Filed pursuant to Rule 424(b)5
Registration No. 333-51671
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 20, 1998)
[HIGHWOODS REALTY LIMITED PARTNERSHIP LOGO APPEARS HERE]
$50,000,000
Highwoods Realty
Limited Partnership
8 1/8% NOTES DUE 2009
----------------
Interest payable on January 15 and July 15
----------------
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 99.390% AND ACCRUED INTEREST, IF ANY
----------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Our
Public Commissions Proceeds
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Note ......... 99.390% .650% 98.740%
Total ............ $49,695,000 $325,000 $49,370,000
</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
December 9, 1998.
----------------
MORGAN STANLEY DEAN WITTER
December 4, 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-6
The Properties ............................................................ S-10
Use of Proceeds ........................................................... S-12
Capitalization ............................................................ S-12
Selected Financial Data ................................................... S-13
Description of Notes ...................................................... S-15
Underwriter ............................................................... S-19
Legal Matters ............................................................. S-20
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 the 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 as of September 30, 1998 of (1) this offering and (2)
our offering of notes due 2003 as more fully discussed under "Recent
Developments," our debt as of September 30, 1998 would have totaled
approximately $1.8 billion and would have represented approximately 43% of
total market capitalization.
S-5
<PAGE>
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
We previously reported that we had signed a letter of intent in November
1998 to sell certain non-core office properties in Florida for gross proceeds
of approximately $130 million. We have terminated this letter of intent.
Although we continue to market such non-core office properties to other
potential buyers, we cannot assure you that any of the properties will be sold.
Non-core properties generally include single buildings that do not fit our
long-term strategy. 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.
Recent Financing Activity
On November 25, 1998, we sold $150 million of 8% notes due December 1,
2003 in an underwritten public offering for net proceeds of approximately
$148.1 million. We refer to the notes due 2003 as the "2003 Notes." Interest on
the 2003 Notes is payable twice a year on June 1 and December 1 of each year,
beginning on June 1, 1999.
S-6
<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
========= ======== ========
<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-7
<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 -- 3Q 98 1Q 99
Tradeport 2 -- 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-8
<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-9
<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-10
<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-11
<PAGE>
USE OF PROCEEDS
The net cash proceeds to the Operating Partnership of the Notes offered
hereby (the "Offering") are expected to be approximately $49.3 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 Underwriter in connection with the Offering consists of
underwriting discounts of $325,000. 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 $50,000. 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"), and to pay approximately $4.5
million to settle a treasury lock agreement. As of December 4, 1998,
approximately $349.5 million of indebtedness attributable to the Operating
Partnership was outstanding on the Revolving Loan, which bore interest at a
weighted average rate of 6.10%. (The Company and an unconsolidated subsidiary
of the Operating Partnership have approximately $109.5 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.
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of September 30, 1998 and as adjusted to give effect to (1) the
issuance and sale of the Notes offered hereby and the application of the net
proceeds therefrom (excluding $4.5 million to be used to settle a treasury lock
agreement) to repay approximately $44.8 million under the Revolving Loan and
(2) the issuance and sale of $150 million of 2003 Notes and the application of
the net proceeds therefrom to repay approximately $148.1 million under the
Revolving Loan. 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 $ 206,087
Other unsecured debt ................. 756,253 956,253
Secured debt ......................... 622,760 622,760
---------- ----------
Total debt .......................... 1,778,013 1,785,100
---------- ----------
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 $4,000,217
========== ==========
</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-12
<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-13
<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-14
<PAGE>
DESCRIPTION OF NOTES
General
The 8 1/8% Notes due January 15, 2009, (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 the offering of 2003
Notes were, and substantially all of 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 December 9, 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
January 15 and July 15 of each year (each, an "Interest Payment Date"),
commencing January 15, 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.
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 January 15, 2009 (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-15
<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 (i) Morgan Stanley & Co. Incorporated
and its successor; provided, however, that if 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, and (ii) any other Primary Treasury Dealer selected by the
Independent Investment Banker after consultation with the Operating
Partnership.
S-16
<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-17
<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 of 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-18
<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.
UNDERWRITER
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Underwriting Agreement"), dated
December 4, 1998, the Operating Partnership has agreed to sell to Morgan
Stanley & Co. Incorporated (the "Underwriter"), and the Underwriter has agreed
to purchase, $50,000,000 principal amount of the Notes.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any are purchased.
The Underwriter proposes initially to offer part of the Notes to the
public at the public offering price set forth on the cover page hereof and part
to certain dealers at a price that represents a concession not in excess of
.40% of the principal amount of the Notes. The 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 Underwriter.
In order to facilitate the offering of the Notes, the Underwriter may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Notes. Specifically, the Underwriter may overallot in connection with
the Offering, creating a short position in the Notes for its own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriter 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 Underwriter is not required to engage in these
activities and may end any of these activities at any time.
The Notes are a new issue of securities with no established trading
market. The Operating Partnership has been advised by the Underwriter that it
intends to make a market in the Notes but it is 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
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to make contribution to certain payments
in respect thereof.
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The Underwriter provides investment banking, advisory and other financial
services to the Operating Partnership and its affiliates for which it receives
customary fees.
The total amount of compensation to be paid to the Underwriter in
connection with the Offering consists of underwriting discounts of $325,000.
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 $50,000.
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
Underwriter 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.
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