424(b)(3)
333-31183-01
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JANUARY 22, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 22, 1998)
$200,000,000
[HIGWOODS
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP LOGO
GOES HERE]
$100,000,000 % MANDATORY PAR PUT REMARKETED SECURITIESSM ("MOPPRSSM") DUE
JANUARY , 2013
$100,000,000 % NOTES DUE JANUARY ,
------------------------
Highwoods/Forsyth Limited Partnership (the "Operating Partnership") is
offering the % MandatOry Par Put Remarketed SecuritiesSM ("MOPPRSSM") due
January , 2013 and the % Notes due January , (the "Notes" and,
together with the MOPPRS, the "Offered Securities"). Interest on the Offered
Securities will be payable semiannually on January and July of each year,
commencing July , 1998. Except in the limited circumstances described herein,
the MOPPRS are not subject to redemption by the Operating Partnership on or
prior to January , 2003 (the "Remarketing Date"). After the Remarketing Date,
the MOPPRS are subject to redemption by the Operating Partnership, in whole or
in part, at the redemption prices set forth herein plus accrued and unpaid
interest. The Notes are subject to redemption by the Operating Partnership, in
whole or in part, at any time, at the redemption prices set forth herein plus
accrued and unpaid interest. See "Description of Offered
Securities -- Redemption."
The annual interest rate on the MOPPRS to the Remarketing Date is %. ON
THE REMARKETING DATE, THE MOPPRS WILL, IN ALL CASES, BE SUBJECT TO MANDATORY
TENDER TO THE REMARKETING DEALER OR SUBJECT TO REPURCHASE BY THE OPERATING
PARTNERSHIP AS DESCRIBED BELOW. If Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Remarketing Dealer (the "Remarketing Dealer"), has elected to
remarket the MOPPRS as described herein, the MOPPRS will be subject to mandatory
tender to the Remarketing Dealer at a price equal to 100% of the principal
amount thereof for remarketing on the Remarketing Date, except in the limited
circumstances described herein. See "Description of Offered Securities -- Tender
of MOPPRS; Remarketing." If the Remarketing Dealer for any reason does not
purchase all tendered MOPPRS on the Remarketing Date or elects not to remarket
the MOPPRS, or in certain other limited circumstances described herein, the
Operating Partnership will be required to repurchase the entire principal amount
of the MOPPRS from the beneficial owners ("Beneficial Owners") thereof at 100%
of the principal amount thereof plus accrued interest, if any. See "Description
of Offered Securities -- Repurchase."
Ownership of the Offered Securities will be maintained in book-entry form
by or through The Depository Trust Company ("DTC"). Interests in the Offered
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Beneficial Owners of
the Offered Securities will not have the right to receive physical certificates
evidencing their ownership except under the limited circumstances described
herein. Settlement for the Offered Securities will be made in immediately
available funds. The secondary market trading activity in the Offered Securities
will therefore settle in immediately available funds. All payments of principal
and interest on the Offered Securities will be made by the Operating Partnership
in immediately available funds so long as the Offered Securities are maintained
in book-entry form. Beneficial interests in the Offered Securities may be
acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples thereof. See "Description of Offered Securities -- Book-Entry
System" and " -- Same-Day Settlement and Payment."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
The MOPPRS will be sold to the public at varying prices relating to
prevailing market prices at the time of resale to be determined by the MOPPRS
Underwriters (as defined herein) at the time of each sale. The net proceeds to
the Operating Partnership will be % of the principal amount of the MOPPRS
sold, and the aggregate gross proceeds, before deducting offering expenses of
$175,000 payable by the Operating Partnership, will be $ , plus accrued
interest, if any, from January , 1998. The Notes will be sold in a fixed-price
offering on the terms set forth in the table below. For further information with
respect to the plan of distribution, see "Underwriting."
[CAPTION]
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO OPERATING
PUBLIC (1) DISCOUNT (2) PARTNERSHIP (1)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............................................ % % %
- -----------------------------------------------------------------------------------------------------------------------------------
Total............................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from January , 1998.
(2) The Operating Partnership and Highwoods Properties, Inc. (the "Company")
have agreed to indemnify the Underwriters against or make contributions
relating to certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of $175,000 payable by the Operating
Partnership.
------------------------
The Offered Securities are offered by the several Underwriters as specified
herein, subject to prior sale, when, as and if issued to and accepted by them
and subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Offered Securities will be made through the
book-entry facilities of DTC on or about January , 1998.
------------------------
MANAGERS OF THE MOPPRS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
MANAGERS OF THE NOTES
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
The date of this Prospectus Supplement is January , 1998.
- ---------------
"MandatOry Par Put Remarketed SecuritiesSM" and "MOPPRSSM" are service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
[HIGHWOODS
PROPERTIES
LOGO]
[MAP GRAPHICS GOES HERE]
<TABLE>
<S> <C> <C> <C>
RESEARCH TRIANGLE
Raleigh-Durham, NC
OFFICE: 4,408,492 S.F.
INDUSTRIAL: 277,628 S.F. JACKSONVILLE, FL
OFFICE: 1,465,139 S.F.
ATLANTA, GA
OFFICE: 2,379,464 S.F. CHARLOTTE, NC
INDUSTRIAL: 2,445,367 S.F. OFFICE: 964,476 S.F.
INDUSTRIAL: 464,114 S.F.
TAMPA, FL
OFFICE: 2,904,587 S.F. RICHMOND, VA TALLAHASSEE, FL
OFFICE: 1,118,763 S.F. OFFICE: 244,676 S.F.
SOUTH FLORIDA INDUSTRIAL: 159,963 S.F.
OFFICE: 2,384,044 S.F. NORFOLK, VA
GREENVILLE, SC OFFICE: 168,224 S.F.
PIEDMONT TRIAD OFFICE: 882,839 S.F. INDUSTRIAL: 97,633 S.F.
Winston-Salem/Greensboro, NC INDUSTRIAL: 118,802 S.F.
OFFICE: 1,819,881 S.F. BIRMINGHAM, AL
INDUSTRIAL: 2,919,111 S.F. MEMPHIS, TN OFFICE: 115,289 S.F.
OFFICE: 606,549 S.F.
NASHVILLE, TN ASHEVILLE, NC
OFFICE: 1,485,491 S.F. BALTIMORE, MD OFFICE: 63,500 S.F.
INDUSTRIAL: 335,994 S.F. OFFICE: 364,434 S.F. INDUSTRIAL: 60,677 S.F.
ORLANDO, FL COLUMBIA, SC FT. MYERS, FL
OFFICE: 1,990,148 S.F. OFFICE: 423,738 S.F. OFFICE: 51,831 S.F.
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE NOTES MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
NOTES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO
COVER THE UNDERWRITERS' SHORT POSITIONS. CERTAIN PERSONS PARTICIPATING IN THE
OFFERING OF THE MOPPRS MAY ENGAGE IN TRANSACTIONS THAT MAINTAIN OR OTHERWISE
AFFECT THE PRICE OF THE MOPPRS. SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT
TRANSACTIONS AND THE PURCHASE OF MOPPRS TO COVER THE UNDERWRITERS' SHORT
POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DESCRIPTIONS AND THE FINANCIAL INFORMATION AND STATEMENTS APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED
HEREIN AND THEREIN BY REFERENCE. CAPITALIZED TERMS USED IN THIS PROSPECTUS
SUPPLEMENT SUMMARY HAVE THE MEANINGS SET FORTH ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS (I) "OPERATING PARTNERSHIP" SHALL MEAN HIGHWOODS/FORSYTH
LIMITED PARTNERSHIP AND THOSE ENTITIES OWNED OR CONTROLLED BY IT AND ITS
PREDECESSORS, (II) "PROPERTIES" SHALL MEAN THE 342 OFFICE AND 139 INDUSTRIAL
(INCLUDING 73 SERVICE CENTER) PROPERTIES OWNED BY THE OPERATING PARTNERSHIP AS
OF DECEMBER 31, 1997 AND (III) "OFFERING" SHALL MEAN THE OFFERING OF THE %
MANDATORY PAR PUT REMARKETED SECURITIES ("MOPPRS") DUE JANUARY , 2013, AND THE
% NOTES DUE JANUARY , (THE "NOTES," AND, TOGETHER WITH THE MOPPRS,
THE "OFFERED SECURITIES").
CERTAIN MATTERS DISCUSSED IN THIS PROSPECTUS SUPPLEMENT, THE ATTACHED
PROSPECTUS, AND THE INFORMATION INCORPORATED BY REFERENCE HEREIN AND THEREIN
INCLUDING, WITHOUT LIMITATION, STRATEGIC INITIATIVES, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY AND THE OPERATING PARTNERSHIP TO BE MATERIALLY
DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY AND THE OPERATING
PARTNERSHIP TO DIFFER MATERIALLY FROM THE COMPANY'S AND THE OPERATING
PARTNERSHIP'S EXPECTATIONS ARE DISCLOSED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS ("CAUTIONARY STATEMENTS"),
INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS MADE IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN. ALL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY AND THE OPERATING PARTNERSHIP ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
THE OPERATING PARTNERSHIP
GENERAL
The Operating Partnership is managed by its general partner, Highwoods
Properties, Inc. (the "Company"), a self-administered and self-managed equity
real estate investment trust ("REIT") that began operations through a
predecessor in 1978. The Operating Partnership is one of the largest owners and
operators of suburban office and industrial properties in the Southeast. As of
December 31, 1997, the Operating Partnership owned 342 office properties and 139
industrial (including 73 service center) properties encompassing approximately
30.7 million rentable square feet.
At December 31, 1997, the Properties were 94% leased to approximately 3,100
tenants. An additional 32 properties (the "Development Projects"), which will
encompass approximately 3.3 million rentable square feet, were under development
as of December 31, 1997 in North Carolina, Florida, Virginia, Tennessee,
Georgia, Maryland and South Carolina. The Operating Partnership also owns 729
acres (and has agreed to purchase an additional 472 acres) of land for future
development (the "Development Land"). The Development Land is zoned and
available for office and/or industrial development; substantially all of the
Development Land has utility infrastructure already in place.
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 Operating Partnership
is controlled by the Company, as its sole general partner, which owns
approximately 82% of the common partnership interests (the "Common Units") in
the Operating Partnership. The remaining Common Units are owned by limited
partners (including certain officers and directors of the Company). Other than
Common Units held by the Company, each Common Unit may be redeemed by the holder
thereof for the cash value of one share of common stock, $.01 par value, of the
Company (the "Common Stock") or, at the Company's option, one share (subject to
certain adjustments) of Common Stock. With each such exchange, the number of
Common Units owned by the Company and, therefore, the Company's percentage
interest in the Operating Partnership, will increase.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS. In October of 1997, the Operating Partnership
completed a business combination (the "ACP Transaction") with Associated Capital
Properties, Inc. ("ACP"). The ACP Transaction involved the acquisition of a
S-3
<PAGE>
portfolio of 84 office properties encompassing 6.4 million rentable square feet
(the "ACP Properties") and approximately 50 acres of land for development in six
markets in Florida. Under the terms of the agreements relating to the ACP
Transaction, the Operating Partnership merged with ACP and acquired the
ownership interests in the entities that own the ACP Properties for an aggregate
purchase price of $617 million. The cost of the ACP Transaction consisted of the
issuance of 2,955,238 Common Units (valued at $32.50 per Common Unit), the
assumption of $481 million of mortgage debt ($391 million of which has been paid
off by the Operating Partnership), the issuance of 117,617 shares of Common
Stock (valued at $32.50 per share), a capital expenditure reserve of $11 million
and a cash payment of approximately $24 million. Also in connection with the ACP
Transaction, the Company issued to certain affiliates of ACP warrants to
purchase 1,479,290 shares of Common Stock at $32.50 per share exercisable after
October 1, 2002. James R. Heistand, the former president of ACP, has become a
regional vice president responsible for the Operating Partnership's Florida
operations and an advisory member of the Company's investment committee. Mr.
Heistand is expected to join the Company's Board of Directors and become a
voting member of the Company's investment committee this year. Mr. Heistand has
over 19 years of commercial real estate experience in Florida. Over 100
employees of ACP have joined the Operating Partnership, including the two other
members of ACP's senior management team, Allen C. de Olazarra and Dale Johannes.
In closings on December 23, 1997 and January 8, 1998, the Operating
Partnership completed a business combination with Riparius Development
Corporation in Baltimore, Maryland involving the acquisition of a portfolio of
five office properties encompassing 369,000 square feet, two office development
projects encompassing 235,000 square feet, 11 acres of development land and 101
additional acres of development land to be acquired over the next three years
(the "Riparius Transaction"). The cost of the Riparius Transaction consisted of
a cash payment of $43.6 million. In addition, the Operating Partnership has
assumed the two office development projects with an anticipated cost of $26.2
million expected to be paid in 1998, and will pay out $23.9 million over the
next three years for the 101 additional acres of development land.
PENDING ACQUISITIONS. On December 22, 1997, the Company entered into a
merger agreement (the "Merger Agreement") with J.C. Nichols Company, a publicly
traded Kansas City real estate operating company ("J.C. Nichols"), pursuant to
which the Company would acquire J.C. Nichols with the view that the Operating
Partnership would combine its property operations with J.C. Nichols (the "J.C.
Nichols Transaction"). J.C. Nichols owns or has an ownership interest in 27
office properties, 33 retail properties and 13 industrial properties
encompassing approximately 4.3 million rentable square feet and 16 multifamily
communities with 1,816 apartment units in Kansas City, Missouri and Kansas.
Additionally, J.C. Nichols has an ownership interest in 21 office properties and
one industrial property encompassing approximately 1.5 million rentable square
feet and one multifamily community with 418 apartment units in Des Moines, Iowa.
As of December 31, 1997, the properties to be acquired in the J.C. Nichols
Transaction were 95% leased. Assuming completion of the J.C. Nichols
Transaction, Barrett Brady, president and chief executive officer of J.C.
Nichols, will become a regional vice president responsible for the Operating
Partnership's Midwest operations and approximately 100 employees of J.C. Nichols
would be expected to join the Operating Partnership.
Under the terms of the Merger Agreement, shareholders of J.C. Nichols may
elect to receive $65 in cash or 1.84 shares of Common Stock for each share of
common stock, $.01 par value, of J.C. Nichols ("J.C. Nichols Common Stock"). The
cost of the J.C. Nichols Transaction under the Merger Agreement is approximately
$570 million, including assumed debt of approximately $250 million, net of cash
of approximately $65 million. Consummation of the J.C. Nichols Transaction is
subject, among other things, to approval of 66 2/3% of the shareholders of J.C.
Nichols. If J.C. Nichols enters into a business combination with a third party
or otherwise terminates the J.C. Nichols Transaction, such third party or J.C.
Nichols may be required to pay the Company a break-up fee of up to $14.7 million
plus expenses of $2.5 million. Under certain other circumstances, if the J.C.
Nichols Transaction is terminated, the terminating party may be required to pay
expenses of $2.5 million to the non-terminating party.
No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it will follow the terms set forth
in the Merger Agreement. As of the date hereof, certain third parties have
expressed an interest to J.C. Nichols and/or certain of its shareholders in
purchasing all or a portion of the outstanding J.C. Nichols Common Stock at a
price in excess of $65 per share. No assurance can be given that a third party
will not make an offer to J.C. Nichols or its shareholders to purchase all or a
portion of the outstanding J.C. Nichols Common Stock at a price in excess of $65
per share or that the board of directors of J.C. Nichols would reject any such
offer.
Additionally, the Operating Partnership has entered into an agreement to
acquire 14 office properties encompassing 787,000 square feet, six service
center properties encompassing 471,000 square feet and 66 acres of development
S-4
<PAGE>
land in Tampa, Florida (the "Garcia Transaction.") The cost of the Garcia
Transaction will consist of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt. Although the Garcia
Transaction is expected to close by January 30, 1998, no assurance can be given
that all or part of the transaction will be consummated.
OPERATING STRATEGY
The Operating Partnership believes that it will continue to benefit from
the following factors:
DIVERSIFICATION. Since the initial public offering (the "IPO") of the
Company in 1994, the Operating Partnership has significantly reduced its
dependence on any particular market, property type or tenant. At the time of the
IPO, the Operating Partnership's portfolio consisted almost exclusively of
office properties in the Raleigh-Durham, North Carolina area (the "Research
Triangle"). As of December 31, 1997, the Operating Partnership's in-service
portfolio had expanded from 41 North Carolina properties (40 of which were in
the Research Triangle) to 481 properties in 19 markets concentrated in the
Southeast. Based on December 1997 results, approximately 32% of the rental
revenue from the Properties is derived from properties in North Carolina (18% in
the Research Triangle). The Operating Partnership's tenants represent a diverse
cross-section of the economy. As of December 31, 1997, the 20 largest tenants of
the Properties represented approximately 21.3% of the combined rental revenue
from the Properties, and the largest single tenant accounted for approximately
3.7% of such revenue.
ACQUISITION AND DEVELOPMENT OPPORTUNITIES. The Operating Partnership
believes that it has several advantages over many of its competitors in pursuing
development and acquisition opportunities. The Operating Partnership has the
flexibility to fund acquisitions and development projects from numerous sources,
including the private and public debt markets, proceeds from the Company's
private and public equity offerings, its $430 million aggregate amount of
unsecured revolving loans, other bank and institutional borrowings and the
issuance of Common Units, which may provide tax advantages to certain sellers.
To date, Common Units have constituted all or part of the consideration for 235
properties comprising 16.4 million rentable square feet. In addition, its
Development Land offers significant development opportunities. The Operating
Partnership owns approximately 729 acres (and has agreed to purchase an
additional 472 acres) of Development Land. The Operating Partnership's
development and acquisition activities should also continue to benefit from its
relationships with tenants and property owners and management's extensive local
knowledge of the Operating Partnership's markets.
MANAGED GROWTH STRATEGY. The Operating Partnership's strategy has been to
focus its real estate activities in markets where it believes its extensive
local knowledge gives it a competitive advantage over other real estate
developers and operators. As the Operating Partnership has expanded into new
markets, it has 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. Also, in making its acquisitions, the
Operating Partnership has sought to employ those property-level managers who are
experienced with the real estate operations and the local market relating to the
acquired properties, so that approximately three-quarters of the rentable square
footage of the Properties has been developed by the Operating Partnership or is
managed on a day-to-day basis by personnel that previously managed, leased
and/or developed those Properties prior to their acquisition by the Operating
Partnership. The Operating Partnership's property-level officers have on average
over 18 years of real estate experience in their respective markets.
EFFICIENT, CUSTOMER SERVICE-ORIENTED ORGANIZATION. The Operating
Partnership provides a complete line of real estate services to its tenants and
third parties. The Operating Partnership believes that its in-house development,
acquisition, construction management, leasing and management services allow it
to respond to the many demands of its existing and potential tenant base, and
enable it to provide its tenants cost-effective services such as build-to-suit
construction and space modification, including tenant improvements and
expansions. In addition, the breadth of the Operating Partnership's capabilities
and resources provides it with market information not generally available. The
Operating Partnership believes that the operating efficiencies achieved through
its fully integrated organization also provide a competitive advantage in
setting its lease rates and pricing other services.
FLEXIBLE AND CONSERVATIVE CAPITAL STRUCTURE. The Operating Partnership is
committed to maintaining a flexible and conservative capital structure that: (i)
allows growth through development and acquisition opportunities; (ii) provides
access to the private and public equity and debt markets on favorable terms; and
(iii) promotes future earnings growth.
The Company and the Operating Partnership have demonstrated a strong and
consistent ability to access the private and public equity and debt markets.
Since the IPO, the Company has completed five public offerings and two private
placements of its Common Stock, one public offering of its 8 5/8% Series A
Cumulative Redeemable Preferred Shares (the "Series A Preferred Shares") and one
public offering of its 8% Series B Cumulative Redeemable Preferred
S-5
<PAGE>
Shares (the "Series B Preferred Shares"), raising total net proceeds of
approximately $1.25 billion, which were contributed to the Operating Partnership
in exchange for additional partnership interests as required under the Operating
Partnership's limited partnership agreement (the "Operating Partnership
Agreement"). On December 2, 1996, the Operating Partnership issued $100 million
of 6 3/4% notes due December 1, 2003 and $110 million of 7% notes due December
1, 2006. On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of Exercisable Put Option Securities ("X-POSSM"), which represent
fractional undivided beneficial interests in the trust. The assets of the trust
consist of, among other things, $100 million of Exercisable Put Option Notes due
June 15, 2011 issued by the Operating Partnership (the "Put Option Notes").
On January 22, 1998, the Company entered into an agreement to sell
2,000,000 shares of Common Stock (2,300,000 shares of Common Stock if the
over-allotment option is exercised in full) in an underwritten public offering
(the "Concurrent Common Stock Offering") for net proceeds of approximately $68.2
million (approximately $78.5 million if the over-allotment option is exercised
in full). The Concurrent Common Stock Offering is expected to close on January
27, 1998.
In addition, the Operating Partnership has two unsecured revolving lines of
credit aggregating $430 million (the "Revolving Loans") with a syndicate of
lenders. Interest accrues on borrowings under a $280 million Revolving Loan at
an average interest rate of LIBOR plus 100 basis points and under a $150 million
Revolving Loan at an average interest rate of LIBOR plus 90 basis points.
Interest on the outstanding balance on the Revolving Loans as of January 19,
1998 was payable monthly at a weighted average interest rate of 6.87%.
THE PROPERTIES
The following table sets forth certain information about the Properties as
of December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
RENTABLE RENTABLE ANNUALIZED
OFFICE INDUSTRIAL TOTAL SQUARE SQUARE RENTAL
PROPERTIES PROPERTIES (1) PROPERTIES FEET FEET REVENUE (2)
---------- -------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Research Triangle, NC........... 69 4 73 4,686,120 15.2% $ 65,314,092
Atlanta, GA..................... 39 31 70 4,824,831 15.5 44,200,033
Tampa, FL....................... 42 -- 42 2,904,587 9.5 41,772,977
Piedmont Triad, NC.............. 34 79 113 4,738,992 15.3 36,779,925
South Florida................... 27 -- 27 2,384,044 7.8 36,511,089
Nashville, TN................... 15 3 18 1,821,485 5.9 27,183,735
Orlando, FL..................... 30 -- 30 1,990,148 6.5 23,756,539
Jacksonville, FL................ 16 -- 16 1,465,139 4.8 17,367,432
Charlotte, NC................... 15 16 31 1,428,590 4.7 15,158,758
Richmond, VA.................... 20 2 22 1,278,726 4.2 14,348,878
Greenville, SC.................. 8 2 10 1,001,641 3.3 11,051,150
Memphis, TN..................... 9 -- 9 606,549 2.0 10,033,045
Baltimore, MD................... 5 -- 5 364,434 1.2 7,837,121
Columbia, SC.................... 7 -- 7 423,738 1.4 5,553,603
Tallahassee, FL................. 1 -- 1 244,676 0.8 3,372,355
Norfolk, VA..................... 2 1 3 265,857 0.9 2,843,389
Birmingham, AL.................. 1 -- 1 115,289 0.4 1,795,236
Asheville, NC................... 1 1 2 124,177 0.4 1,180,068
Ft. Myers, FL................... 1 -- 1 51,831 0.2 509,720
--- --- --- ---------- ---------- ------------
Total.................... 342 139 481 30,720,854 100.0% $366,569,145
--- --- --- ---------- ---------- ------------
--- --- --- ---------- ---------- ------------
<CAPTION>
TOTAL OR
OFFICE INDUSTRIAL WEIGHTED
PROPERTIES PROPERTIES (1) AVERAGE
---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Annualized Rental Revenue (2)................... $ 331,936,875 $34,632,270 $ 366,569,145
Total rentable square feet............................ 23,841,565 6,879,289 30,720,854
Percent leased........................................ 94%(3) 93%(4) 94%
Weighted average age (years).......................... (5) 12.2 11.4 12.0
<CAPTION>
PERCENT OF
TOTAL ANNUALIZED
RENTAL REVENUE
----------------
<S> <C>
Research Triangle, NC........... 17.9%
Atlanta, GA..................... 12.2
Tampa, FL....................... 11.4
Piedmont Triad, NC.............. 10.0
South Florida................... 10.0
Nashville, TN................... 7.4
Orlando, FL..................... 6.5
Jacksonville, FL................ 4.7
Charlotte, NC................... 4.1
Richmond, VA.................... 3.9
Greenville, SC.................. 3.0
Memphis, TN..................... 2.7
Baltimore, MD................... 2.1
Columbia, SC.................... 1.5
Tallahassee, FL................. 0.9
Norfolk, VA..................... 0.8
Birmingham, AL.................. 0.5
Asheville, NC................... 0.3
Ft. Myers, FL................... 0.1
------
Total.................... 100.0%
------
------
<S> <C> <S> <C> <C> <C>
Total Annualized Rental Revenue (2)...................
Total rentable square feet............................
Percent leased........................................
Weighted average age (years)..........................
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(1) Includes 73 service center properties.
(2) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 47 single-tenant properties comprising 3.4 million rentable square
feet and 378,000 rentable square feet leased but not occupied.
(4) Includes 24 single-tenant properties comprising 1.6 million rentable square
feet and 27,000 rentable square feet leased but not occupied.
(5) Excludes the Comeau Building, which is a historical building constructed in
1926 and renovated in 1996.
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THE OFFERING
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE OFFERED SECURITIES
SPECIFIED IN THE FOLLOWING SUMMARY, INCLUDING DEFINITIONS OF CAPITALIZED TERMS
NOT OTHERWISE FOUND, SEE "DESCRIPTION OF OFFERED SECURITIES" IN THIS PROSPECTUS
SUPPLEMENT AND "DESCRIPTION OF DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS.
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SECURITIES OFFERED.................................... $100,000,000 aggregate principal amount of % ManadatOry Par Put
Remarketed Securities ("MOPPRS") due January , 2013, and
$100,000,000 aggregate principal amount of % Notes due January
, , (the "Notes," and, together with the MOPPRS, the "Offered
Securities").
MATURITY.............................................. The Stated Maturity Date of the MOPPRS is January , 2013, and the
Stated Maturity Date of the Notes is January , .
MANDATORY TENDER OF MOPPRS;
REMARKETING AND
REPURCHASE.......................................... Provided that the Remarketing Dealer gives the notice to the
Operating Partnership and the Trustee on a Business Day not more than
15 days nor fewer than five Business Days prior to the Remarketing
Date of its intention to purchase the MOPPRS for remarketing, the
MOPPRS will be automatically tendered, or deemed tendered, to the
Remarketing Dealer for purchase on the Remarketing Date, except in
the circumstances described under "Description of Offered
Securities -- Repurchase" or " -- Redemption."
The purchase price to be paid by the Remarketing Dealer for the
tendered MOPPRS will equal 100% of the principal amount thereof. When
the MOPPRS are tendered for remarketing, the Remarketing Dealer may
remarket the MOPPRS for its own account at varying prices to be
determined by the Remarketing Dealer at the time of each sale. If the
Remarketing Dealer for any reason does not purchase all tendered
MOPPRS on the Remarketing Date or elects not to remarket the MOPPRS,
or in certain other limited circumstances described herein, the
Operating Partnership will be required to repurchase the MOPPRS from
the Beneficial Owners thereof on the Remarketing Date, at 100% of the
principal amount thereof plus accrued interest, if any. See
"Description of Offered Securities -- Repurchase."
OPTIONAL REDEMPTION................................... The MOPPRS are subject to redemption from the Remarketing Dealer, in
whole but not in part, at the option of the Operating Partnership on
the Remarketing Date at the Optional Redemption Price. After the
Remarketing Date, the MOPPRS are subject to redemption by the
Operating Partnership, in whole or in part, on substantially the same
terms as the Notes may be redeemed as described below. The MOPPRS are
not otherwise subject to redemption by the Operating Partnership. The
Notes are subject to redemption, in whole or in part, at the option
of the Operating Partnership at any time, at a redemption price
determined by the Operating Partnership equal to the sum of (i) the
principal amount of the Notes being redeemed, plus accrued and unpaid
interest thereon to the redemption date, and (ii) the Make-Whole
Amount, if any, with respect to such Notes. See "Description of
Offered Securities -- Redemption."
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INTEREST PAYMENT DATES................................ Interest on the Offered Securities is payable semiannually on January
and July of each year, commencing July , 1998.
RANKING............................................... The Offered Securities will be senior unsecured obligations of the
Operating Partnership and will rank PARI PASSU with each other and
all other unsecured and unsubordinated indebtedness of the Operating
Partnership and will be effectively subordinated to all secured
indebtedness of the Operating Partnership. As of September 30, 1997,
the Operating Partnership had outstanding $390.8 million of
unsecured, unsubordinated indebtedness and $258.4 million of secured
indebtedness. On a pro forma basis as of September 30, 1997, after
giving effect to the completion of this Offering, the Concurrent
Common Stock Offering and other offerings and transactions described
in "Selected Financial Data" herein, the Operating Partnership would
have had outstanding $531.8 million of unsecured, unsubordinated
indebtedness, $379.7 million of secured indebtedness and $1.8 billion
in unencumbered assets.
USE OF PROCEEDS....................................... The net proceeds to the Operating Partnership from the Offering will
be used to pay down a portion of the indebtedness currently
outstanding on the Revolving Loans. See "Use of Proceeds."
LIMITATIONS ON INCURRENCE OF
INDEBTEDNESS........................................ The Offered Securities contain various covenants, including the
following:
(1) The Operating Partnership will not incur any Debt, if, after
giving effect thereto, the aggregate principal amount of all
outstanding Debt of the Operating Partnership is greater than 60% of
the sum of (i) Total Assets as of the end of the Operating
Partnership's fiscal quarter ended immediately prior to the
incurrence of such Debt and (ii) the increase in Total Assets since
the end of such quarter, including any increase in Total Assets
resulting from the incurrence of such additional Debt (such increase,
together with the Total Assets, is referred to as "Adjusted Total
Assets"). On a pro forma basis, such percentage would have been 34%
of Adjusted Total Assets as of September 30, 1997.
(2) The Operating Partnership will not incur any Secured Debt if,
after giving effect thereto, the aggregate amount of all outstanding
Secured Debt is greater than 40% of Adjusted Total Assets. On a pro
forma basis, such percentage would have been 14% of Adjusted Total
Assets as of September 30, 1997.
(3) The Operating Partnership will not incur any Debt if the
Consolidated Income Available for Debt Service for the four
consecutive fiscal quarters most recently ended prior to the date of
the incurrence of such Debt, on a pro forma basis, would be less than
1.5 times the Annual Service Charge on all Debt outstanding
immediately after the incurrence of such additional Debt. On a pro
forma basis, Consolidated Income Available for Debt Service would
have been 3.6 times the Annual Service Charge on all Debt as of
September 30, 1997.
(4) The Operating Partnership will maintain Total Unencumbered Assets
of not less than 200% of the aggregate outstanding
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principal amount of Unsecured Debt. On a pro forma basis, Total
Unencumbered Assets would have been 338% of the aggregate outstanding
principal amount of Unsecured Debt as of September 30, 1997.
For certain defined terms and additional covenants, see "Description
of Debt Securities -- Certain Covenants" in the accompanying
Prospectus.
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THE OPERATING PARTNERSHIP
GENERAL
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed equity REIT that began operations through a
predecessor in 1978. The Operating Partnership is one of the largest owners and
operators of suburban office and industrial properties in the Southeast. As of
December 31, 1997, the Operating Partnership owned 342 office properties and 139
industrial (including 73 service center) properties encompassing approximately
30.7 million rentable square feet.
At December 31, 1997, the Properties were 94% leased to approximately 3,100
tenants. An additional 32 properties (the "Development Projects"), which will
encompass approximately 3.3 million rentable square feet, were under development
as of December 31, 1997 in North Carolina, Florida, Virginia, Tennessee,
Georgia, Maryland and South Carolina. The Operating Partnership also owns 729
acres (and has agreed to purchase an additional 472 acres) of Development Land.
The Development Land is zoned and available for office and/or industrial
development; substantially all of the Development Land has utility
infrastructure already in place.
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 Operating Partnership
is controlled by the Company, as its sole general partner, which owns
approximately 82% of the Common Units in the Operating Partnership. The
remaining Common Units are owned by limited partners (including certain officers
and directors of the Company). Other than Common Units held by the Company, each
Common Unit may be redeemed by the holder thereof 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 exchange, the number of Common
Units owned by the Company and, therefore, the Company's percentage interest in
the Operating Partnership, will increase.
In addition to owning the Properties, the Development Projects and the
Development Land, the Operating Partnership provides leasing, property
management, real estate development, construction and miscellaneous tenant
services for its properties as well as for third parties. The Operating
Partnership conducts its third-party fee-based services through Highwoods
Tennessee Properties, Inc., a wholly owned subsidiary of the Company, and
Highwoods Services, Inc., a subsidiary of the Operating Partnership.
The Operating Partnership was formed in North Carolina in 1994. The
Operating Partnership's executive offices are located at 3100 Smoketree Court,
Suite 600, Raleigh, North Carolina 27604, and its telephone number is (919) 872-
4924. The Operating Partnership also maintains regional offices in
Winston-Salem, Greensboro and Charlotte, North Carolina; Richmond, Virginia;
Baltimore, Maryland; Nashville and Memphis, Tennessee; Atlanta, Georgia; Tampa,
Boca Raton, Tallahassee and Jacksonville, Florida; and South Florida.
OPERATING STRATEGY
The Operating Partnership believes that it will continue to benefit from
the following factors:
DIVERSIFICATION. Since the IPO in 1994, the Operating Partnership has
significantly reduced its dependence on any particular market, property type or
tenant. At the time of the IPO, the Operating Partnership's portfolio consisted
almost exclusively of office properties in the Research Triangle. As of December
31, 1997, the Operating Partnership's in-service portfolio had expanded from 41
North Carolina properties (40 of which were in the Research Triangle) to 481
properties in 19 markets concentrated in the Southeast. Based on December 1997
results, approximately 32% of the rental revenue from the Properties is derived
from properties in North Carolina (18% in the Research Triangle).
In October 1997, the Operating Partnership significantly expanded its
Florida operations through its business combination with ACP. In February 1997,
the Operating Partnership made a significant investment in the suburban Atlanta
market with the acquisition of the Century Center Office Park and a business
combination with Anderson Properties, Inc. The Operating Partnership first
entered the Atlanta market, as well as four markets in Florida and six other
markets, through its September 1996 merger with Crocker Realty Trust, Inc.
("Crocker"). Prior to its merger with Crocker, the Operating Partnership
expanded into Winston-Salem/Greensboro, North Carolina (the "Piedmont Triad")
and Charlotte, North Carolina through a merger with Forsyth Properties, Inc.
("Forsyth") and also completed significant business combinations in Richmond,
Virginia and Nashville, Tennessee. The Operating Partnership has focused on
markets that, like the Research Triangle, have strong demographic and economic
characteristics.
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The Operating Partnership's strategy has been to assemble a portfolio of
properties that enables the Operating Partnership to offer buildings with a
variety of cost, tenant finish and amenity choices that satisfy the facility
needs of a wide range of tenants seeking commercial space. This strategy led, in
part, to the Operating Partnership's combination with Forsyth in February 1995,
which added industrial and service center properties (as well as additional
office properties) to its suburban office portfolio. Based on December 1997
results, approximately 91% of the Operating Partnership's rental revenue is
derived from office properties and 9% is derived from industrial properties.
The Operating Partnership has also reduced its dependence on any particular
tenant or tenants in any particular industry. Its tenants represent a diverse
cross-section of the economy. As of December 31, 1997, the 20 largest tenants of
the Properties represented approximately 21.3% of the combined rental revenue
from the Properties, and the largest single tenant accounted for approximately
3.7% of such revenue. See "The Properties."
ACQUISITION AND DEVELOPMENT OPPORTUNITIES. The Operating Partnership seeks
to acquire suburban office and industrial properties at prices below replacement
cost that offer attractive returns, including acquisitions of underperforming,
high quality properties in situations offering opportunities for the Operating
Partnership to improve such properties' operating performance. The Operating
Partnership will also continue to engage in the selective development of office
and industrial projects, primarily in suburban business parks, and intends to
focus on build-to-suit projects and projects where the Operating Partnership has
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 between the
Operating Partnership and the tenant, creating future development opportunities
as the facility needs of the tenant increase.
The Operating Partnership believes that it has several advantages over many
of its competitors in pursuing development and acquisition opportunities. The
Operating Partnership has the flexibility to fund acquisitions and development
projects from numerous sources, including the private and public debt markets,
proceeds from the Company's private and public equity offerings, its $430
million aggregate amount of Revolving Loans, other bank and institutional
borrowings and the issuance of Common Units. Frequently, the Operating
Partnership acquires properties through the exchange of Common Units in the
Operating Partnership for the property owner's equity in the acquired
properties. As discussed above, each Common Unit received by these property
owners is redeemable for cash from the Operating Partnership or, at the
Company's option, shares of Common Stock. In connection with these transactions,
the Operating Partnership may also assume outstanding indebtedness associated
with the acquired properties. The Operating Partnership believes that this
acquisition method may enable it to acquire properties at attractive prices from
property owners wishing to enter into tax-deferred transactions. To date, Common
Units have constituted all or part of the consideration for 235 properties
comprising 16.4 million rentable square feet. As of December 31, 1997, only
1,200 Common Units had been redeemed for cash, totaling $35,000.
Another advantage is the Operating Partnership's commercially zoned and
unencumbered Development Land in existing business parks. The Operating
Partnership owns 729 acres (and has agreed to purchase an additional 472 acres)
of Development Land, substantially all of which has utility infrastructure
already in place.
The Operating Partnership's development and acquisition activities also
benefit from its local market presence and knowledge. The Operating
Partnership's property-level officers have on average over 18 years of real
estate experience in their respective markets. Because of this experience, the
Operating Partnership is in a better position to evaluate acquisition and
development opportunities. In addition, the Operating Partnership's
relationships with its tenants and those tenants at properties for which it
conducts third-party fee based services may lead to development projects when
these tenants or their affiliates seek new space. Also, its relationships with
other property owners for whom it provides third-party management services
generate acquisition opportunities.
MANAGED GROWTH STRATEGY. The Operating Partnership's strategy has been to
focus its real estate activities in markets where it believes its extensive
local knowledge gives it a competitive advantage over other real estate
developers and operators. As the Operating Partnership has expanded into new
markets, it has 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. Also, in making its acquisitions, the
Operating Partnership has sought to employ those property-level managers who are
experienced with the real estate operations and the local market relating to the
acquired properties, so that approximately three-quarters of the rentable square
footage of the Properties has been developed by the Operating Partnership or is
managed on a day-to-day basis by personnel that previously managed, leased
and/or developed these Properties prior to their acquisition by the Operating
Partnership.
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EFFICIENT, CUSTOMER SERVICE-ORIENTED ORGANIZATION. The Operating
Partnership provides a complete line of real estate services to its tenants and
third parties. The Operating Partnership believes that its in-house development,
acquisition, construction management, leasing and management services allow it
to respond to the many demands of its existing and potential tenant base, and
enable it to provide its tenants cost-effective services such as build-to-suit
construction and space modification, including tenant improvements and
expansions. In addition, the breadth of the Operating Partnership's capabilities
and resources provides it with market information not generally available. The
Operating Partnership believes that the operating efficiencies achieved through
its fully integrated organization also provide a competitive advantage in
setting its lease rates and pricing other services.
FLEXIBLE AND CONSERVATIVE CAPITAL STRUCTURE. The Operating Partnership is
committed to maintaining a flexible and conservative capital structure that: (i)
allows growth through development and acquisition opportunities; (ii) provides
access to the private and public equity and debt markets on favorable terms; and
(iii) promotes future earnings growth.
The Company and the Operating Partnership have demonstrated a strong and
consistent ability to access the private and public equity and debt markets.
Since the IPO, the Company has completed five public offerings and two private
placements of its Common Stock, one public offering of its Series A Preferred
Shares and one public offering of its Series B Preferred Shares, raising total
net proceeds of approximately $1.25 billion, which were contributed to the
Operating Partnership in exchange for additional partnership interests as
required under the Operating Partnership Agreement. On December 2, 1996, the
Operating Partnership issued $100 million of 6 3/4% notes due December 1, 2003
and $110 million of 7% notes due December 1, 2006.
On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of X-POSSM, which represent fractional undivided beneficial interests in
the trust. The assets of the trust consist of, among other things, $100 million
of Put Option Notes. The X-POSSM bear an interest rate of 7.19% and mature on
June 15, 2004, representing an effective borrowing cost of 7.09%, net of a
related put option and certain interest rate protection agreement costs. Under
certain circumstances, the Put Option Notes could also become subject to early
maturity on June 15, 2004.
In addition, the Operating Partnership has two Revolving Loans aggregating
$430 million with a syndicate of lenders. As of January 19, 1998, interest on
the outstanding balance on the Revolving Loans was payable monthly at a weighted
average interest rate of 6.87%.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
BUSINESS COMBINATION WITH ASSOCIATED CAPITAL PROPERTIES, INC. In October of
1997, the Operating Partnership completed a business combination with ACP and
acquired a portfolio of 84 office properties located in Florida. The ACP
Transaction involved 84 office properties encompassing 6.4 million rentable
square feet and approximately 50 acres of land for development with a build-out
capacity of 1.9 million square feet. At December 31, 1997, the ACP Properties
were approximately 92% leased to approximately 1,100 tenants including IBM, the
state of Florida, Prudential, Price Waterhouse, AT&T, GTE, Prosource, Lockheed
Martin, NationsBank and Accustaff. Seventy-nine of the ACP Properties are
located in suburban submarkets, with the remaining properties located in the
central business districts of Orlando, Jacksonville and West Palm Beach.
The cost of the ACP Transaction was valued at $617 million and consisted of
the issuance of 2,955,238 Common Units (valued at $32.50 per Common Unit), the
assumption of approximately $481 million of mortgage debt ($391 million of which
was paid off by the Operating Partnership on the date of closing), the issuance
of 117,617 shares of Common Stock (valued at $32.50 per share), a capital
expense reserve of $11 million and a cash payment of approximately $24 million.
All Common Units and Common Stock issued in the transaction are subject to
restrictions on transfer or redemption that will expire over a three-year
period. All lockup restrictions on the transfer of such Common Units or Common
Stock issued to ACP and its affiliates expire in the event of a change of
control of the Company or a material adverse change in the financial condition
of the Company. Such restrictions also expire if James R. Heistand, the former
president of ACP, is not appointed or elected as a director of the Company by
October 7, 1998. Also in connection with the ACP Transaction, the Company issued
to certain affiliates of ACP warrants to purchase 1,479,290 shares of the Common
Stock at $32.50 per share, exercisable after October 1, 2002.
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Upon completion of the ACP Transaction, Mr. Heistand became a regional vice
president of the Operating Partnership responsible for its Florida operations
and became an advisory member of the Company's investment committee. Mr.
Heistand is expected to join the Company's Board of Directors and become a
voting member of the investment committee this year. Mr. Heistand has over 19
years of commercial real estate experience in Florida. Over 100 employees of ACP
have joined the Operating Partnership, including the two other members of ACP's
senior management team, Allen C. de Olazarra and Dale Johannes.
RIPARIUS TRANSACTION. In closings on December 23, 1997 and January 8, 1998,
the Operating Partnership completed a business combination with Riparius
Development Corporation in Baltimore, Maryland involving the acquisition of a
portfolio of five office properties encompassing 369,000 square feet, two office
development projects encompassing 235,000 square feet, 11 acres of development
land and 101 additional acres of development land to be acquired over the next
three years (the "Riparius Transaction"). As of December 31, 1997, the
in-service properties acquired in the Riparius Transaction were 99% leased. The
cost of the Riparius Transaction consisted of a cash payment of $43.6 million.
In addition, the Operating Partnership has assumed the two office development
projects with an anticipated cost of $26.2 million expected to be paid in 1998,
and will pay out $23.9 million over the next three years for the 101 additional
acres of development land.
OTHER RECENT ACQUISITIONS. In addition to the properties acquired in the
ACP Transaction and the Riparius Transaction, the Operating Partnership acquired
21 office properties encompassing approximately 1.9 million rentable square feet
and one office re-development project comprising 309,000 square feet for an
aggregate of $196.0 million during the fourth quarter of 1997.
PENDING ACQUISITIONS
BUSINESS COMBINATION WITH J.C. NICHOLS COMPANY. On December 22, 1997, the
Company entered into the Merger Agreement pursuant to which the Company would
acquire J.C. Nichols, a publicly traded Kansas City real estate operating
company, with the view that the Operating Partnership would combine its property
operations with J.C. Nichols. J.C. Nichols is subject to the information
requirements of the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission.
J.C. Nichols owns or has an ownership interest in 27 office properties
encompassing approximately 1.5 million rentable square feet, 13 industrial
properties encompassing approximately 337,000 square feet, 33 retail properties
encompassing approximately 2.5 million rentable square feet and 16 multifamily
communities with 1,816 apartment units in Kansas City, Missouri and Kansas.
Additionally, J.C. Nichols has an ownership interest in 21 office properties
encompassing approximately 1.3 million rentable square feet, one industrial
property encompassing approximately 200,000 rentable square feet and one
multifamily community with 418 apartment units in Des Moines, Iowa. As of
December 31, 1997, the properties to be acquired in the J.C. Nichols Transaction
were 95% leased.
Consummation of the J.C. Nichols Transaction is subject, among other
things, to the approval of 66 2/3% of the shareholders of J.C. Nichols. Under
the terms of the Merger Agreement, the Company would acquire all of the
outstanding J.C. Nichols Common Stock. Under the Merger Agreement, J.C. Nichols
shareholders may elect to receive either 1.84 shares of Common Stock or $65 in
cash for each share of J.C. Nichols Common Stock. However, the cash payment to
J.C. Nichols shareholders cannot exceed 40% of the total consideration and the
Company may limit the amount of Common Stock issued to 75% of the total
consideration. The exchange ratio is fixed and reflects the average closing
price of the Common Stock over the 20 trading days preceding the effective date
of the Merger Agreement. The cost of the J.C. Nichols Transaction under the
Merger Agreement is approximately $570 million, including assumed debt of
approximately $250 million, net of cash of approximately $65 million. If J.C.
Nichols enters into a business combination with a third party or otherwise
terminates the J.C. Nichols Transaction, such third party or J.C. Nichols may be
required to pay the Company a break-up fee of up to $14.7 million plus expenses
of $2.5 million. Under certain other circumstances, if the J.C. Nichols
Transaction is terminated, the terminating party may be required to pay expenses
of $2.5 million to the non-terminating party.
No assurance can be given that all or part of the J.C. Nichols Transaction
will be consummated or that, if consummated, it will follow the terms set forth
in the Merger Agreement. As of the date hereof, certain third parties have
expressed an interest to J.C. Nichols and/or certain of its shareholders in
purchasing all or a portion of the outstanding J.C. Nichols Common Stock at a
price in excess of $65 per share. No assurance can be given that a third party
will not
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make an offer to J.C. Nichols or its shareholders to purchase all or a portion
of the outstanding J.C. Nichols Common Stock at a price in excess of $65 per
share or that the board of directors of J.C. Nichols would reject any such
offer.
The properties to be acquired in the J.C. Nichols Transaction include the
Country Club Plaza in Kansas City, which covers 15 square blocks and includes
1.0 million square feet of retail space, 1.1 million square feet of office space
and 462 apartment units. As of December 31, 1997, the Country Club Plaza was
approximately 96% leased. The Country Club Plaza is presently undergoing a $62
million expansion and restoration expected to add 800,000 square feet of retail,
office, hotel and residential space. Additionally, the Operating Partnership
intends to implement an additional $240 million of development in the Country
Club Plaza previously planned by J.C. Nichols.
Assuming completion of the J.C. Nichols Transaction, the Company and the
Operating Partnership would succeed to the interests of J.C. Nichols in a
strategic alliance with Kessinger/Hunter & Company, Inc. ("Kessinger/Hunter")
pursuant to which Kessinger/Hunter manages and leases the office, industrial and
retail properties presently owned by J.C. Nichols in the greater Kansas City
metropolitan area. J.C. Nichols currently has a 30% ownership interest in the
strategic alliance with Kessinger/Hunter and has two additional options to
acquire up to a 65% ownership interest in the strategic alliance. Assuming
completion of the J.C. Nichols Transaction, the Company and the Operating
Partnership would also succeed to the interests of J.C. Nichols in a strategic
alliance with R&R Investors, Ltd. pursuant to which R&R Investors, Ltd. manages
and leases the properties in which J.C. Nichols has an ownership interest in Des
Moines. J.C. Nichols has an ownership interest of 50% or more in each of the
properties in Des Moines with R&R Investors, Ltd. or its principal.
Assuming completion of the J.C. Nichols Transaction, J.C. Nichols would
retain its name and operate as a division, Barrett Brady, president and chief
executive officer of J.C. Nichols, would become a senior vice president of the
Operating Partnership responsible for its Midwest operations and approximately
100 employees of J.C. Nichols would be expected to join the Operating
Partnership. In addition, the Company would expand its board of directors to
include one independent director selected by J.C. Nichols.
GARCIA TRANSACTION. The Operating Partnership has entered into an agreement
to acquire 14 office properties encompassing 787,000 rentable square feet, six
service center properties encompassing 471,000 square feet and 66 acres of
development land in Tampa, Florida. As of December 31, 1997, the properties to
be acquired in the Garcia Transaction were 92% leased. The cost of the Garcia
Transaction will consist of a cash payment of approximately $87 million and the
assumption of approximately $24 million in secured debt. Although the Garcia
Transaction is expected to close by January 30, 1998, no assurance can be given
that all or part of the transaction will be consummated.
OTHER ACQUISITION ACTIVITY. The Operating Partnership's investment
committee continually evaluates potential acquisition opportunities in both its
existing markets and in new markets. Accordingly, at any particular time, the
Operating Partnership is likely to be involved in negotiations (at various
stages) to acquire one or more properties or portfolios.
FINANCING ACTIVITIES AND LIQUIDITY
Set forth below is a summary description of the recent financing activities
of the Operating Partnership and the Company:
CONCURRENT COMMON STOCK OFFERING. On January 22, 1998, the Company entered
into an agreement to sell 2,000,000 shares of Common Stock (2,300,000 shares of
Common Stock if the over-allotment option is exercised in full) in an
underwritten public offering (the "Concurrent Common Stock Offering") for net
proceeds of approximately $68.2 million (approximately $78.5 million if the
over-allotment option is exercised in full). The Concurrent Common Stock
Offering is expected to close on January 27, 1998. The closing of this Offering
is not conditioned upon the closing of the Concurrent Common Stock Offering, nor
is the closing of the Concurrent Common Stock Offering conditioned upon the
closing of this Offering.
OCTOBER 1997 OFFERING. On October 1, 1997, the Company sold 7,500,000
shares of Common Stock in an underwritten public offering for net proceeds of
approximately $249 million. The underwriters exercised a portion of their
over-allotment option for 1,000,000 shares of Common Stock on October 6, 1997,
raising additional net proceeds of $33.2 million (together with the sale on
October 1, 1997, the "October 1997 Offering.")
SERIES B PREFERRED OFFERING. On September 25, 1997, the Company sold
6,900,000 Series B Preferred Shares for net proceeds of approximately $166.9
million (the "Series B Preferred Offering"). Dividends on the Series B Preferred
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Shares are cumulative from the date of original issuance 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). The Series B
Preferred Shares are not redeemable prior to September 25, 2002.
AUGUST 1997 OFFERING. On August 28, 1997, the Company entered into two
transactions with affiliates of Union Bank of Switzerland (the "August 1997
Offering"). In one transaction, the Company sold 1,800,000 shares of Common
Stock to UBS Limited for net proceeds of approximately $57 million. In the other
transaction, the Company entered into a forward share purchase agreement (the
"Forward Contract") with Union Bank of Switzerland, London Branch ("UBS/LB").
The Forward Contract generally provides that if the price of a share of Common
Stock is above $32.14 (the "Forward Price") on August 28, 1998, UBS/LB will
return the difference (in shares of Common Stock) to the Company. Similarly, if
the price of a share of Common Stock on August 28, 1998 is less than the Forward
Price, the Company will pay the difference to UBS/LB in cash or shares of Common
Stock, at the Company's option.
X-POSSM OFFERING. On June 24, 1997, a trust formed by the Operating
Partnership sold $100 million of X-POSSM, which represent fractional undivided
beneficial interests in the trust. The assets of the trust consist of, among
other things, $100 million of Put Option Notes. The X-POSSM bear an interest
rate of 7.19%, representing an effective borrowing cost of 7.09%, net of a
related put option and certain interest rate protection agreement costs. Under
certain circumstances, the Put Option Notes could also become subject to early
maturity on June 15, 2004. The issuance of the Put Option Notes and the related
put option is referred to herein as the "X-POSSM Offering."
PRO FORMA CAPITALIZATION. Assuming completion of the ACP Transaction, the
October 1997 Offering, the Selected Fourth Quarter 1997 Transactions (as defined
in "Selected Financial Data"), the Garcia Transaction, the Concurrent Common
Stock Offering and this Offering, the Operating Partnership's pro forma debt and
pro forma capitalization as of September 30, 1997 would have totaled
approximately $912 million and $2.6 billion, respectively, and pro forma debt
would have represented approximately 28% of total market capitalization. The pro
forma fixed charge coverage ratio for the nine months ended September 30, 1997
would have equaled 2.52x.
S-15
<PAGE>
DEVELOPMENT ACTIVITY
The Operating Partnership has 32 properties under development in nine
markets totaling approximately 3.3 million rentable square feet. The following
table summarizes these Development Projects as of December 31, 1997:
<TABLE>
<CAPTION>
RENTABLE ESTIMATED COST AT PRE-LEASING ESTIMATED
NAME LOCATION SQUARE FEET COSTS 12/31/97 PERCENTAGE* COMPLETION
- ----------------------------------------------- ----------------- ----------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OFFICE PROPERTIES:
Ridgefield III Asheville 57,000 $ 5,485 $ 1,638 0% 2Q98
2400 Century Center Atlanta 135,000 16,195 6,527 0 2Q98
10 Glenlakes Atlanta 254,000 35,135 3,360 0 4Q98
Automatic Data Processing Baltimore 110,000 12,400 3,367 100 3Q98
Riparius Center at Owings Mills Baltimore 125,000 13,800 2,393 0 2Q99
BB&T** Greenville 70,908 5,851 81 100 2Q98
Patewood VI Greenville 107,000 11,360 5,202 19 2Q98
Colonnade Memphis 89,000 9,400 5,592 73 2Q98
Southwind C Memphis 73,703 7,657 1,245 34 4Q98
Harpeth V Nashville 65,300 6,900 3,108 47 1Q98
Lakeview Ridge II Nashville 61,300 6,000 2,879 70 1Q98
Southpointe Nashville 103,700 10,878 4,254 26 2Q98
Concourse Center One Piedmont Triad 85,500 8,415 -- 0 1Q99
RMIC Piedmont Triad 90,000 7,650 3,971 100 2Q98
Clintrials Research Triangle 178,000 21,490 12,034 100 2Q98
Situs II Research Triangle 59,300 5,857 1,218 0 2Q98
Highwoods Centre Research Triangle 76,000 8,327 960 36 3Q98
Overlook Research Triangle 97,000 10,307 1,083 0 4Q98
Red Oak Research Triangle 65,000 6,394 568 0 3Q98
Rexwoods V Research Triangle 60,507 7,444 5,894 70 1Q98
Markel-American Richmond 106,200 10,650 5,226 52 2Q98
Highwoods V Richmond 67,200 6,620 1,096 100 2Q98
Interstate Corporate Center** Tampa 309,000 8,600 40 23 4Q98
Intermedia (Sabal) Phase I Tampa 120,500 12,500 1,331 100 4Q98
Intermedia (Sabal) Phase II Tampa 120,500 13,000 662 100 1Q00
----------- --------- -------- ---
OFFICE TOTAL OR WEIGHTED AVERAGE 2,686,618 $ 268,315 $ 73,729 43%
----------- --------- -------- ---
----------- --------- -------- ---
INDUSTRIAL PROPERTIES:
Chastain II & III Atlanta 122,000 $ 4,686 $ 1,359 0% 3Q98
Newpoint Atlanta 118,800 4,660 3,224 20 1Q98
Tradeport 1 Atlanta 87,000 3,070 1,608 0 1Q98
Tradeport 2 Atlanta 87,000 3,070 1,608 0 1Q98
Air Park South Warehouse I Piedmont Triad 100,000 2,929 545 90 1Q98
Airport Center II Richmond 70,200 3,197 2,732 54 1Q98
----------- --------- -------- ---
INDUSTRIAL TOTAL OR WEIGHTED AVERAGE 585,000 $ 21,612 $ 11,076 26%
----------- --------- -------- ---
----------- --------- -------- ---
TOTAL OR WEIGHTED AVERAGE OF ALL DEVELOPMENT
PROJECTS 3,271,618 $ 289,927 $ 84,805 40%
----------- --------- -------- ---
----------- --------- -------- ---
SUMMARY BY ESTIMATED COMPLETION DATE:
First Quarter 1998 650,107 $ 37,270 $ 21,598 41%
Second Quarter 1998 1,063,308 111,436 46,839 54
Third Quarter 1998 373,000 31,807 6,254 37
Fourth Quarter 1998 854,203 74,199 7,059 25
First Quarter 1999 85,500 8,415 -- 0
Second Quarter 1999 125,000 13,800 2,393 0
First Quarter 2000 120,500 13,000 662 100
----------- --------- -------- ---
3,271,618 $ 289,927 $ 84,805 40%
----------- --------- -------- ---
----------- --------- -------- ---
</TABLE>
- ---------------
* Includes letters of intent
** Redevelopment projects
S-16
<PAGE>
THE PROPERTIES
GENERAL
As of December 31, 1997, the Operating Partnership owned 342 office
properties and 139 industrial properties located in 19 markets concentrated in
the Southeast. The office properties are generally mid-rise and single-story
suburban office buildings. The industrial properties include 66 warehouse and
bulk distribution facilities and 73 service center properties. The service
center properties have varying amounts of office finish (usually at least 33%)
and their rents vary accordingly. The service center properties are suitable for
office, retail, light industrial and warehouse uses. In the aggregate,
management developed 171 of the 481 Properties. The Operating Partnership
provides management and leasing services for 465 of the 481 Properties.
The following table sets forth certain information about the Properties at
December 31, 1997 in each of the Operating Partnership's 19 markets:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
RENTABLE RENTABLE ANNUALIZED
OFFICE INDUSTRIAL TOTAL SQUARE SQUARE RENTAL
PROPERTIES PROPERTIES (1) PROPERTIES FEET FEET REVENUE (2)
---------- -------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Research Triangle, NC........... 69 4 73 4,686,120 15.2% $ 65,314,092
Atlanta, GA..................... 39 31 70 4,824,831 15.5 44,200,033
Tampa, FL....................... 42 -- 42 2,904,587 9.5 41,772,977
Piedmont Triad, NC.............. 34 79 113 4,738,992 15.3 36,779,925
South Florida................... 27 -- 27 2,384,044 7.8 36,511,089
Nashville, TN................... 15 3 18 1,821,485 5.9 27,183,735
Orlando, FL..................... 30 -- 30 1,990,148 6.5 23,756,539
Jacksonville, FL................ 16 -- 16 1,465,139 4.8 17,367,432
Charlotte, NC................... 15 16 31 1,428,590 4.7 15,158,758
Richmond, VA.................... 20 2 22 1,278,726 4.2 14,348,878
Greenville, SC.................. 8 2 10 1,001,641 3.3 11,051,150
Memphis, TN..................... 9 -- 9 606,549 2.0 10,033,045
Baltimore, MD................... 5 -- 5 364,434 1.2 7,837,121
Columbia, SC.................... 7 -- 7 423,738 1.4 5,553,603
Tallahassee, FL................. 1 -- 1 244,676 0.8 3,372,355
Norfolk, VA..................... 2 1 3 265,857 0.9 2,843,389
Birmingham, AL.................. 1 -- 1 115,289 0.4 1,795,236
Asheville, NC................... 1 1 2 124,177 0.4 1,180,068
Ft. Myers, FL................... 1 -- 1 51,831 0.2 509,720
--- --- --- ---------- ---------- ------------
Total.................... 342 139 481 30,720,854 100.0% $366,569,145
--- --- --- ---------- ---------- ------------
--- --- --- ---------- ---------- ------------
<CAPTION>
PERCENT OF
TOTAL ANNUALIZED
RENTAL REVENUE
----------------
<S> <C>
Research Triangle, NC........... 17.9%
Atlanta, GA..................... 12.2
Tampa, FL....................... 11.4
Piedmont Triad, NC.............. 10.0
South Florida................... 10.0
Nashville, TN................... 7.4
Orlando, FL..................... 6.5
Jacksonville, FL................ 4.7
Charlotte, NC................... 4.1
Richmond, VA.................... 3.9
Greenville, SC.................. 3.0
Memphis, TN..................... 2.7
Baltimore, MD................... 2.1
Columbia, SC.................... 1.5
Tallahassee, FL................. 0.9
Norfolk, VA..................... 0.8
Birmingham, AL.................. 0.5
Asheville, NC................... 0.3
Ft. Myers, FL................... 0.1
------
Total.................... 100.0%
------
------
</TABLE>
<TABLE>
<CAPTION>
OFFICE PROPERTIES INDUSTRIAL PROPERTIES (1) TOTAL OR WEIGHTED AVERAGE
----------------- ------------------------- -------------------------
<S> <C> <C> <C>
Total Annualized Rental Revenue (2)................... $ 331,936,875 $34,632,270 $ 366,569,145
Total rentable square feet............................ 23,841,565 6,879,289 30,720,854
Percent leased........................................ 94%(3) 93%(4) 94%
Weighted average age (years).......................... 12.2(5) 11.4 12.0
</TABLE>
- ---------------
(1) Includes 73 service center properties.
(2) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
(3) Includes 47 single-tenant properties comprising 3.4 million rentable square
feet and 378,000 rentable square feet leased but not occupied.
(4) Includes 24 single-tenant properties comprising 1.6 million rentable square
feet and 27,000 rentable square feet leased but not occupied.
(5) Excludes the Comeau Building, which is a historical building constructed in
1926 and renovated in 1996.
S-17
<PAGE>
TENANTS
As of December 31, 1997, the Properties were leased to approximately 3,100
tenants, which engage in a wide variety of businesses. The following table sets
forth information concerning the 20 largest tenants of the Properties as of
December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER ANNUALIZED ANNUALIZED
TENANT OF LEASES RENTAL REVENUE (1) RENTAL REVENUE
- ----------------------------------------------------------------------------- --------- ------------------ --------------
<S> <C> <C> <C>
1. IBM...................................................................... 13 $ 13,546,185 3.7%
2. Federal Government....................................................... 45 12,059,353 3.3
3. AT&T..................................................................... 16 6,985,351 1.9
4. Bell South............................................................... 45 6,340,084 1.7
5. State of Florida......................................................... 22 5,215,070 1.4
6. GTE...................................................................... 6 2,995,422 0.8
7. NationsBank.............................................................. 21 2,953,191 0.8
8. First Citizens Bank & Trust.............................................. 8 2,887,811 0.8
9. Bluecross & Blue Shield of South Carolina................................ 10 2,554,517 0.7
10. MCI...................................................................... 10 2,458,637 0.7
11. Prudential............................................................... 13 2,412,640 0.7
12. Jacobs-Sirrene Engineers, Inc............................................ 1 2,235,550 0.6
13. Price Waterhouse......................................................... 3 2,047,953 0.6
14. US Airways............................................................... 4 2,033,940 0.6
15. Alex Brown & Sons........................................................ 1 1,943,070 0.5
16. H.L.P. Health Plan of Florida............................................ 2 1,913,005 0.5
17. The Martin Agency, Inc................................................... 1 1,863,504 0.5
18. Northern Telecom Inc..................................................... 2 1,849,118 0.5
19. BB&T..................................................................... 4 1,845,501 0.5
20. Clintrials............................................................... 4 1,812,206 0.5
--- ------------------ --------------
Total................................................................. 231 $ 77,952,108 21.3%
--- ------------------ --------------
--- ------------------ --------------
</TABLE>
- ---------------
(1) Annualized Rental Revenue is December 1997 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 Properties as of December 31, 1997, 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>
PERCENTAGE OF
RENTABLE TOTAL LEASED PERCENTAGE OF
SQUARE FEET SQUARE FEET ANNUALIZED TOTAL ANNUALIZED
NUMBER SUBJECT TO REPRESENTED BY RENTAL REVENUE RENTAL REVENUE
OF LEASES EXPIRING EXPIRING UNDER EXPIRING REPRESENTED BY
LEASE EXPIRING EXPIRING LEASES LEASES LEASES (1) EXPIRING LEASES
- ----------------------------------------------- --------- ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
1998........................................... 1,107 5,472,375 19.1% $ 66,586,351 18.1%
1999........................................... 766 4,359,990 15.3 53,830,301 14.7
2000........................................... 807 4,755,495 16.7 61,416,484 16.8
2001........................................... 471 3,674,386 12.9 50,688,383 13.8
2002........................................... 464 4,291,018 15.1 52,199,700 14.2
2003........................................... 95 1,327,060 4.7 18,953,266 5.2
2004........................................... 60 1,085,193 3.8 17,442,729 4.8
2005........................................... 43 851,618 3.0 10,790,905 2.9
2006........................................... 29 1,044,053 3.7 12,819,041 3.5
2007........................................... 18 535,012 1.9 7,273,331 2.0
Thereafter..................................... 26 1,078,579 3.8 14,568,654 4.0
--------- ----------- -------------- -------------- ------
Total.......................................... 3,886 28,474,779 100.0% $366,569,145 100.0%
--------- ----------- -------------- -------------- ------
--------- ----------- -------------- -------------- ------
</TABLE>
- ---------------
(1) Annualized Rental Revenue is December 1997 rental revenue (base rent plus
operating expense pass throughs) multiplied by 12.
S-18
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company, the general partner of the
Operating Partnership:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
- ----------------------- --- -------------------------------------------------------------------------------------
<S> <C> <C>
O. Temple Sloan, Jr. 58 Director and Chairman of the Board of Directors. Mr. Sloan is a founder of the
predecessor of the Company. Mr. Sloan is a director of NationsBank, N.A. Mr. Sloan
also serves as chairman of General Parts, Inc., a nationwide distributor of
automobile replacement parts, which he founded.
Ronald P. Gibson 53 Director, President and Chief Executive Officer. Mr. Gibson is a founder of the
Company and has served as president or managing partner of its predecessor since its
formation in 1978.
John L. Turner 51 Director, Vice Chairman of the Board of Directors and Chief Investment Officer. Mr.
Turner co-founded Forsyth's predecessor in 1975.
John W. Eakin 43 Director and Senior Vice President. Mr. Eakin is responsible for operations in
Tennessee and Alabama. Mr. Eakin was the founder and president of Eakin & Smith, Inc.
prior to its merger with the Company.
Gene H. Anderson 52 Director and Senior Vice President. Mr. Anderson manages the operations of the
Company's Georgia properties. Mr. Anderson was the founder and president of Anderson
Properties, Inc. prior to its merger with the Company.
William T. Wilson III 43 Director. Mr. Wilson served as executive vice president of the Company from February
1995 until June 1997. Mr Wilson joined Forsyth in 1982 and served as its president
from 1993 until its merger with the Company.
Thomas W. Adler 57 Director. Mr. Adler is a principal of Cleveland Real Estate Partners, a fee-based
real estate service company. Mr. Adler has served as a member of the executive
committee and board of governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and he was national president in 1990 of the Society of
Industrial and Office Realtors.
William E. Graham, Jr. 68 Director. Mr. Graham is a lawyer in private practice with the firm of Hunton &
Williams. Mr. Graham was a board member, vice chairman and general counsel of
Carolina Power & Light Company. Mr. Graham serves on the Raleigh board of directors
of NationsBank and the board of directors of BB&T Mutual Funds Group.
L. Glenn Orr, Jr. 57 Director. Mr. Orr is a director of Southern National Corporation and was its chairman
of the board of directors, president and chief executive officer prior to its merger
with Branch Banking and Trust.
Willard H. Smith Jr. 61 Director. Mr. Smith was a managing director of Merrill Lynch. Mr. Smith is a member
of the board of directors of Cohen & Steers Realty Shares, Cohen & Steers Realty
Income Fund, Cohen & Steers Special Equity Fund, Inc., Cohen & Steers Total Return
Realty Fund, Cohen & Steers Equity Income Fund, Essex Property Trust, Inc., Realty
Income Corporation and Willis Lease Financial Corporation.
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND OTHER DIRECTORSHIPS
- ----------------------- --- -------------------------------------------------------------------------------------
<S> <C> <C>
Stephen Timko 69 Director. Mr. Timko joined the Board of Directors in February 1995 in connection with
the Company's acquisition of Research Commons. He has served as associate vice
president of financial affairs for Temple University.
James R. Heistand 45 Senior Vice President. Mr. Heistand is responsible for operations in Florida and is
an advisory member of the Company's investment committee. Mr. Heistand is expected to
join the Company's Board of Directors and become a voting member of the investment
committee this year. Mr. Heistand was the founder and president of ACP prior to its
merger with the Company.
Edward J. Fritsch 38 Senior Vice President and Secretary. Mr. Fritsch is responsible for operations in
North Carolina, Georgia, Virginia and South Carolina. Mr. Fritsch joined the Company
in 1982.
Carman J. Liuzzo 36 Vice President, Chief Financial Officer and Treasurer. Prior to joining the Company,
Mr. Liuzzo was vice president and chief accounting officer for Boddie-Noell
Enterprises, Inc. and Boddie-Noell Restaurant Properties, Inc. Mr. Liuzzo is a
certified public accountant.
Mack D. Pridgen, III 48 Vice President and General Counsel. Prior to joining the Company, Mr. Pridgen was a
partner with Smith Helms Mulliss & Moore, L.L.P.
</TABLE>
USE OF PROCEEDS
The net cash proceeds to the Operating Partnership from the sale of the
Offered Securities are expected to be approximately $201.4 million. The
Operating Partnership expects to use the net proceeds to pay down approximately
$201.4 million of indebtedness currently outstanding on its Revolving Loans.
Interest accrues on borrowings under a $280 million Revolving Loan at an average
rate of LIBOR plus 100 basis points and under a $150 million Revolving Loan at
an average rate of LIBOR plus 90 basis points. Interest on the outstanding
balance on the Revolving Loans as of January 19, 1998 was payable monthly at a
weighted average interest rate of 6.87%. An affiliate of NationsBanc Montgomery
Securities LLC, one of the Underwriters, is a lender and agent under the
Revolving Loans and will receive a portion of the proceeds from the sale of the
Offered Securities. See "Underwriting."
S-20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership (i) as of September 30, 1997 and (ii) on a pro forma basis assuming
that the issuance and sale of the Offered Securities and the application of the
net proceeds therefrom as described under "Use of Proceeds," the October 1997
Offering, the ACP Transaction, the Selected Fourth Quarter 1997 Transactions (as
defined in "Selected Financial Data"), the Garcia Transaction and the Concurrent
Common Stock Offering all occurred as of September 30, 1997. The capitalization
table should be read in conjunction with the Operating Partnership's financial
statements and notes thereto incorporated by reference herein and the historical
financial statements and pro forma financial statements and notes thereto
included in the Operating Partnership's Current Report on Form 8-K dated January
22, 1998 incorporated by reference herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Debt:
Revolving Loans................................................................................ $ 59,000 $ --
Mortgage notes................................................................................. 280,188 401,561
6 3/4% Notes due 2003.......................................................................... 100,000 100,000
7% Notes due 2006.............................................................................. 110,000 110,000
Exercisable Put Option Notes due 2011 (1)...................................................... 100,000 100,000
% Notes due .......................................................................... -- 100,000
% MandatOry Par Put Remarketed Securities due 2013.......................................... -- 100,000
---------- ----------
Total debt.................................................................................. $ 649,188 $ 911,561
---------- ----------
Redeemable Common Units:
Class A Common Units........................................................................... $ 239,913 $ 345,924
Class B Common Units (2)....................................................................... 6,615 6,615
Partners' Capital:
Series A Preferred Units....................................................................... 121,809 121,809
Series B Preferred Units....................................................................... 167,066 167,066
General Partner Common Units................................................................... 8,341 11,883
Limited Partner Units.......................................................................... 731,589 1,082,361
---------- ----------
Total capitalization........................................................................ $1,924,521 $2,647,219
---------- ----------
---------- ----------
</TABLE>
- ---------------
(1) On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of X-POSSM, which represent fractional undivided beneficial
interests in the trust. The assets of the trust consist of, among other
things, $100 million of Put Option Notes. The X-POSSM bear an interest rate
of 7.19% and mature on June 15, 2004, representing an effective borrowing
cost of 7.09%, net of a related put option and certain interest rate
protection agreement costs. Under certain circumstances, the Put Option
Notes could also become subject to early maturity on June 15, 2004.
(2) Class B Common Units differ from other Common Units in that they are not
eligible for cash distributions from the Operating Partnership. The
outstanding Class B Common Units will 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-21
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data for
the Operating Partnership on a historical and a pro forma basis. The pro forma
operating data for the year ended December 31, 1996 has been derived by the
application of pro forma adjustments to the Operating Partnership's audited
consolidated financial statements incorporated herein by reference and assumes
that the following transactions all occurred as of January 1, 1996: (i) the
merger with Eakin & Smith, Inc. and its affiliates, (ii) the issuance of
11,500,000 and 250,000 shares of Common Stock (the "Summer 1996 Offerings"),
(iii) the merger with Crocker Realty Trust, Inc., (iv) the issuance of the
6 3/4% Notes due 2003 and the 7% Notes due 2006, (v) the issuance of 2,587,500,
611,626, 344,752 and 137,198 shares of Common Stock (the "December 1996
Offerings"), (vi) the acquisition of Century Center Office Park and an
affiliated property portfolio (the "Century Center Transaction"), (vii) the
merger with Anderson Properties, Inc. and its affiliates (the "Anderson
Transaction"), (viii) the issuance of 125,000 Series A Preferred Shares (the
"Series A Preferred Offering"), (ix) the X-POSSM Offering, (x) the August 1997
Offering, (xi) the ACP Transaction, (xii) the Series B Preferred Offering,
(xiii) the October 1997 Offering, (xiv) the Selected Fourth Quarter 1997
Transactions, (xv) the Garcia Transaction, (xvi) the Concurrent Common Stock
Offering and (xvii) this Offering. The pro forma balance sheet data as of
September 30, 1997 has been derived by the application of pro forma adjustments
to the Operating Partnership's unaudited consolidated financial statements
incorporated herein by reference and assumes that the ACP Transaction, the
October 1997 Offering, the Selected Fourth Quarter 1997 Transactions, the Garcia
Transaction, the Concurrent Common Stock Offering and this Offering occurred as
of September 30, 1997. The pro forma operating data for the nine months ended
September 30, 1997 has been derived by the application of pro forma adjustments
to the Operating Partnership's unaudited consolidated financial statements
incorporated herein by reference and assumes that the Century Center
Transaction, the Anderson Transaction, the Series A Preferred Offering, the
X-POSSM Offering, the August 1997 Offering, the ACP Transaction, the Series B
Preferred Offering, the October 1997 Offering, the Selected Fourth Quarter 1997
Transactions, the Garcia Transaction, the Concurrent Common Stock Offering and
this Offering occurred as of January 1, 1996. The pro forma information is based
upon certain assumptions that are set forth in the notes to the pro forma
financial statements incorporated by reference herein. The pro forma financial
information is unaudited and is not necessarily indicative of what the financial
position and results of operations of the Operating Partnership would have been
as of and for the periods indicated, nor does it purport to represent the future
financial position and results of operations for future periods.
"Selected Fourth Quarter 1997 Transactions" include the Riparius
Transaction and the following property acquisitions: (i) Winter Circle in
Nashville, TN; (ii) the Shelton portfolio in the Piedmont Triad; (iii)
NationsBank Plaza in Greenville, SC; (iv) Exchange Plaza in Atlanta, GA; (v)
Cypress West in Tampa, FL; (vi) Marnier Square in Tampa, FL; (vii) Zurn in
Tampa, FL; and (viii) Avion in Ft. Lauderdale, FL.
The following information should be read in conjunction with the financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated by reference herein
and the historical financial statements and pro forma financial statements and
notes thereto included in the Operating Partnership's Current Report on Form 8-K
dated January 22, 1998 incorporated by reference herein.
S-22
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
------------- PRO FORMA
NINE MONTHS NINE MONTHS ENDED ------------
ENDED SEPTEMBER 30, YEAR ENDED YEAR ENDED
SEPTEMBER 30, ------------------------- DECEMBER 31, DECEMBER 31,
1997 1997 1996 1996 1996
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Total revenue................................... $ 270,559 $ 181,951 $ 84,078 $ 315,053 $ 132,302
Rental property operating expenses (1).......... 86,053 48,995 21,093 118,118 33,657
General and administrative...................... 6,694 6,694 3,787 6,107 5,636
Interest expense................................ 49,269 34,771 13,970 58,810 25,230
Depreciation and amortization................... 44,018 30,915 12,556 52,845 21,105
------------- ----------- ----------- ------------ ------------
Income before extraordinary item................ 84,525 60,576 32,672 79,173 46,674
Extraordinary item-loss on early extinguishment
of debt....................................... -- (5,534) (2,432) -- (2,432 )
------------- ----------- ----------- ------------ ------------
Net income...................................... 84,525 55,042 30,240 79,173 44,242
Dividends on preferred units.................... (18,436) (6,972) -- (24,581 ) --
------------- ----------- ----------- ------------ ------------
Net income available for Common Units........... $ 66,089 $ 48,070 $ 30,240 $ 54,592 $ 44,242
------------- ----------- ----------- ------------ ------------
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of accumulated depreciation.... $ 2,597,141 $ 1,717,404 $ 1,307,299 $ -- $ 1,364,606
Total assets.................................... 2,700,479 1,964,889 1,366,244 -- 1,429,488
Total mortgages and notes payable............... 911,561 649,188 597,734 -- 555,876
OTHER DATA:
FFO(2).......................................... 110,107 84,519 45,558 107,437 67,779
Cash flow provided by (used in) (3)
Operating activities.......................... 130,414 94,242 46,597 133,889 69,878
Investing activities.......................... (942,741) (169,015) (416,097) (1,532,154 ) (486,626 )
Financing activities.......................... 854,888 238,201 381,046 1,365,121 420,528
EBIDA (4)....................................... 177,812 126,262 59,198 190,828 93,009
Ratio of earnings to combined fixed charges and
preferred unit dividends (5).................. 1.87x 2.09x 2.93x 1.60 x 2.55 x
Ratio of FFO before fixed charges to fixed
charges (6)................................... 3.32x 3.55x 4.58x 2.94 x 3.90 x
Number of in-service properties................. 501 369 280 501 292
Total rentable square
feet.......................................... 31,979,000 21,904,000 16,700,000 31,979,000 17,455,000
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
OPERATING DATA:
Total revenue................................... $ 73,522
Rental property operating expenses (1).......... 17,049
General and administrative...................... 2,737
Interest expense................................ 13,720
Depreciation and amortization................... 11,082
------------
Income before extraordinary item................ 28,934
Extraordinary item-loss on early extinguishment
of debt....................................... (1,068)
------------
Net income...................................... 27,866
Dividends on preferred units.................... --
------------
Net income available for Common Units........... $ 27,866
------------
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of accumulated depreciation.... $ 593,066
Total assets.................................... 621,134
Total mortgages and notes payable............... 182,736
OTHER DATA:
FFO(2).......................................... 40,016
Cash flow provided by (used in) (3)
Operating activities.......................... 43,169
Investing activities.......................... (136,032)
Financing activities.......................... 93,443
EBIDA (4)....................................... 53,736
Ratio of earnings to combined fixed charges and
preferred unit dividends (5).................. 3.00x
Ratio of FFO before fixed charges to fixed
charges (6)................................... 4.31x
Number of in-service properties................. 191
Total rentable square
feet.......................................... 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 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) Reflects the Operating Partnership's cash flows and pro forma cash flows
from operating, investing and financing activities. Pro forma cash flows
from operating activities represents net income plus depreciation of rental
properties and amortization of deferred expenses, line of credit fees and
the cost of unwinding certain interest rate swap agreements. There are no
pro forma adjustments for changes in working capital items. This pro forma
cash flow data is not necessarily indicative of what actual cash flows would
have been assuming the transactions described in the introduction to the
table had been completed as of the beginning of each of the periods
presented, nor does it purport to represent cash flows from operating,
investing and financing activities for future periods.
(4) 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
S-23
<PAGE>
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.
(5) 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 and debt discount and deferred
financing fees, whether capitalized or expensed, the interest component of
rental expense, plus any dividends on outstanding preferred units.
(6) 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-24
<PAGE>
DESCRIPTION OF OFFERED SECURITIES
GENERAL
The % MandatOry Par Put Remarketed Securities ("MOPPRS") due January ,
2013 and the % Notes due January , (the "Notes" and, together with the
MOPPRS, the "Offered Securities") each constitute a separate 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 Offered
Securities 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 Offered Securities and the Indenture do not purport to be complete and are
qualified in their entirety by reference to the actual provisions of the Offered
Securities and the Indenture, including the definitions therein of certain
terms. The MOPPRS and the Notes will be senior unsecured obligations of the
Operating Partnership and will be limited each to $100,000,000 aggregate
principal amount.
The MOPPRS will bear interest at the annual interest rate of % per annum
to January , 2003 (the "Remarketing Date"). If the Remarketing Dealer elects
to remarket the MOPPRS, except in the limited circumstances described herein,
(i) the MOPPRS will be subject to mandatory tender to the Remarketing Dealer at
a price equal to 100% of the principal amount thereof for remarketing on the
Remarketing Date, on the terms and subject to the conditions described herein,
and (ii) on and after the Remarketing Date, the MOPPRS will bear interest at the
rate determined by the Remarketing Dealer in accordance with the procedures set
forth below (the "Interest Rate to Maturity"). See " -- Tender of MOPPRS;
Remarketing" below.
The Stated Maturity Date of the MOPPRS is January , 2013. The Stated
Maturity Date of the Notes is January , . Except in the limited
circumstances described herein, the MOPPRS are not subject to redemption prior
to their Stated Maturity Date. After the Remarketing Date, the MOPPRS are
subject to redemption by the Operating Partnership, in whole or in part, on
substantially the same terms as the Notes may be redeemed as described below.
The Notes are subject to redemption by the Operating Partnership prior to their
Stated Maturity Date, in whole or in part, at any time, at the redemption prices
set forth herein plus accrued and unpaid interest. See " -- Redemption" below.
The Offered Securities will not be subject to any sinking fund.
Under the circumstances described below, the MOPPRS are subject to
redemption by the Operating Partnership from the Remarketing Dealer on the
Remarketing Date. See " -- Redemption" below. If the Remarketing Dealer for any
reason does not purchase all tendered MOPPRS on the Remarketing Date or elects
not to remarket the MOPPRS, or in certain other limited circumstances described
herein, the Operating Partnership will be required to repurchase the MOPPRS from
the Beneficial Owners thereof on the Remarketing Date, at 100% of the principal
amount thereof plus accrued interest, if any. See " -- Repurchase" below.
The Offered Securities will bear interest from January , 1998, payable
semiannually on January and July of each year (each, an "Interest Payment
Date"), commencing July , 1998, to the persons in whose name the applicable
Offered Securities are registered on the 15th calendar day (whether or not a
Business Day) immediately preceding the related Interest Payment Date (each, a
"Record Date"). Interest on each series of Offered Securities will be computed
on the basis of a 360-day year of twelve 30-day months. "Business Day" means any
day other than a Saturday, Sunday or a day on which banking institutions in The
City of New York are authorized or obligated by law, executive order or
government decree to be closed.
Interest payable on any Interest Payment Date and at maturity or earlier
redemption or repurchase shall be the amount of interest accrued from and
including the next preceding Interest Payment Date in respect of which interest
has been paid or duly provided for (or from and including January , 1998, if
no interest has been paid or duly provided for with respect to such Offered
Security) to but excluding such Interest Payment Date or the date of maturity or
earlier redemption or repurchase, as the case may be. If any Interest Payment
Date or the date of maturity or earlier redemption or repurchase of an Offered
Security falls on a day that is not a Business Day, the payment shall be made on
the next Business Day with the same force and effect as if it were made on the
date such payment was due and no interest shall accrue on the amount so payable
for the period from and after such Interest Payment Date or date of maturity or
earlier redemption, as the case may be.
S-25
<PAGE>
The Offered Securities will be direct, unsecured and unsubordinated
obligations of the Operating Partnership and will rank PARI PASSU with each
other and all other unsecured and unsubordinated indebtedness of the Operating
Partnership from time to time outstanding. However, the Offered Securities will
be effectively subordinated to mortgages and other secured indebtedness of the
Operating Partnership. As of September 30, 1997, the Operating Partnership had
outstanding $390.8 million of unsecured, unsubordinated indebtedness and $258.4
million of secured indebtedness. On a pro forma basis, after giving effect to
the completion of the ACP Transaction, the October 1997 Offering, the Selected
Fourth Quarter 1997 Transactions, the Garcia Transaction, the Concurrent Common
Stock Offering and this Offering, as of September 30, 1997, the Operating
Partnership would have had outstanding $531.8 million of unsecured,
unsubordinated indebtedness, $379.7 million of secured indebtedness and $1.8
billion of unencumbered assets.
The Offered Securities will be issued in denominations of $1,000 and
integral multiples thereof.
TENDER OF MOPPRS; REMARKETING
The following description sets forth the terms and conditions of the
remarketing of the MOPPRS, in the event that the Remarketing Dealer elects to
purchase the MOPPRS and remarkets the MOPPRS on the Remarketing Date.
MANDATORY TENDER. Provided that the Remarketing Dealer gives notice to the
Operating Partnership and the Trustee on a Business Day not more than 15 nor
fewer than five Business Days prior to the Remarketing Date of its intention to
purchase the MOPPRS for remarketing (the "Notification Date"), each MOPPRS will
be automatically tendered, or deemed tendered, to the Remarketing Dealer for
purchase on the Remarketing Date, except in the circumstances described under
" -- Repurchase" or " -- Redemption" below. The purchase price for the tendered
MOPPRS to be paid by the Remarketing Dealer will equal 100% of the principal
amount thereof. See " -- Notification of Results; Settlement" below. When the
MOPPRS are tendered for remarketing, the Remarketing Dealer may remarket the
MOPPRS for its own account at varying prices to be determined by the Remarketing
Dealer at the time of each sale. From and after the Remarketing Date, the MOPPRS
will bear interest at the Interest Rate to Maturity. If the Remarketing Dealer
elects to remarket the MOPPRS, the obligation of the Remarketing Dealer to
purchase the MOPPRS on the Remarketing Date is subject, among other things, to
the conditions that, since the Notification Date, no material adverse change in
the condition of the Operating Partnership and its subsidiaries, considered as
one enterprise, shall have occurred and that no Event of Default, or any event
that, with the giving of notice or passage of time, or both, would constitute an
Event of Default, with respect to the MOPPRS shall have occurred and be
continuing. If for any reason the Remarketing Dealer does not purchase all
tendered MOPPRS on the Remarketing Date, the Operating Partnership will be
required to repurchase the MOPPRS from the Beneficial Owners thereof at a price
equal to the principal amount thereof plus all accrued and unpaid interest, if
any, on the MOPPRS to the Remarketing Date. See " -- Repurchase" below.
The Interest Rate to Maturity shall be determined by the Remarketing Dealer
by 3:30 p.m., New York City time, on the third Business Day preceding the
Remarketing Date (the "Determination Date") to the nearest one hundred-
thousandth (0.00001) of one percent per annum, and will be equal to the sum of
% (the "Base Rate") plus the Applicable Spread (as defined below), which will
be based on the Dollar Price (as defined below) of the MOPPRS.
The "Applicable Spread" will be the lowest bid indication, expressed as a
spread (in the form of a percentage or in basis points) above the Base Rate,
obtained by the Remarketing Dealer on the Determination Date from the bids
quoted by five Reference Corporate Dealers (as defined below) for the full
aggregate principal amount of the MOPPRS at the Dollar Price, but assuming (i)
an issue date equal to the Remarketing Date, with settlement on such date
without accrued interest, (ii) a maturity date equal to the Stated Maturity Date
of the MOPPRS, and (iii) a stated annual interest rate equal to the Base Rate
plus the spread bid by the applicable Reference Corporate Dealer. If fewer than
five Reference Corporate Dealers bid as described above, then the Applicable
Spread shall be the lowest of such bid indications obtained as described above.
The Interest Rate to Maturity announced by the Remarketing Dealer, absent
manifest error, shall be binding and conclusive upon the Beneficial Owners and
Holders of the MOPPRS, the Operating Partnership and the Trustee.
"Dollar Price" means, with respect to the MOPPRS, the present value, as of
the Remarketing Date, of the Remaining Scheduled Payments (as defined below)
discounted to the Remarketing Date, on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months), at the Treasury Rate (as defined
below).
S-26
<PAGE>
"Reference Corporate Dealers" mean leading dealers of publicly traded debt
securities of the Operating Partnership in The City of New York (which may
include the Remarketing Dealer or one of its affiliates) selected by the
Remarketing Dealer.
"Treasury Rate" means, with respect to the Remarketing Date, the rate per
annum equal to the semiannual equivalent yield to maturity or interpolated (on a
day count basis) yield to maturity of the Comparable Treasury Issues (as defined
below), assuming a price for the Comparable Treasury Issues (expressed as a
percent of its principal amount), equal to the Comparable Treasury Price (as
defined below) for such Remarketing Date.
"Comparable Treasury Issues" means the United States Treasury security or
securities selected by the Remarketing Dealer as having an actual or
interpolated maturity or maturities comparable to the remaining term of the
MOPPRS being purchased.
"Comparable Treasury Price" means, with respect to the Remarketing Date,
(a) the offer prices for the Comparable Treasury Issues (expressed in each case
as a percent of its principal amount) on the Determination Date, as set forth on
"Telerate Page 500" (or such other page as may replace Telerate Page 500) or (b)
if such page (or any successor page) is not displayed or does not contain such
offer prices on such Business Day, (i) the average of the Reference Treasury
Dealer Quotations for such Remarketing Date, after excluding the highest and
lowest of such Reference Treasury Dealer Quotations, or (ii) if the Remarketing
Dealer obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations. "Telerate Page 500"
means the display designated as "Telerate Page 500" on Dow Jones Markets Limited
(or such other page as may replace Telerate Page 500 on such service) or such
other service displaying the offer prices specified in (a) above as may replace
Dow Jones Markets Limited. "Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and the Remarketing Date, the offer
prices for the Comparable Treasury Issues (expressed in each case as a
percentage of its principal amount) quoted in writing to the Remarketing Dealer
by such Reference Treasury Dealer by 3:30 p.m. New York City time, on the
Determination Date.
"Reference Treasury Dealer" means each of CS First Boston Corporation,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc and their respective
successors; provided, however, that if any of the foregoing or their affiliates
shall cease to be a primary U.S. government securities dealer in The City of New
York (a "Primary Treasury Dealer"), the Remarketing Dealer shall substitute
therefor another Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to the MOPPRS, the
remaining scheduled payments of the principal thereof and interest thereon,
calculated at the Base Rate only, that would be due after the Remarketing Date
to and including the Stated Maturity Date; provided, however, that if the
Remarketing Date is not an Interest Payment Date with respect to the MOPPRS, the
amount of the next succeeding scheduled interest payment thereon, calculated at
the Base Rate only, will be reduced by the amount of interest accrued thereon,
calculated at the Base Rate only, to the Remarketing Date.
NOTIFICATION OF RESULTS; SETTLEMENT. Provided the Remarketing Dealer has
previously notified the Operating Partnership and the Trustee on the
Notification Date of its intention to purchase all tendered MOPPRS on the
Remarketing Date, the Remarketing Dealer will notify the Operating Partnership,
the Trustee and DTC by telephone, confirmed in writing, by 4:00 p.m., New York
City time, on the Determination Date, of the Interest Rate to Maturity.
All of the tendered MOPPRS will be automatically delivered to the account
of the Trustee, by book-entry through DTC pending payment of the purchase price
therefor, on the Remarketing Date.
The Remarketing Dealer will make or cause the Trustee to make payment to
the DTC participant of each tendering Beneficial Owner of MOPPRS, by book-entry
through DTC by the close of business on the Remarketing Date against delivery
through DTC of such Beneficial Owner's tendered MOPPRS, of 100% of the principal
amount of tendered MOPPRS that have been purchased for remarketing by the
Remarketing Dealer. If the Remarketing Dealer does not purchase all of the
MOPPRS on the Remarketing Date, it will be the obligation of the Operating
Partnership to make or cause to be made such payment for the MOPPRS, as
described below under " -- Repurchase." In any case, the Operating Partnership
will make or cause the Trustee to make payment of interest to each Beneficial
Owner of MOPPRS due on the Remarketing Date by book-entry through DTC by the
close of business on the Remarketing Date.
S-27
<PAGE>
The transactions described above will be executed on the Remarketing Date
through DTC in accordance with the procedures of DTC, and the accounts of the
respective DTC participants will be debited and credited and the MOPPRS
delivered by book-entry as necessary to effect the purchases and sales thereof.
Transactions involving the sale and purchase of MOPPRS remarketed by the
Remarketing Dealer on and after the Remarketing Date will settle in immediately
available funds through DTC's Same-Day Funds Settlement System.
The tender and settlement procedures described above, including provisions
for payment by purchasers of MOPPRS in the remarketing or for payment to selling
Beneficial Owners of tendered MOPPRS, may be modified to the extent required to
facilitate the tender and remarketing of MOPPRS in certificated form, if the
book-entry system is no longer available for the MOPPRS at the time of the
remarketing. In addition, the Remarketing Dealer may, in accordance with the
terms of the Indenture, modify the settlement procedures set forth above in
order to facilitate the settlement process.
As long as DTC's nominee holds the certificates representing any MOPPRS in
the book-entry system of DTC, no certificates for such MOPPRS will be delivered
by any selling Beneficial Owner to reflect any transfer of such MOPPRS effected
in the remarketing. In addition, under the terms of the MOPPRS and the
Remarketing Agreement (described below), the Operating Partnership has agreed
that, notwithstanding any provision to the contrary set forth in the Indenture,
(i) it will use its best efforts to maintain the MOPPRS in book-entry form with
DTC or any successor thereto and to appoint a successor depositary to the extent
necessary to maintain the MOPPRS in book-entry form, and (ii) it will waive any
discretionary right it otherwise has under the Indenture to cause the MOPPRS to
be issued in certificated form.
For further information with respect to transfers and settlement through
DTC, see " -- Book-Entry System" below.
THE REMARKETING DEALER. The Operating Partnership, the Company and the
Remarketing Dealer will enter into a Remarketing Agreement in substantially the
form described below.
The Remarketing Dealer will not receive any fees or reimbursement of
expenses from the Operating Partnership or the Company in connection with the
remarketing.
The Operating Partnership and the Company will agree to indemnify the
Remarketing Dealer against certain liabilities, including liabilities under the
Securities Act, arising out of or in connection with its duties under the
Remarketing Agreement.
In the event that the Remarketing Dealer elects to remarket the MOPPRS as
described herein, the obligation of the Remarketing Dealer to purchase MOPPRS
from tendering Beneficial Owners of MOPPRS will be subject to several conditions
precedent set forth in the Remarketing Agreement that are customary in the
Operating Partnership's public offerings, including the conditions that, since
the Notification Date, no material adverse change in the condition of the
Company or the Operating Partnership and its subsidiaries, considered as one
enterprise, shall have occurred and that no Event of Default (as defined in the
Indenture), or any event which, with the giving of notice or passage of time, or
both, would constitute an Event of Default, with respect to the MOPPRS shall
have occurred and be continuing. In addition, the Remarketing Agreement will
provide for the termination thereof, or redetermination of the Interest Rate to
Maturity, by the Remarketing Dealer on or before the Remarketing Date, upon the
occurrence of certain events that are also customary in the Operating
Partnership's public securities offerings.
No Beneficial Owner of any MOPPRS shall have any rights or claims under the
Remarketing Agreement or against the Operating Partnership, the Company or the
Remarketing Dealer as a result of the Remarketing Dealer not purchasing such
MOPPRS.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer. Resignation of the Remarketing Dealer
shall be effective ten days after the delivery to the Operating Partnership and
the Trustee of notice of such resignation, provided such resignation is
effective prior to the Notification Date, or on or after the Notification Date,
immediately upon the failure of certain conditions described above and as
specified in the Remarketing Agreement. In such case, it shall be the sole
obligation of the Operating Partnership to appoint a successor Remarketing
Dealer.
The Remarketing Dealer, in its individual or any other capacity, may buy,
sell, hold and deal in any of the MOPPRS. The Remarketing Dealer may exercise
any vote or join in any action which any Beneficial Owner of
S-28
<PAGE>
MOPPRS may be entitled to exercise or take with like effect as if it did not act
in any capacity under the Remarketing Agreement. The Remarketing Dealer, in its
individual capacity, either as principal or agent, may also engage in or have an
interest in any financial or other transaction with the Operating Partnership or
the Company as freely as if did not act in any capacity under the Remarketing
Agreement.
REPURCHASE
In the event that (i) the Remarketing Dealer for any reason does not notify
the Operating Partnership of the Interest Rate to Maturity by 4:00 p.m., New
York City time, on the Determination Date, or (ii) prior to the Remarketing
Date, the Remarketing Dealer has resigned and no successor has been appointed on
or before the Determination Date, or (iii) since the Notification Date, a
material adverse change in the condition of the Company or the Operating
Partnership and its subsidiaries, considered as one enterprise, shall have
occurred or an Event of Default, or any event that, with the giving of notice or
passage of time, or both, would constitute an Event of Default, with respect to
the MOPPRS shall have occurred and be continuing, or any other event
constituting a termination event under the Remarketing Agreement shall have
occurred, or (iv) the Remarketing Dealer elects not to remarket the MOPPRS, or
(v) the Remarketing Dealer for any reason does not purchase all tendered MOPPRS
on the Remarketing Date, the Operating Partnership will repurchase the MOPPRS as
a whole on the Remarketing Date, at a price equal to 100% of the principal
amount of the MOPPRS plus all accrued and unpaid interest, if any, on the MOPPRS
to the Remarketing Date. In any such case, payment will be made by the Operating
Partnership to the DTC Participant of each tendering Beneficial Owner of MOPPRS,
by book-entry through DTC by the close of business on the Remarketing Date
against delivery through DTC of such Beneficial Owner's tendered MOPPRS.
REDEMPTION
THE MOPPRS. If the Remarketing Dealer elects to remarket the MOPPRS on the
Remarketing Date, the MOPPRS will be subject to mandatory tender to the
Remarketing Dealer for remarketing on such date, in each case subject to the
conditions described above under " -- Tender of MOPPRS; Remarketing" and
" -- Repurchase" and to the Operating Partnership's right to redeem the MOPPRS
from the Remarketing Dealer as described in the next sentence. The Operating
Partnership will notify the Remarketing Dealer and the Trustee, not later than
the Business Day immediately preceeding the Determination Date, if the Operating
Partnership irrevocably elects to exercise its right to redeem the MOPPRS, in
whole but not in part, from the Remarketing Dealer on the Remarketing Date at
the Optional Redemption Price. The "Optional Redemption Price" shall be the
greater of (i) 100% of the principal amount of the MOPPRS and (ii) the sum of
the present values of the Remaining Scheduled Payments thereon, as determined by
the Remarketing Dealer, discounted to the Remarketing Date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate, plus in either case accrued and unpaid interest from the Remarketing Date
on the principal amount being redeemed to the date of redemption. If the
Operating Partnership elects to redeem the MOPPRS, it shall pay the redemption
price therefor in the same-day funds by wire transfer to an account designated
by the Remarketing Dealer on the Remarketing Date.
Provided that the MOPPRS have not been repurchased or redeemed as described
above, following the remarketing of MOPPRS, the Operating Partnership will have
the right to redeem the MOPPRS from the Beneficial Owners thereof on
substantially the same terms as the Notes may be redeemed as described below.
Interest on the MOPPRS upon the remarketing thereof shall be calculated at the
Interest Rate to Maturity for all purposes.
THE NOTES. The Notes may be redeemed at any time at the option of the
Operating Partnership, in whole or from time to time in part, at a redemption
price equal to the sum of (i) the principal amount of the Notes (or portion
thereof) being redeemed plus accrued and unpaid interest thereon to the
redemption date and (ii) the Make-Whole Amount (as defined below), if any, with
respect to such Notes (or portion thereof) (the "Redemption Price").
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 from and after the redemption date will be to receive payment of the
Redemption Price upon surrender of such Notes in accordance with such notice.
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 less than 30 nor more than 60 days prior to the date fixed
for redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal
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<PAGE>
amount of the Notes held by such Holder to be redeemed. If less than all of the
Notes are to be redeemed, the particular Notes to be redeemed shall be selected
by such method as the Trustee deems fair and appropriate.
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of
any Notes, the excess, if any, of (i) the aggregate present value as of the date
of such redemption of each dollar of principal being redeemed and the amount of
interest (exclusive of interest accrued to the date of redemption) that would
have been payable in respect of each such dollar if such redemption had not been
made, determined by discounting, on a semi-annual basis, such principal and
interest at the Reinvestment Rate (determined on the third Business Day
preceding the date such notice of redemption is given) from the respective dates
on which such principal and interest would have been payable if such redemption
had not been made, over (ii) the aggregate principal amount of the Notes being
redeemed.
"Reinvestment Rate" means % plus the yield on treasury securities at a
constant maturity for the most recent week under the heading "Week Ending"
published in the most recent Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of the
principal being redeemed. If no maturity exactly corresponds to such maturity,
yields for the two published maturities most closely corresponding to such
maturity shall be calculated pursuant to the immediately preceding sentence and
the Reinvestment Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding in each of such relevant periods to the nearest
month. For the purpose of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15 (519)"
or any successor publication that is published weekly by the Federal Reserve
System and that establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable that shall be designated by the Operating
Partnership.
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. The provisions of Article
Four relating to defeasance will not apply to the MOPPRS until after the
Remarketing Date.
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 Offered Securities,
the Indenture or other debt obligations. Each Holder of Offered Securities by
accepting such Offered Securities waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Offered
Securities.
BOOK-ENTRY SYSTEM
Upon issuance, each series of Offered Securities will be represented by a
global security or securities (each, a "Global Security"). Each Global Security
will be deposited with, or on behalf of, DTC. Upon the issuance of such Global
Security, DTC or its nominee will credit the accounts of persons held with it
with the respective principal or face amounts of the Offered Securities
represented by such Global Security. Ownership of beneficial interests in such
Global Security will be limited to persons that have accounts with DTC
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Security will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC. Ownership of beneficial interests in such 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 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 such Global
Security.
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<PAGE>
Payment of principal of and interest on each series of Offered Securities
will be made to DTC or its nominee, as the case may be, as the sole registered
owner and holder of the Global Security for such series 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 DTC's records relating to or payments made on
account of beneficial ownership interests in such Global Security or for
maintaining, supervising or reviewing any of DTC's records relating to such
beneficial ownership interests.
The Operating Partnership has been advised by DTC that upon receipt of any
payment of principal of or interest on any Global Security, DTC 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 such Global Security as
shown on the records of DTC. Payments by participants to owners of beneficial
interests in such 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.
Neither Global Security may be transferred except as a whole by DTC to a
nominee of DTC. The Global Security representing each series of Offered
Securities is exchangeable for certificated Offered Securities of such series
only if (x) DTC notifies the Operating Partnership that it is unwilling or
unable to continue as depositary for such Global Security or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act and the
Operating Partnership fails within 90 days thereafter to appoint a successor,
(y) in the case of the Notes only, the Operating Partnership in its sole
discretion determines that such 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 securities represented by such Global
Security. In such event, the Operating Partnership will issue securities of the
applicable series in certificated form in exchange for such 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 Offered Securities of
such series equal in principal amount to such beneficial interest and to have
such securities registered in its name. Securities so 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, neither Global Security is exchangeable,
except for a Global Security for the same series of Offered Securities of like
denomination to be registered in the name of DTC or its nominee.
So long as DTC, or its nominee, is the registered owner of a Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Offered Securities represented by such 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 any of the Offered Securities will be evidenced only by, and
transfer thereof will be effected only through, records maintained by DTC and
its participants. Except as provided herein, owners of beneficial interests in
any 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 such Global Security must rely on the procedures
of DTC, 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. DTC will not consent or vote with respect to
the Global Security representing a series of Offered Securities. Under its usual
procedure, DTC mails an Omnibus Proxy to the Operating Partnership as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s (DTC's partnership nominee) consenting or voting rights to those
participants to whose accounts the Offered Securities of a series are credited
on the applicable record date (identified in a listing attached to the Omnibus
Proxy).
DTC has advised the Operating Partnership that DTC 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. DTC
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. DTC's
participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations some of whom (and/or
their representatives) own DTC. Access to DTC'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 DTC and its participants are on
file with the Securities and Exchange Commission.
S-31
<PAGE>
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for each series of the Offered Securities will be made by the
applicable Underwriters in immediately available funds. All payments of
principal and interest will be made by the Operating Partnership in immediately
available funds.
The Offered Securities of each series will trade in DTC's same-day funds
settlement system until maturity or until such Offered Securities are issued in
definitive form, and secondary market trading activity in such Offered
Securities will therefore be required by DTC to settle in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading-activity in such Offered Securities.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership, and disposition of the MOPPRS is based
upon laws, regulations, rulings, and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with initial purchasers who hold MOPPRS as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding
MOPPRS as a hedge against currency risk or as a position in a "straddle" for tax
purposes, or persons whose functional currency is not the U.S. dollar. In
addition, this discussion only addresses the United States Federal income tax
consequences of the MOPPRS until the Remarketing Date. Persons considering the
purchase of MOPPRS should consult their own tax advisors concerning the
application of United States Federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the MOPPRS arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a MOPPRS
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 a 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 (including, to the
extent provided in Treasury Regulations, certain trusts in existence on August
20, 1996, and treated as United States persons prior to such date, that elect to
continue to be treated as United States persons). OTHER CAPITALIZED TERMS NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS GIVEN TO THEM IN THE
ACCOMPANYING PROSPECTUS.
TAX TREATMENT OF MOPPRS
The United States Federal income tax treatment of debt obligations such as
the MOPPRS is not entirely certain. Because the MOPPRS are subject to mandatory
tender on the Remarketing Date, the Operating Partnership intends to treat the
MOPPRS as maturing on the Remarketing Date for United States Federal income tax
purposes and as being reissued on the Remarketing Date should the Remarketing
Dealer remarket the MOPPRS. By purchasing the MOPPRS, the U.S. Holder agrees to
follow such treatment for United States Federal income tax purposes. Based on
such treatment, stated interest on the MOPPRS will constitute "qualified stated
interest" and generally will be taxable to a U.S. Holder as ordinary income at
the time such interest is accrued or received (in accordance with the U.S.
Holder's regular method of tax accounting). Under the foregoing, if the MOPPRS
are issued to the U.S. Holder at par value or alternatively, if the excess of
the par value over the issue price does not exceed the statutory DE MINIMIS
amount (generally 1/4 of 1% of the MOPPRS' stated redemption price at the
Remarketing Date multiplied by the number of complete years to the Remarketing
Date from the issue date), the MOPPRS will not be treated as having original
issue discount.
If the MOPPRS are issued at a discount greater than the statutory DE
MINIMIS amount, a U.S. Holder must include original issue discount in income as
ordinary income for United States Federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of the U.S. Holder's regular method of
accounting. In general, the amount of original issue discount included in income
by the initial U.S. Holder of a MOPPRS would be the sum of the daily portions of
original issue discount with respect to such MOPPRS for each day during the
taxable year (or portion of the taxable year) on which such U.S. Holder held
such MOPPRS. The "daily portion" of original issue discount on any MOPPRS is
determined by allocating to each day in any accrual period a ratable portion of
the original issue discount allocable to that accrual period. An "accrual
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<PAGE>
period "may be of any length and the accrual periods may vary in length over the
term of the MOPPRS, provided that each accrual period is not longer than one
year and each scheduled payment of principal or interest occurs either on the
final day of an accrual period or on the first day of an accrual period. The
amount of original issue discount allocable to each accrual period is generally
equal to the difference between (i) the product of the MOPPRS' adjusted issue
price at the beginning of such accrual period and appropriately adjusted to take
into account the length of the particular accrual period and (ii) the amount of
any "qualified stated interest" payments allocable to such accrual period. The
"adjusted issue price" of a MOPPRS at the beginning of any accrual period is the
sum of the issue price of the MOPPRS plus the amount of original issue discount
allocable to all prior accrual periods minus the amount of any prior payments on
the MOPPRS that were not qualified stated interest payments. Under these rules,
U.S. Holders generally will have to include in income increasingly greater
amounts of original issue discount in successive accrual periods.
Under the foregoing treatment, upon the sale, exchange, or retirement of a
MOPPRS, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange, or retirement
(other than amounts representing accrued and unpaid interest that such U.S.
Holder has not previously included in gross income) and such U.S. Holder's
adjusted tax basis in the MOPPRS. An initial U.S. Holder's adjusted tax basis in
a MOPPRS generally will equal such U.S. Holder's initial investment in the
MOPPRS increased by an original issue discount included in income, and decreased
by the amount of any payments, other than qualified stated interest payments,
received and amortizable bond premium taken with respect to such MOPPRS. Such
gain or loss will be capital gain or loss if the MOPPRS is held as a capital
asset.
There can be no assurance that the Internal Revenue Service ("IRS") will
agree with the Operating Partnership's treatment of the MOPPRS and it is
possible that the IRS could assert another treatment. For instance, it is
possible that the IRS could seek to treat the MOPPRS as maturing on the Stated
Maturity Date.
Because of the remarketing, if the MOPPRS were treated as maturing on the
Stated Maturity Date, Treasury Regulations relating to contingent payment debt
obligations (the "Contingent Payment Regulations") would appear to be
applicable. The effect of the Contingent Payment Regulations would be to (i)
require U.S. Holders to use an accrual method with respect to the MOPPRS,
regardless of their usual method of tax accounting, (ii) result in the
possibility that U.S. Holders would be required to accrue income in excess of
actual cash payments received, and (iii) generally result in ordinary rather
than capital treatment of any gain or loss on the sale, exchange, or retirement
of the MOPPRS.
Specifically, under the Contingent Payment Regulations, the Operating
Partnership would be required to construct a projected payment schedule for the
MOPPRS, based upon the Operating Partnership's current borrowing costs for
comparable debt instruments of the Operating Partnership, from which an
estimated yield on the MOPPRS would be calculated. A U.S. Holder would be
required to include in income as ordinary interest an amount equal to the sum of
the daily portions of interest on the MOPPRS that would be deemed to accrue at
this estimated yield for each day during the U.S. Holder's taxable year on which
the U.S. Holder holds the MOPPRS. The amount of interest that would be deemed to
accrue in any accrual period would equal the product of the estimated yield
(properly adjusted for the length of the accrual period) and the MOPPRS'
adjusted issue price (as defined below) at the beginning of the accrual period.
The daily portions of interest would be determined by allocating to each day in
the accrual period the ratable portion of the interest that would be deemed to
accrue during the accrual period. In general, for these purposes, a MOPPRS'
adjusted issue price would equal the MOPPRS' issue price increased by the
interest previously accrued on the MOPPRS, and reduced by all payments made on
the MOPPRS.
Under the Contingent Payment Regulations, upon the sale or exchange of a
MOPPRS (including a sale pursuant to the mandatory tender on the Remarketing
Date), a U.S. Holder would be required to recognize taxable income or loss in an
amount equal to the difference, if any, between the amount realized by the U.S.
Holder upon such sale or exchange and the U.S. Holder's adjusted tax basis in
the MOPPRS as of the date of disposition. A U.S. Holder's adjusted tax basis in
a MOPPRS generally would equal such U.S. Holder's initial investment in the
MOPPRS increased by any interest previously included in income with respect to
the MOPPRS by the U.S. Holder, and decreased by any payments received by the
U.S. Holder. Any such taxable income generally would be treated as ordinary
income. Any such taxable loss generally would be treated (i) first as an offset
to any interest otherwise includible in income by the U.S. Holder with respect
to the MOPPRS for the taxable year in which the sale or exchange occurs to the
extent of the amount of such includible interest, and (ii) then as an ordinary
loss to the extent of the U.S. Holder's total interest inclusions on the MOPPRS
in previous taxable years. Any remaining loss in excess of the amounts described
in (i) and (ii) above generally would be treated as short-term, mid-term, or
long term-capital loss (depending upon the U.S.
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<PAGE>
Holder's holding period for the MOPPRS). All amounts includible in income by a
U.S. Holder as ordinary income pursuant to the Contingent Payment Regulations
would be treated as original issue discount.
NON-U.S. HOLDERS
A non-U.S. Holder whose income and gain with respect to the MOPPRS is not
effectively connected with the conduct of a United States trade or business and
who satisfies all documentation requirements will not be subject to United
States Federal income taxes on payments of principal, premium (if any) or
interest (including original issue discount and accruals under the Contingent
Payment Regulations, if any) on a MOPPRS, unless such non-U.S. Holder owns,
actually or constructively, 10% or more of the capital or profits interests in
the Operating Partnership or is either a controlled foreign corporation related
to the Operating Partnership or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
MOPPRS under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a MOPPRS is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent, accompanied by a copy of the IRS Form W-8 or the
substitute form provided by the beneficial owner to the organization or
institution.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes gain upon retirement or disposition
of a MOPPRS, provided that the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should consult
its tax advisor in this regard.
The MOPPRS will not be includible in the estate of a non-U.S. Holder unless
the individual owns, actually or constructively, 10% or more of the capital or
profits interests in the Operating Partnership or, at the time of such
individual's death, payments in respect of the MOPPRS would have been
effectively connected with the conduct by such individual of a trade or business
in the United States.
BACKUP WITHHOLDING
Under certain circumstances, U.S. Holders may be subject to backup
withholding at a rate of 31% on payments made with respect to the MOPPRS. 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.
Payments made in respect of the MOPPRS to a U.S. Holder must be reported to the
IRS, unless the U.S. Holder establishes an exemption.
In addition, upon the sale of a MOPPRS to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
U.S. Holders 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.
Holder will be allowed as a credit against the
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U.S. Holder's United States Federal income tax liability and may entitle the
U.S. Holder 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. Holders. Non-U.S. Holders should consult their tax
advisors with regard to U.S. information reporting and backup withholding.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") that make certain modifications to the withholding, backup
withholding, and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
ERISA CONSIDERATIONS RELATING TO THE MOPPRS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e) (1) of
the Code including individual retirement accounts of Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each a "Plan") and (d) persons who have certain
specified relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in JOHN HANCOCK LIFE INS. V. HARRIS TRUST AND SAV.
BANK, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract). ERISA also imposes certain duties
on persons who are fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a Plan and Parties-in-Interest or Disqualified Persons with
respect to such Plans.
The Operating Partnership and the Remarketing Dealer, because of their
activities or the activities of their respective affiliates, may be considered
to be Parties-in-Interest or Disqualified Persons with respect to certain Plans.
If the MOPPRS are acquired by a Plan with respect to which the Operating
Partnership or the Remarketing Dealer is, or subsequently becomes, a
Party-in-Interest or Disqualified Person, the purchase, holding or sale of
MOPPRS to the Remarketing Dealer could be deemed to be a direct or indirect
violation of the Prohibited Transaction rules of ERISA and the Code unless such
transaction were subject to one or more statutory or administrative exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 75-1, which exempts
certain transactions involving employee benefit plans and certain
broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts certain
transactions between insurance company pooled separate accounts and
Parties-in-Interest or Disqualified Persons; PTCE 91-38, which exempts certain
transactions between bank collective investment funds and Parties-in-Interest or
Disqualified Persons; PTCE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified professional asset manager;" PTCE 95-60, which
exempts certain transactions between insurance company general accounts and
Parties-in-Interest or Disqualified Persons; or PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." Even if the conditions specified in one or more of these exemptions
are met, the scope of relief provided by these exemptions will not necessarily
cover all acts that might be construed as prohibited transactions or breaches of
the fiduciary duties imposed under Section 404(a) of ERISA.
Accordingly, prior to making an investment in the MOPPRS, a Plan should
determine whether the Operating Partnership or the Remarketing Dealer is a
Party-in-Interest or Disqualified Person with respect to such Plan and, if so,
whether such transaction is subject to one or more statutory or administrative
exemptions, including those described above.
Prior to making an investment in the MOPPRS, Plans should consult with
their legal advisers concerning the impact of ERISA and the Code and the
potential consequences of such investment with respect to their specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations, whether the fiduciary has the authority to make the
investment on behalf of the Plan; whether the investment constitutes a direct or
indirect transaction with a Party-in-Interest or a Disqualified Person; and
whether under the general fiduciary standards of investment procedure and
diversification an investment in the MOPPRS is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
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UNDERWRITING
THE MOPPRS
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "MOPPRS Underwriting Agreement"), the
Operating Partnership has agreed to sell to each of the Underwriters named below
(the "MOPPRS Underwriters"), and each of the MOPPRS Underwriters has severally
agreed to purchase, the respective principal amount of the MOPPRS set forth
opposite its name below at a price equal to % of the principal amount
thereof.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER MOPPRS
------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................................... $
J.P. Morgan Securities Inc...................................................................................
NationsBanc Montgomery Securities LLC........................................................................
------------
Total........................................................................................... $100,000,000
------------
------------
</TABLE>
In the MOPPRS Underwriting Agreement, the MOPPRS Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
MOPPRS offered hereby if any are purchased. The MOPPRS Underwriters have advised
the Operating Partnership that the MOPPRS Underwriters propose to offer the
MOPPRS from time to time for sale in negotiated transactions or otherwise, at
prices relating to prevailing market prices determined at the time of sale. The
MOPPRS Underwriters may effect such transactions by selling MOPPRS to or through
dealers and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the MOPPRS Underwriters and any
purchasers of MOPPRS for whom they may act as agent. The MOPPRS Underwriters and
any dealers that participate with the MOPPRS Underwriters in the distribution of
the MOPPRS may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of MOPPRS by them may be deemed to
be underwriting compensation.
The MOPPRS Underwriters are permitted to engage in certain transactions
that maintain or otherwise affect the price of the MOPPRS. Such transactions may
include over-allotment transactions and purchases to cover short positions
created by the MOPPRS Underwriters in connection with the Offering. If the
MOPPRS Underwriters create a short position in the MOPPRS in connection with the
Offering, I.E., if they sell MOPPRS in an aggregate principal amount exceeding
that set forth on the cover page of the Prospectus Supplement, the MOPPRS
Underwriters may reduce that short position by purchasing MOPPRS in the open
market.
In general, purchases of a security to reduce a short position could cause
the price of the security to be higher than it might be in the absence of such
purchases.
Neither the Operating Partnership nor the MOPPRS Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the MOPPRS. In
addition, neither the Operating Partnership nor the MOPPRS Underwriters make any
representation that the MOPPRS Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
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THE NOTES
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Notes Underwriting Agreement"), the
Operating Partnership has agreed to sell to each of the Underwriters named below
(the "Notes Underwriters" and, together with the MOPPRS Underwriters, the
"Underwriters"), and each of the Notes Underwriters has severally agreed to
purchase, the respective principal amount of the Notes set forth opposite its
name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................................................... $
Goldman, Sachs & Co..........................................................................................
NationsBanc Montgomery Securities LLC........................................................................
------------
Total........................................................................................... $100,000,000
------------
------------
</TABLE>
In the Notes Underwriting Agreement, the several Notes 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 Notes Underwriters have advised the Operating Partnership that they
propose initially to offer the Notes directly to the public at the public
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of % of the
principal amount per Note. The Notes Underwriters may allow, and such dealers
may reallow, a discount not in excess of % of the principal amount per Note
to certain other dealers. After the initial public offering of the Notes, the
public offering price, concession and discount may be changed.
The Notes Underwriters are permitted to engage in certain transactions that
stabilize the price of the Notes. Such transactions consist of bids of purchases
for the purpose of pegging, fixing or maintaining the price of the Notes. If the
Notes Underwriters create a short position in the Notes in connection with the
Offering, I.E., if they sell Notes in an aggregate principal amount exceeding
that set forth on the cover page of this Prospectus Supplement, the Notes
Underwriters may reduce that short position by purchasing Notes in the open
market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Operating Partnership nor the Notes Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Operating Partnership nor the Notes Underwriters make any
representation that the Notes Underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
The MOPPRS and the Notes are new issues of securities with no established
trading market. The Operating Partnership has been advised by the MOPPRS
Underwriters and the Notes Underwriters that they intend to make a market in the
MOPPRS and the Notes, respectively, 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 MOPPRS or the Notes.
The Operating Partnership and the Company have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, 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 Loans, 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.
LEGAL MATTERS
The legality of the Offered Securities 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-37
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
424(b)(3)
333-31183
PROSPECTUS
$1,250,000,000
HIGHWOODS PROPERTIES, INC.
COMMON STOCK, PREFERRED STOCK AND DEPOSITARY SHARES
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP
DEBT SECURITIES
----------------
Highwoods Properties, Inc. (the "Company") may from time to time offer in
one or more series (i) shares of common stock, $.01 par value per share
("Common Stock"), (ii) shares of preferred stock, $.01 par value per share
("Preferred Stock"), and (iii) shares of Preferred Stock represented by
depositary shares (the "Depositary Shares"), with an aggregate public offering
price of up to $830,000,000 (or its equivalent in another currency based on the
exchange rate at the time of sale) in amounts, at prices and on terms to be
determined at the time of offering. Highwoods/Forsyth Limited Partnership (the
"Operating Partnership") may from time to time offer in one or more series
unsecured non-convertible debt securities ("Debt Securities"), with an
aggregate public offering price of up to $420,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering. The Common Stock,
Preferred Stock, Depositary Shares and Debt Securities (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement"). If any Debt Securities issued
by the Operating Partnership 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"). Debt Securities rated investment grade may also be accompanied
by a Guarantee to the extent and on the terms described herein and in the
accompanying Prospectus Supplement. The Company conducts substantially all of
its activities through, and substantially all of its assets are held by,
directly or indirectly, the Operating Partnership. Consequently, the Company's
operating cash flow and its ability to service its financial obligations,
including the Guarantees, is dependent upon the cash flow of, and distributions
or other payments from, the Operating Partnership to the Company.
The specific terms of the Securities in respect of which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement
and will include, where applicable: (i) in the case of Common Stock, any
initial public offering price; (ii) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(iii) in the case of Depositary Shares, the fractional share of Preferred Stock
represented by each such Depositary Share; and (iv) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Operating
Partnership or repayment at the option of the holder, terms for sinking fund
payments, covenants, applicability of any Guarantees and any initial public
offering price. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for Federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE
SECURITIES. ----------------
The Securities may be offered directly, through agents designated from
time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying
Prospectus Supplement. See "Plan of Distribution." No Securities may be sold
without delivery of a Prospectus Supplement describing the method and terms of
the offering of such series of Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPEC-TUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is January 22, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith the Company files reports, proxy statements
and other information with the Securities and Exchange Commission (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 and certain
debt securities of the Operating Partnership are listed on the New York Stock
Exchange ("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 of 1933, as amended
(the "Securities Act"), with respect to the Securities. This prospectus
("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
statements 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, 1996;
b.The Operating Partnership's annual report on Form 10-K for the year
ended December 31, 1996;
c.The Company's quarterly reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997;
d.The Operating Partnership's quarterly reports on Form 10-Q for the
periods ended March 31, 1997, June 30, 1997 and September 30, 1997;
e.The Company's current reports on Form 8-K, dated April 1, 1996 (as
amended on June 3, 1996 and June 18, 1996), April 29, 1996 (as amended on
June 3, 1996 and June 18, 1996), January 9, 1997 (as amended on February
7, 1997 and March 10, 1997), February 12, 1997, August 27, 1997 (as
amended on September 23, 1997), September 18, 1997, September 25, 1997,
October 1, 1997, October 4, 1997, December 22, 1997 and January 22, 1998;
f.The Operating Partnership's current reports on Form 8-K, dated January
9, 1997 (as amended on February 7, 1997 and March 10, 1997), February 12,
1997, October 1, 1997, December 22, 1997 and January 22, 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
2
<PAGE>
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.
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that began operations through a predecessor in 1978. At December
31, 1997, the Company owned a portfolio of 342 office and 139 industrial
(including 73 service center) properties (the "Properties"), and 729 acres (and
had agreed to purchase an additional 472 acres) of undeveloped land suitable
for future development (the "Development Land"). In addition, as of December
31, 1997, an additional 32 properties (the "Development Projects"), which will
encompass approximately 3.3 million rentable square feet, were under
development. The Properties are located in 19 markets in North Carolina,
Florida, Tennessee, Georgia, Virginia, South Carolina, Maryland and Alabama. As
of December 31, 1997, the Properties consisted of approximately 30.7 million
rentable square feet, which were leased to approximately 3,100 tenants.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the Properties are held directly or
indirectly by, Highwoods/Forsyth Limited Partnership (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and as of December 31, 1997, owned approximately 82% of the common
partnership interests (the "Common Units") in the Operating Partnership. The
remaining Common Units are owned by limited partners (including certain
officers and directors of the Company). Each Common Unit may be redeemed by the
holder thereof for the cash value of one share of Common Stock or, at the
Company's option, one share (subject to certain adjustments) of the Common
Stock. With each such exchange, the number of Common Units owned by the Company
and, therefore, the Company's percentage interest in the Operating Partnership,
will increase.
In addition to owning the Properties, the Development Projects and the
Development Land, the Company provides leasing, property management, real
estate development, construction and miscellaneous services for the Properties
as well as for third parties. The Company conducts its third-party fee-based
services through Highwoods Services, Inc., a subsidiary of the Operating
Partnership ("Highwoods Services"), and through Highwoods/Tennessee
Properties, Inc., a wholly owned subsidiary of the Company.
The Company is a Maryland corporation that was incorporated in 1994. The
Operating Partnership is a North Carolina limited partnership formed in 1994.
The Company's and the Operating Partnership's executive offices are located at
3100 Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and their
telephone number is (919) 872-4924. The Company maintains offices in each of
its primary markets.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing offered Securities.
Geographic Concentration
The Company's revenues and the value of its properties may be affected by
a number of factors, including the local economic climate (which may be
adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office, industrial and other competing
commercial properties). The Company's performance and its ability to make
distributions to stockholders is particularly dependent on the economic
conditions in its
3
<PAGE>
southeastern markets. In addition, there can be no assurance as to the
continued growth of the economy in the Company's southeastern markets.
Conflicts of Interest in the Business of the Company
Tax Consequences upon Sale or Refinancing of Properties. Holders of Common
Units may suffer adverse tax consequences upon the sale or refinancing of any
of the Company's properties; therefore, such holders, including certain of the
Company's officers and directors, and the Company may have different objectives
regarding the appropriate pricing and timing of any sale or refinancing of such
properties. Although the Company, as the sole general partner of the Operating
Partnership, has the exclusive authority as to whether and on what terms to
sell or refinance an individual property, those members of the Company's
management and board of directors of the Company who hold Common Units may
influence the Company not to sell or refinance certain properties even though
such sale or refinancing might otherwise be financially advantageous to the
Company.
Policies with Respect to Conflicts of Interests. The Company has adopted
certain policies relating to 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
independent directors of the Company or a majority of the shares of capital
stock held by disinterested stockholders. There can be no assurance that the
Company's policies will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all stockholders.
Limitations on Acquisition and Change in Control
Ownership Limit. The Company's Articles of Incorporation prohibit
ownership of more than 9.8% of the outstanding capital stock of the Company by
any person. Such restriction is likely to have the effect of precluding
acquisition of control of the Company by a third party without consent of the
board of directors even if a change in control were in the interest of
stockholders.
Required Consent of the Operating Partnership for Significant Corporate
Action. The Company may not engage in certain change of control transactions
without the approval of the holders of a majority of the outstanding Common
Units. Should the Company ever own less than a majority of the outstanding
Common Units, this voting requirement might limit the possibility for an
acquisition or change in the control of the Company. As of December 31, 1997,
the Company owned approximately 82% of the Common Units.
Staggered Board. The board of directors of the Company has three classes
of directors, the terms of which will expire in 1998, 1999 and 2000. Directors
for each class will be chosen for a three-year term. The staggered terms for
directors may affect the stockholders' ability to change control of the Company
even if a change in control were in the stockholders' interest.
Operating Partnership Agreement. The Operating Partnership Agreement was
recently amended to clarify the provisions relating to limited partners'
redemption rights in the event of certain changes of control of the Company.
Because these provisions require 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 Amendment could have the effect of discouraging a third party from
making an acquisition proposal for 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. 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.
Adverse Impact on Distributions of Failure to Qualify as a REIT
The Company and the Operating Partnership intend to operate in a manner so
as to permit the Company to remain qualified as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). Although the
4
<PAGE>
Company believes that it will operate in such a manner, no assurance can be
given that the Company will remain qualified as a REIT. If in any taxable year
the Company were to fail to qualify as a REIT, the Company would not be allowed
a deduction for distributions to stockholders in computing taxable income and
would be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates.
Real Estate Investment Risks
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company's ability to make distributions to its
stockholders and the Operating Partnership's ability to make payments of
interest and principal on any Debt Securities may be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of each property; the ability of the
Company to provide adequate management, maintenance and insurance; and
increased operating costs (including real estate taxes and utilities). In
addition, real estate values and income from properties are also affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
Competition. Numerous office and industrial properties compete with the
Company's properties in attracting tenants to lease space. Some of these
competing properties are newer or better located than some of the Company's
properties. Significant development of office or industrial properties in a
particular area could have a material effect on the Company's ability to lease
space in its properties and on the rents charged.
Bankruptcy and Financial Condition of Tenants. At any time, a tenant of
the Company's properties may seek the protection of the bankruptcy laws, which
could result in the rejection and termination of such tenant's lease and
thereby cause a reduction in the cash flow available for distribution by the
Company. Although the Company has not experienced material losses from tenant
bankruptcies, no assurance can be given 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 the failure to make
rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's income
may be adversely affected.
Renewal of Leases and Reletting of Space. The Company will be subject to
the risks that upon expiration of leases for space located in its properties,
the leases may not be renewed, the space may not be relet or the terms of
renewal or reletting (including the cost of required renovations) may be less
favorable than current lease terms. If the Company were unable to promptly
relet or renew 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 the Company's cash flow and ability to make expected
distributions to stockholders may be adversely affected.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, the Code limits the Company's ability to sell
properties held for fewer than four years, which may affect the Company's
ability to sell properties without adversely affecting its financial
performance.
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 the Company's cash flow and its ability to make distributions
to stockholders. The Company's properties are also subject to various Federal,
state and local regulatory requirements, such as requirements of the Americans
with Disabilities Act and state and local fire and life safety requirements.
Failure to comply with these requirements could result in the imposition of
fines by governmental authorities or awards of damages to private litigants.
The Company believes that the Properties comply in all material respects with
such regulatory requirements. However, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
which would require significant
5
<PAGE>
unanticipated expenditures by the Company and could have an adverse effect on
the Company's cash flow and expected distributions.
Risks of Joint Ownership of Assets. The Company may from time to time
invest in properties and assets jointly with other persons or entities. Joint
ownership of properties, under certain circumstances, may involve risks not
otherwise present, including the possibility that the Company's partners or
co-investors might become bankrupt, that such partners or co-investors might at
any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company, and that such
partners or co-investors may be in a position to take action contrary to the
instructions or the requests of the Company or contrary to the Company's
policies or objectives.
Risk of Development, Construction and Acquisition Activities
The Company intends to continue development and construction of office and
industrial properties, including development on the Development Land and the
completion of the Development Projects. Risks associated with the Company's
development and construction activities, including activities relating to the
Development Land and the Development Projects, may include: abandonment of
development opportunities; construction costs of a property exceeding original
estimates, possibly making the property uneconomical; occupancy rates and rents
at a newly completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for development
of a property; and 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. Development activities are also subject to risks relating
to the inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorizations.
The Company intends to continue to acquire office and industrial
properties. Acquisitions of office and industrial properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment. Furthermore, while the Company is likely to be
involved in negotiations (at various stages) to acquire one or more properties
or portfolios, no assurances can be given that any or all of such proposed
acquisitions will be consummated.
Although the Company has limited its development, acquisition, management
and leasing business primarily to markets and property types with which
management is familiar, the Company may expand its business to new geographic
areas and property types. Management believes that much of its past success has
been a result of its local expertise in the Southeast and its experience in the
ownership, management and development of suburban office and industrial
properties. The Company may not initially possess the same level of familiarity
with new geographic areas and property types, which could adversely affect its
ability to develop, acquire, manage or lease newly acquired properties.
Financing Risks
Debt Financing. The Company and the Operating Partnership are subject to
the risks associated with debt financing, including the risk that the cash
provided by operating activities will be insufficient to meet required payments
of principal and interest, the risk of rising interest rates on floating rate
debt, the risk that the Company and the Operating Partnership will not be able
to prepay or refinance existing indebtedness (which generally will not have
been fully amortized at maturity) or that the terms of such refinancing will
not be as favorable as the terms of existing indebtedness. If refinancing of
such indebtedness could not be secured on acceptable terms, the Company and/or
the Operating Partnership might be forced to dispose of properties upon
disadvantageous terms, which might result in losses and might adversely affect
the cash flow available for distribution to equity holders or debt service. An
inability to secure refinancing could also cause the Company to issue equity
securities when its valuation is low, which could adversely affect the market
price of such securities. In addition, if a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the mortgage securing the property could be foreclosed upon
by, or the property could be otherwise transferred to, the mortgagee with a
consequent loss of income and asset value to the Company.
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Risk of Rising Interest Rates. The Company and the Operating Partnership
have incurred and expect in the future to incur floating rate indebtedness in
connection with the acquisition and development of properties, as well as for
other purposes. Also, additional indebtedness that the Company and the
Operating Partnership incur under the existing revolving credit facility bears
interest at a floating rate. Accordingly, increases in interest rates would
increase interest costs (to the extent that the related indebtedness was not
protected by interest rate protection arrangements).
Possible Environmental Liabilities
Under various Federal, state and local laws, ordinances and regulations,
such as the Comprehensive Environmental Response Compensation and Liability Act
or "CERCLA," and common laws, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property as well as certain other costs, including governmental
fines and injuries to persons and property. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to remediate such substances
properly, may adversely affect the owner's or operator's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials ("ACM"), and third parties may seek
recovery from owners or operators of real property for personal injuries
associated with ACM. A number of the Properties contain ACM or material that is
presumed to be ACM. In connection with the ownership and operation of its
properties, the Company 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, and the presence of hazardous or toxic substances at a site
in the vicinity of a property could require the property owner to participate
in remediation activities in certain cases or could have an adverse affect on
the value of such property. In a few situations, contamination from adjacent
properties has migrated onto property owned by the Company; however, based on
current information, management of the Company does not believe that any
significant remedial action is necessary at these affected sites.
As of the date hereof, substantially all of the Properties have been
subjected to a Phase I environmental assessment or assessment update. These
assessments have not revealed, nor is management of the Company aware of, any
environmental liability that it believes would have a material adverse effect
on the Company's financial position, operations or liquidity taken as a whole.
This projection, however, could prove to be incorrect depending on certain
factors. For example, the Company's assessments may not reveal all
environmental liabilities, or may underestimate the scope and severity of
environmental conditions observed, with the result that there may be material
environmental liabilities of which the Company is unaware, or material
environmental liabilities may have arisen after the assessments were performed
of which the Company is unaware. In addition, assumptions regarding groundwater
flow and the existence and source of contamination are based on available
sampling data, and there are no assurances that the data is reliable in all
cases. Moreover, there can be no assurance that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants, by the condition of land or operations in the vicinity of the
Properties, or by third parties unrelated to the Company.
Some tenants use or generate hazardous substances in the ordinary course
of their respective businesses. These tenants are required under their leases
to comply with all applicable laws and are responsible to the Company for any
damages resulting from the tenants' use of the property. The Company is not
aware of any material environmental problems resulting from tenants' use or
generation of hazardous substances. There are no assurances that all tenants
will comply with the terms of their leases or remain solvent and that the
Company may not at some point be responsible for contamination caused by such
tenants.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company and the Operating Partnership intend to use the net proceeds from the
sale of Securities for general corporate purposes, including the development
and acquisition of additional properties and other acquisition transactions,
the payment of certain
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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 for the nine
months ended September 30, 1997 and for the year ended December 31, 1996 were
2.50x and 2.53x, respectively. The ratios of earnings to fixed charges for the
Operating Partnership for the nine months ended September 30, 1997 and for the
year ended December 31, 1996 were 2.47x 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 and $239,000 for the years ended December
31, 1993, and 1992, respectively. These deficiencies 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 have generated positive net cash flow, the
Highwoods Group had net losses for the years ended December 31, 1992 and 1993.
The IPO allowed the Company to significantly deleverage its properties 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." For the nine months ended September 30, 1997, the
ratio of earnings to combined fixed charges and preferred stock dividends was
2.12x for the Company and 2.09x 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.
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 above 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, 1997, the total
outstanding debt of the Operating Partnership was $649.2 million, $258.4
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
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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 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;
(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,
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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 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 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
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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
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 which 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 which 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
through which any such transfer agent acts, except that Operating
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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 consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity, provided that (a) the Operating Partnership or the
Company, as the case may be, shall be the continuing entity, or the successor
entity (if other than the Operating Partnership or the Company, as the case may
be) formed by or resulting from any such consolidation or merger 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 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, 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
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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 the Operating
Partnership or the Company shall not 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 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 which, 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
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Operating Partnership will, to the extent permitted under the Exchange Act, be
required to file with 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 which is expensed
in any 12-month period for interest on Debt (as defined below).
"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 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).
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"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
which 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 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 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
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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 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 which 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 action or to provide
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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 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; (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; or (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 (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, 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 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
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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 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 which 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).
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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 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.
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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 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 10,000,000 shares of preferred stock,
$.01 par value per share, of which 125,000 8 5/8% Series A Cumulative
Redeemable Preferred Shares and 6,900,000 8% Series B Cumulative Redeemable
Preferred Shares have been issued and are outstanding as of the date hereof.
See "Description of Series A Preferred Shares" and "Description of Series B
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;
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(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;
(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
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
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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
which 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.
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
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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, 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.
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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 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.
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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. 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 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
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
which 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)
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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 Transfer."
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
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 Transfer."
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 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,
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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.
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.
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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 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
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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.
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 which 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 Depositary 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
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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 100 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 December 31,
1997, there were approximately 46.8 million shares of Common Stock outstanding,
and approximately 10.4 million shares reserved for issuance upon exchange of
outstanding Common Units.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (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 of the Company 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 Company's 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 Company's 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
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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.
The Company's 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 Common 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 determine the effect of
such stockholder's direct, indirect and constructive ownership of such shares
on the Company's status as a REIT.
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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.
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. 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.
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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
General. 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.
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 1996, 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 ended December 31, 1997, and the taxable year
that will end December 31, 1998. This opinion is based 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 qualification and taxation as a REIT at any time during
the 1997 and 1998 years is dependent, among other things, upon its meeting the
requirements of Section 856(a) of the Code throughout each of such years and
for each year as a whole. Accordingly, because the Company's satisfaction of
the REIT requirements for such years will depend upon future events, including
precise terms and facts of proposed transactions, and the final determination
of operational results, no assurance can be given that the actual results of
the Company's operations for the taxable year ended December 31, 1997, or the
taxable year that will end December 31, 1998, will satisfy the REIT
requirements.
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
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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").
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 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 Company's 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
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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"), repeals 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.
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 and 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
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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 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, 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 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
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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 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
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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 Disposition of Shares"), the IRS recently issued
Notice 97-64 outlining (i) when a REIT may designate its dividends as either a
20% rate gain distribution, an unrecaptured section 1250 gain distribution
(taxed at 25% as noted in "Certain Disposition of Shares"), or a 28% rate gain
distribution and (ii) how to calculate the amount of such distributions, which
may be subject to certain deferral or bifurcation adjustments. 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, as unrecaptured section 1250 gain distribution, or a
28% rate gain distribution. Where no such designation is provided, the dividend
will be treated as a 28% rate 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 either a 20% rate gain distribution, an unrecaptured section 1250
gain distribution, or a 28% rate gain distribution must be calculated in
accordance with the Code and the IRS Notice.
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 shares. As a result of the
Taxpayer Relief 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 18 months 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 18 months 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 maximum rate of capital gains tax for capital assets held
more than one year but not more than 18 months remains at 28%. The taxation of
capital gains of corporations was not changed by the Taxpayer Relief 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
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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 non-resident 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.
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 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 non-resident alien individuals). Distributions that
are taxable under FIRPTA 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. 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. A distribution in excess of the Company's earnings and profits may
be subject to 30% dividend withholding (unless such Non-U.S. Stockholder is
entitled to a lower rate under an income tax treaty) or 10% FIRPTA withholding.
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
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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
New York Stock Exchange) on which the Common Stock will be listed and the
selling stockholder owned no more than 5% of the Common Stock throughout the
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. Stockholder with respect to the gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
non-resident 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 non-resident 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 non-resident 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 New York Stock Exchange. 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.
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. 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 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
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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.
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
42
<PAGE>
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 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.
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 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.
43
<PAGE>
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, 1996, and of Highwoods/
Forsyth Limited Partnership, incorporated herein by reference from the
Operating Partnership's annual report (Form 10-K) for the year ended December
31, 1996, the financial statements with respect to Anderson Properties, Inc.
and the financial statements with respect to Century Center Group 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 dated February 7, 1997 and March 10, 1997),
the combined financial statements and schedule of Eakin & Smith for the year
ended December 31, 1995, incorporated by reference from the Company's current
report on Form 8-K dated April 1, 1996 (as amended on Forms 8-K/A filed June 3,
1996 and June 18, 1996), and the Historical Summary of Gross Income and Direct
Operating Expenses for certain properties owned by Towermarc Corporation for
the year ended December 31, 1995, incorporated herein by reference from the
Company's Current Report on Form 8-K dated April 29, 1996 (as amended on Forms
8-K/A filed June 3, 1996 and June 18, 1996), 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 report on Form 8-K dated August 27,
1997 (as amended on Forms 8-K/A filed September 18, 1997 and September 23,
1997), have been so incorporated in reliance upon the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of said firm as
experts in accounting and auditing.
The financial statements of Crocker Realty Trust, Inc. as of December 31,
1995 and for the year then ended, the financial statements of Crocker & Sons,
Inc. as of December 31, 1994 and for the year then ended, and the financial
statements of Crocker Realty Investors, Inc. as of December 31, 1994 and 1993,
and for each of the years in the two year period ended December 31, 1994, have
been incorporated by reference herein from the
44
<PAGE>
Company's current report on Form 8-K dated April 29, 1996 (as amended on Forms
8-K/A filed June 3, 1996 and June 18, 1996), in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of Southeast Realty Corp., AP Southeast
Portfolio Partners, L.P. and AP Fontaine III Partners, L.P. as of December 31,
1994 and for the year ended December 31, 1994, and the financial statements of
AP Fontaine III Partners, L.P. for the period from October 28, 1993 (date of
inception) through December 31, 1993 incorporated herein by reference from the
Company's current report on Form 8-K dated April 29, 1996 (as amended on Forms
8-K/A filed June 3, 1996 and June 18, 1996), have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of AP Southeast Portfolio Partners, L.P. for the
period from its date of inception (November 17, 1993) through December 31, 1993
incorporated herein by reference from the Company's current report on Form 8-K
dated April 29, 1996 (as amended on Forms 8-K/A filed June 3, 1996 and June 18,
1996), have been so included in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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. Certain legal matters will be passed upon for any underwriters,
dealers or agents by Andrews & Kurth L.L.P., Washington, D.C.
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.
45
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
OPERATING PARTNERSHIP OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING PARTNERSHIP OR THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary........................ S-3
The Operating Partnership............................ S-10
Recent Developments.................................. S-12
The Properties....................................... S-17
Management........................................... S-19
Use Of Proceeds...................................... S-20
Capitalization....................................... S-21
Selected Financial Data.............................. S-22
Description Of Offered Securities.................... S-25
Certain United States Federal Income Tax
Considerations..................................... S-32
ERISA Considerations Relating to the MOPPRS.......... S-35
Underwriting......................................... S-36
Legal Matters........................................ S-37
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information................................ 2
Incorporation Of Certain Documents By
Reference.......................................... 2
The Company And The Operating Partnership............ 3
Risk Factors......................................... 3
Use Of Proceeds...................................... 7
Ratios Of Earnings To Combined Fixed Charges And
Preferred Stock Dividends.......................... 8
Description Of Debt Securities....................... 8
Description Of Preferred Stock....................... 20
Description Of Series A Preferred Shares............. 25
Description Of Series B Preferred Shares............. 26
Description Of Depositary Shares..................... 26
Description Of Common Stock.......................... 30
Federal Income Tax Considerations.................... 33
Plan Of Distribution................................. 43
Experts.............................................. 44
Legal Matters........................................ 45
</TABLE>
$200,000,000
HIGHWOODS/FORSYTH
LIMITED PARTNERSHIP
$100,000,000 %
MANDATORY PAR PUT
REMARKETED SECURITIESSM
("MOPPRSSM")
DUE JANUARY , 2013
$100,000,000 %
NOTES DUE JANUARY ,
----------------------
PROSPECTUS SUPPLEMENT
----------------------
MANAGERS OF THE MOPPRS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
----------------------
MANAGERS OF THE NOTES
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
JANUARY , 1998
"MANDATORY PAR PUT REMARKETED
SECURITIESSM" AND "MOPPRSSM" ARE
SERVICE MARKS OWNED BY
MERRILL LYNCH & CO., INC.
- ------------------------------------------------------------
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