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from the Company or the Operating Partnership in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Securities for whom they may act as agent. Underwriters may sell Securities to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company and the Operating
Partnership, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company and
the Operating Partnership will authorize dealers acting as their agents to
solicit offers by certain institutions to purchase Securities from them at the
public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be
subject to the approval of the Company and the Operating Partnership. Contracts
will not be subject to any conditions except (i) the purchase by an institution
of the Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which
such institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company and the Operating Partnership shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and the
Operating Partnership in the ordinary course of business.
EXPERTS
The consolidated financial statements and schedule of Highwoods
Properties, Inc., incorporated herein by reference from the Company's annual
report (Form 10-K) for the year ended December 31, 1997 (as amended on Form
10-K/A filed on April 29, 1998 and May 19, 1998), and of Highwoods Realty
Limited Partnership, incorporated herein by reference from the Operating
Partnership's annual report (Form 10-K) for the year ended December 31, 1997
(as amended on Form 10-K/A filed on April 29, 1998 and May 19, 1998), the
statement of revenues and certain expenses of Garcia Properties for the year
ended December 31, 1997 incorporated herein by reference from the Company's
current report on Form 8-K dated February 4, 1998, the statements of revenues
and certain expenses of Shelton Properties, Riparius Properties and Winners
Circle for the year ended December 31, 1996 incorporated herein by reference
from the Company's current report on Form 8-K dated November 17, 1997, and the
statement of revenue and certain expenses of Anderson Properties, Inc. and the
statement of revenue and certain expenses of Century Center Group for the year
ended December 31, 1996 incorporated herein by reference from the Company's
current report on Form 8-K dated January 9, 1997 (as amended on Forms 8-K/A
filed on February 7, 1997, March
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10, 1997 and April 28, 1998), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The combined statement of revenue and certain operating expenses of the
Associated Capital Properties Portfolio for the year ended December 31, 1996,
and the combined statement of revenue and certain operating expenses of the
1997 Pending Acquisitions for the year ended December 31, 1996, incorporated by
reference herein from the Company's current reports on Form 8-K dated August
27, 1997 (as amended on Form 8-K/A filed September 23, 1997) and dated October
1, 1997, and the Operating Partnership's current report on Form 8-K dated
October 1, 1997, have been so incorporated in reliance upon the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of J.C. Nichols Company and
subsidiaries as of December 31, 1997 and for each of the years in the
three-year period then ended, incorporated by reference herein from the
Company's current report on Form 8-K dated July 3, 1998 (as amended on Form
8-K/A filed September 28, 1998 and Form 8-K/A filed September 30, 1998), and
the Operating Partnership's current report on Form 8-K dated July 3, 1998 (as
amended on Form 8-K/A filed September 28, 1998), have been so incorporated in
reliance upon the report of KPMG Peat Marwick LLP, independent accountants,
given on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Securities offered hereby is being passed upon for the
Company and the Operating Partnership by Alston & Bird LLP, Raleigh, North
Carolina. In addition, the description of Federal income tax consequences
contained in this Prospectus entitled "Federal Income Tax Considerations" is
based upon the opinion of Alston & Bird LLP.
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AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the information
reporting requirements of the Exchange Act and in accordance therewith the
Company files reports, proxy statements and other information with the
Commission and the Operating Partnership files reports with the Commission.
Such reports, proxy statements and other information may be inspected and
copied, at prescribed rates, at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 25049, Room 1024, and at
the Commission's New York regional office at Seven World Trade Center, New
York, New York 10048 and at the Commission's Chicago regional office at
Citicorp Center, 500 W. Madison Street, Chicago, Illinois 60661. Such
information, when available, also may be accessed through the Commission's
electronic data gathering, analysis and retrieval system ("EDGAR") via
electronic means, including the Commission's home page on the Internet
(http://www.sec.gov). In addition, the Common Stock of the Company, certain
series of Preferred Stock and Depositary Shares of the Company and certain debt
securities of the Operating Partnership are listed on the NYSE, and similar
information concerning the Company or the Operating Partnership can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
The Company and the Operating Partnership have filed with the Commission a
registration statement on Form S-3 under the Securities Act with respect to the
Securities. This Prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement and in the exhibits and schedules thereto. For further
information with respect to the Company, the Operating Partnership and the
Securities, reference is hereby made to such registration statement, exhibits
and schedules. The registration statement may be inspected without charge at,
or copies obtained upon payment of prescribed fees from, the Commission and its
regional offices at the locations listed above. Any statements contained herein
concerning a provision of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the registration statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company or the Operating Partnership
with the Commission pursuant to the Exchange Act are incorporated herein by
reference and made a part hereof:
a. The Company's annual report on Form 10-K for the year ended December
31, 1997 (as amended on April 29, 1998 and May 19, 1998);
b. The Operating Partnership's annual report on Form 10-K for the year
ended December 31, 1997 (as amended on April 29, 1998 and May 19, 1998);
c. The Company's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
d. The Operating Partnership's quarterly reports on Form 10-Q for the
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998;
e. The Company's current reports on Form 8-K, dated January 9, 1997 (as
amended on February 7, 1997, March 10, 1997 and April 28, 1998), August
27, 1997 (as amended on September 23, 1997), October 1, 1997, November
17, 1997, January 22, 1998, February 2, 1998, February 4, 1998, April 20,
1998, April 29, 1998, June 10, 1998, June 17, 1998, July 1, 1998, July 3,
1998 (as amended on September 28, 1998 and September 30, 1998) and
November 20, 1998;
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f. The Operating Partnership's current reports on Form 8-K, dated January
9, 1997 (as amended on February 7, 1997, March 10, 1997 and April 28,
1998), October 1, 1997, November 17, 1997, January 22, 1998, February 2,
1998, February 4, 1998, April 20, 1998, April 29, 1998, June 10, 1998,
June 17, 1998, July 1, 1998, July 3, 1998 (as amended on September 28,
1998) and November 20, 1998; and
g. The description of the Common Stock of the Company included in the
Company's registration statement on Form 8-A, dated May 16, 1994.
All documents filed by the Company or the Operating Partnership with the
Commission pursuant to Sections 13(a) and 13(c) of the Exchange Act and any
definitive proxy statements so filed pursuant to Section 14 of the Exchange Act
and any reports filed pursuant to Section 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering of the
Securities to which this Prospectus relates shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for the purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that is incorporated by reference herein
modifies or supersedes such earlier statement. Any such statements modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of any or all of the documents specifically incorporated herein by
reference (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents) will be furnished
without charge to each person to whom a copy of this Prospectus is delivered
upon written or oral request. Requests should be made to: Highwoods Properties,
Inc., Investor Relations, 3100 Smoketree Court, Suite 600, Raleigh, North
Carolina 27604.
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HIGHWOODS REALTY (logo)
LIMITED PARTNERSHIP
