FILED PURSUANT TO RULE 424(B)(5)
REG. NO. 333-68359-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 7, 1999)
[LOGO]
$150,000,000
GABLES REALTY LIMITED PARTNERSHIP
7.25% SENIOR NOTES DUE 2006
------------------
This is a public offering by Gables Realty Limited Partnership of
$150,000,000 of 7.25% senior notes due 2006. We will pay interest on the notes
twice a year, on February 15 and August 15, beginning on August 15, 2001. The
notes will mature on February 15, 2006.
We may redeem all or part of the notes at any time at the redemption prices
described in this prospectus supplement. The notes are unsecured and
unsubordinated debt securities. We do not intend to list the notes on any
national securities exchange.
YOU SHOULD REVIEW THE RISKS OF INVESTING IN THE NOTES AS SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 2 OF THE ATTACHED PROSPECTUS.
------------------------
PER
NOTE TOTAL
------ ------------
Public Offering Price....................................... 99.83% $149,745,000
Underwriting Discounts...................................... 0.60% $ 900,000
Proceeds to Gables (before expenses)........................ 99.23% $148,845,000
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The underwriters for this offering expect to deliver the notes on
February 22, 2001 through the book-entry facilities of The Depository Trust
Company.
------------------------
LEHMAN BROTHERS
JPMORGAN
FIRST UNION SECURITIES, INC.
LEGG MASON WOOD WALKER
INCORPORATED
PNC CAPITAL MARKETS, INC.
WACHOVIA SECURITIES, INC.
February 15, 2001
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. No one has been
authorized to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it.
Securities are not being offered in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus supplement, the accompanying prospectus and the documents
incorporated by reference is accurate only as of their respective dates. Our
business, financial condition, results of operations and prospects may have
changed since those dates.
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-3
Forward-Looking Statements.................................. S-6
Ratios of Earnings to Fixed Charges......................... S-7
Ratios of Earnings to Combined Fixed Charges and Preferred
Dividends................................................. S-7
Use of Proceeds............................................. S-7
Capitalization.............................................. S-8
Description of Notes........................................ S-9
Additional Federal Income Tax Considerations and
Consequences of Your Investment........................... S-19
Underwriting................................................ S-20
Legal Matters............................................... S-21
PROSPECTUS
Risk Factors................................................ 2
About This Prospectus and Where You Can Find More
Information............................................... 8
Gables Trust and Gables Realty Limited Partnership.......... 10
Use of Proceeds............................................. 10
Ratios of Earnings to Fixed Charges......................... 11
Ratios of Earnings to Combined Fixed Charges and Preferred
Dividends................................................. 11
Description of Debt Securities.............................. 11
Description of Preferred Shares............................. 26
Description of Common Shares................................ 33
Description of Warrants..................................... 35
Limits on Ownership of Shares of Beneficial Interest........ 36
Important Provisions of Maryland Law and Our Declaration of
Trust and Bylaws.......................................... 38
Federal Income Tax Considerations and Consequences of Your
Investment................................................ 41
Plan of Distribution........................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
S-2
PROSPECTUS SUPPLEMENT SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT. BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS CAREFULLY BEFORE DECIDING WHETHER TO INVEST IN THE
NOTES.
OUR COMPANY
Gables Realty Limited Partnership is the "operating partnership" of Gables
Residential Trust, a real estate investment trust. Gables Residential Trust
conducts substantially all of its business and owns, either directly or
indirectly through subsidiaries, substantially all of its assets through Gables
Realty Limited Partnership. Unless the context otherwise requires, all
references to "we," "us," or "our company" in this prospectus supplement refer
collectively to Gables Residential Trust, Gables Realty Limited Partnership and
their subsidiaries considered as a single enterprise.
We are one of the largest owners, operators, developers and acquirors of
multifamily apartment communities in markets that have high job growth and have
shown resiliency to national economic downturns in the United States. We have a
strategic focus on the ownership of Class AA/A multifamily apartment communities
that are situated in urban locations or master-planned communities near major
employment centers in these regions.
We currently own 73 stabilized multifamily apartment communities comprising
21,422 apartment homes, an indirect 25% interest in two stabilized multifamily
apartment communities comprising 663 apartment homes, an indirect 20% interest
in five stabilized multifamily apartment communities comprising 1,571 apartment
homes and an indirect 9% interest in three stabilized multifamily apartment
communities comprising 1,118 apartment homes. All of our communities are located
in the following major metropolitan markets in Texas, Georgia, Florida and
Tennessee: Austin, Dallas, Houston, Atlanta, Boca Raton, Orlando, Tampa, Memphis
and Nashville.
We also own seven multifamily apartment communities under development or in
lease-up that are expected to comprise 1,819 apartment homes upon completion and
an indirect 20% interest in three multifamily apartment communities under
development or in lease-up that are expected to comprise 900 apartment homes
upon completion. In addition, we own parcels of land on which we intend to
develop four additional communities that we currently expect will comprise
approximately 1,125 apartment homes. We also have rights to acquire additional
parcels of land on which we believe we could develop communities. Any future
development is subject to permits and other governmental approvals, as well as
our ongoing business review, and may not be undertaken or completed.
We obtain ownership in apartment communities by either developing vacant
land into new apartment communities or acquiring existing communities which we
sometimes reposition or redevelop. In selecting sites for development,
redevelopment or acquisition, we focus on locations in close proximity to
expanding employment centers and convenient to recreation areas, entertainment,
shopping and dining. As a result, we believe that the locations of the
communities we currently own and the land parcels on which we have the right to
develop new communities are attractive to the type of residents we seek.
Gables Residential Trust elected to be taxed as a REIT for federal income
tax purposes and, as mentioned above, operates principally through Gables Realty
Limited Partnership. Gables Residential Trust is currently a 77.6% economic
owner of the common equity of Gables Realty Limited Partnership. Gables
Residential Trust's common shares of beneficial interest are listed on the NYSE
under the symbol "GBP." The notes will be issued by Gables Realty Limited
Partnership and are not obligations of Gables Residential Trust. The notes will
not be listed on the NYSE or any other exchange.
Our executive offices are located at 2859 Paces Ferry Road in Atlanta,
Georgia 30339 and our telephone number is (770) 436-4600.
S-3
RECENT DEVELOPMENTS
OPERATING RESULTS
On January 29, 2001, Gables Residential Trust reported fourth quarter and
2000 earnings. For the quarter ended December 31, 2000, funds from operations,
or FFO, was $23.0 million, compared to $23.1 million for the same period in
1999. For the year ended December 31, 2000, FFO was $90.6 million, compared to
$89.8 million for the year ended December 31, 1999. For the quarter ended
December 31, 2000, net income available to common shareholders was
$16.5 million, compared to $13.7 million for the same period in 1999. For the
year ended December 31, 2000, net income available to common shareholders was
$57.6 million, compared to $42.6 million for the year ended December 31, 1999.
On a "same store" basis, during 2000 compared to 1999, revenues increased 3.2%
while expenses were held to a 1.9% increase, resulting in 4.0% net operating
income growth.
We consider FFO to be a useful performance measure of the operating
performance of an equity REIT because, together with net income and cash flows,
FFO provides investors with an additional basis to evaluate the ability of a
REIT to incur and service debt and to fund distributions and other capital
expenditures. We believe that in order to facilitate a clear understanding of
our operating results, FFO should be examined in conjunction with net income as
presented in the financial statements and data included elsewhere or
incorporated by reference in this prospectus supplement. For a more detailed
discussion of FFO, including the method by which we compute FFO, see our most
recent quarterly report on Form 10-Q under the heading "Management's Discussion
and Analysis--Supplemental Discussion--Funds From Operations and Adjusted Funds
From Operations" and our other periodic filings with the Securities and Exchange
Commission.
SHARE REPURCHASE PROGRAM
During the fourth quarter of 2000, we purchased $4.6 million of our common
equity pursuant to our $150.0 million common equity repurchase program. Through
December 31, 2000, we have repurchased approximately $102.0 million of our
common equity.
CHANGES IN BOARD OF TRUSTEES
During the fourth quarter of 2000, we announced the appointment of C. Jordan
Clark to the Board of Trustees of Gables Residential Trust. Mr. Clark is
currently a Senior Vice President and Chief Investment Officer of Gables
Residential Trust. We also announced the resignation of John T. Rippel from the
Board of Trustees.
DIVIDENDS
On February 10, 2001, Gables Residential Trust declared a dividend of
$0.5675 per share on its common shares payable on March 30, 2001 to shareholders
of record on March 16, 2001. The dividend on the common shares is equivalent to
an annual rate of $2.27 per share. Gables Residential Trust also declared a
dividend of $0.51875 per share on its 8.30% Series A Preferred Shares payable on
March 15, 2001 to shareholders of record on March 1, 2001. The dividend is
equivalent to an annual rate of $2.075 per share.
S-4
THE OFFERING
For a more complete description of the notes specified in the following
summary, please see "Description of Notes" in this prospectus supplement and
"Description of Debt Securities" in the accompanying prospectus.
Securities offered..................... $150,000,000 principal amount of 7.25% senior notes due
2006.
Maturity............................... February 15, 2006.
Interest payment dates................. Semi-annually on February 15 and August 15, commencing on
August 15, 2001.
Ranking................................ The notes:
- will be direct, senior, unsecured obligations;
- will rank equally with each other and with all of our
unsecured an unsubordinated indebtedness; and
- will be effectively subordinated to our mortgages and
our other secured indebtedness and other liabilities of
our subsidiaries.
Use of proceeds........................ We intend to use the net proceeds from this offering to
reduce borrowings under our credit facilities and repay
our term loan. See "Use of Proceeds."
Optional redemption.................... We may redeem some or all of the notes at the redemption
prices set forth on page S-14 in the section entitled
"Description of the Notes--Optional Redemption.
General indenture provisions........... We will issue the notes under an indenture with First
Union National Bank. The indenture, among other things,
restricts our ability to:
- borrow money;
- use assets as security in other transactions; and
- sell certain assets or merge into other companies.
S-5
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus, including the
information incorporated by reference, contain statements that are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When we use
the words "believe," "expect," "anticipate," "intend," "estimate," "assume" and
other similar expressions, they are generally forward-looking statements. These
statements include, among other things, statements regarding our intent, belief
or expectations with respect to:
- our declaration or payment of distributions;
- our potential developments or acquisitions or dispositions of properties,
assets or other public or private companies;
- our policies regarding investments, indebtedness, acquisitions,
dispositions, financings, conflicts of interest and other matters;
- Gables Residential Trust's qualification as a real estate investment trust
under the Internal Revenue Code;
- the real estate markets in which we operate;
- the availability of debt and equity financing;
- interest rates;
- general economic conditions; and
- trends affecting our financial condition or results of operations.
You should not rely on forward-looking statements, because they involve
known and unknown risks, uncertainties and other factors, some of which are
beyond our control. These risks, uncertainties and other factors may cause our
actual results, performance or achievements to differ materially from the
anticipated future results, performance or achievements expressed or implied by
the forward-looking statements. In addition to the factors discussed under "Risk
Factors" in the accompanying prospectus, some of the factors that might cause
these differences include, but are not limited to, the following:
- we may abandon or fail to secure development opportunities;
- construction costs of a community may exceed original estimates;
- construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs and reduced rental
revenues;
- occupancy rates and market rents may be adversely affected by local
economic and market conditions which are beyond our control;
- financing may not be available to us, or may not be available on favorable
terms;
- our cash flow may be insufficient to meet required payments of principal
and interest; and
- our existing indebtedness may mature in an unfavorable credit environment,
preventing such indebtedness from being refinanced, or, if refinanced,
causing such refinancing to occur on terms that are not as favorable as
the terms of the existing indebtedness.
We caution you that, while forward-looking statements reflect our good faith
beliefs, they are not guarantees of future performance. In addition, we disclaim
any obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
S-6
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of Gables Realty Limited Partnership for the periods shown:
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
Ratios............................... 1.65x 1.68x 1.64x 1.84x 1.83x 1.40x
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of net income before gain
on sale of real estate assets, loss on treasury lock extension and extraordinary
items, plus fixed charges. Fixed charges consist of interest expense,
capitalized interest, credit enhancement fees and loan cost amortization.
RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the consolidated ratios of earnings to
combined fixed charges and preferred dividends of Gables Realty Limited
Partnership for the periods shown:
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
2000 1999 1998 1997 1996 1995
------------- -------- -------- -------- -------- --------
Ratios............................... 1.52x 1.54x 1.53x 1.74x 1.83x 1.40x
The ratio of earnings to combined fixed charges and preferred dividends was
computed by dividing earnings by the aggregate of fixed charges and preferred
dividends. For this purpose, earnings consist of net income before gain on sale
of real estate assets, loss on treasury lock extension and extraordinary items,
plus fixed charges and preferred dividends. Fixed charges consist of interest
expense, capitalized interest, credit enhancement fees and loan cost
amortization.
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $148.5 million after all anticipated issuance costs. We will use
such net proceeds to reduce borrowings under our unsecured credit facilities and
repay our $40 million term loan. In the ordinary course of business, we borrow
under the unsecured credit facilities to fund acquisitions and developments. The
$225 million unsecured credit facility currently bears interest at a weighted
average rate of 6.3% per annum and matures in May, 2003 and the $25 million
unsecured credit facility currently bears interest at a rate of 6.5% per annum
and matures in October, 2001. The $50 million unsecured borrowing facility
currently bears interest at a rate of 6.3% per annum and matures in April, 2001.
The $40 million term loan currently bears interest at a rate of 6.3% per annum
and matures in November, 2001.
Many of our lenders are affiliated with the underwriters of this offering,
and, accordingly, some of the net proceeds of this offering will be paid to
affiliates of the underwriters. Specifically, an affiliate of Wachovia
Securities, Inc. is the lender under our $40 million term loan and our
$25 million unsecured credit facility. In addition, an affiliate of Chase
Securities Inc. is the lender under our $50 million unsecured borrowing
facility. Finally, affiliates of Chase Securities Inc., First Union Securities,
Inc., PNC Capital Markets, Inc. and Wachovia Securities, Inc. are lenders under
our $225 million unsecured credit facility. To the extent that we use the net
proceeds of this offering to reduce outstanding indebtedness under these loans
and credit facilities, those lenders will receive their share of the payments.
S-7
CAPITALIZATION
The following table sets forth the capitalization of Gables Realty Limited
Partnership on a pro forma basis as of September 30, 2000 after giving effect to
the repayment on October 1, 2000 of $50.0 million of 6.55% senior notes due 2000
and as adjusted to give effect to the sale of the notes offered hereby at their
face value and the application of the assumed net proceeds therefrom, as if such
events had occurred on September 30, 2000. See "Use of Proceeds." The
information set forth in the table below should be read in conjunction with the
Consolidated Financial Statements and the notes thereto incorporated by
reference in the accompanying prospectus.
SEPTEMBER 30, 2000
------------------------
PRO FORMA AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
DEBT:
Notes Payable............................................... $ 253,196 $ 253,196
Tax-Exempt Debt............................................. 240,445 240,445
Unsecured Credit Facilities and Term Loan................... 190,000 41,505
6.80% Notes due 2005........................................ 100,000 100,000
6.60% Notes due 2001........................................ 15,000 15,000
7.25% Notes due 2006........................................ -- 150,000
---------- ----------
Total Debt.............................................. 798,641 800,146
---------- ----------
Limited Partner's Common Capital Interest (6,667,289 Common
Units),
at redemption value....................................... 184,018 184,018
---------- ----------
Preferred Partners' Capital Interest (180,000 Series Z
Preferred Units),
at $25.00 liquidation preference.......................... 4,500 4,500
---------- ----------
PARTNERS' CAPITAL:
Preferred Partners (4,600,000 Series A Preferred Units and
2,000,000 Series B Preferred Units), at $25.00 liquidation
preference................................................ 165,000 165,000
General Partner (299,387 Common Units)...................... 4,566 4,566
Limited Partner (22,972,024 Common Units)................... 280,279 280,279
---------- ----------
Total Partners' Capital................................. 449,845 449,845
---------- ----------
Total Capitalization.................................... $1,437,004 $1,438,509
========== ==========
S-8
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE "SENIOR SECURITIES" SET
FORTH UNDER "DESCRIPTION OF DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS, TO
WHICH REFERENCE IS HEREBY MADE.
GENERAL
The notes constitute a separate series of Senior Securities (which are more
fully described in the accompanying prospectus) to be issued under an Indenture,
dated as of March 23, 1998, as supplemented by Supplemental Indenture No. 1,
dated as of March 23, 1998, Supplemental Indenture No. 2, dated as of
September 30, 1998, Supplemental Indenture No. 3, dated as of October 8, 1998,
and Supplemental Indenture No. 4, to be dated as of February 22, 2001, between
Gables Realty Limited Partnership and First Union National Bank, as trustee. The
Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as
amended. The statements made hereunder relating to the Indenture and the notes
are summaries of certain provisions thereof, 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 the notes. All capitalized terms used but not
defined herein shall have the respective meanings set forth in the Indenture.
The notes initially will be limited to an aggregate principal amount of
$150.0 million and will be direct, senior unsecured recourse obligations of
Gables Realty Limited Partnership and will rank equally with all other unsecured
and unsubordinated indebtedness of Gables Realty Limited Partnership from time
to time outstanding, including indebtedness outstanding from time to time under
Gables Realty Limited Partnership's unsecured credit facilities. The notes will
be effectively subordinated to the claims of mortgage lenders and others holding
secured indebtedness of Gables Realty Limited Partnership and of any
Subsidiaries (as defined below) now existing or that may be formed by Gables
Realty Limited Partnership in the future as to the specific properties securing
such indebtedness. As of December 31, 2000, the total amount of secured
indebtedness of Gables Realty Limited Partnership and its Subsidiaries was
$386.1 million. In addition, the notes will be effectively subordinated to
unsecured indebtedness and other liabilities of any Subsidiaries now existing or
that may be formed by Gables Realty Limited Partnership in the future. As of
December 31, 2000, the Subsidiaries did not have any such unsecured
indebtedness. All such secured indebtedness or unsecured indebtedness of
Subsidiaries will have to be satisfied in full before holders of the notes will
be able to realize any value from encumbered or indirectly-held properties. The
notes will be recourse to all of the assets of Gables Realty Limited
Partnership, but will be non-recourse to any general partner or limited partner
of Gables Realty Limited Partnership, including Gables Residential Trust, for
the repayment of the notes.
Gables Realty Limited Partnership may, without the consent of the holders of
the notes offered hereby, issue additional notes having the same ranking and the
same interest rate, maturity and other terms as the notes offered hereby. Any
additional notes will, together with the notes offered hereby, constitute a
single series of the notes under the Indenture.
As of December 31, 2000, on a pro forma basis after giving effect to the
issuance and sale of the notes offered hereby and the application of the
proceeds therefrom, the total outstanding indebtedness of Gables Realty Limited
Partnership and its Subsidiaries would have been approximately $767.2 million,
of which approximately $386.1 million in the aggregate would have been secured
indebtedness and none would have been unsecured indebtedness of Subsidiaries.
The outstanding principal balance under the unsecured credit facilities varies
from time to time and as of December 31, 2000 was in the aggregate approximately
$108.6 million.
S-9
The notes will be represented by a single fully registered global note in
book-entry form without coupons registered in the name of The Depository Trust
Company or its nominee. Beneficial interests in the global note will be shown
on, and transfers thereof will be effected only through, records maintained by
DTC (with respect to beneficial interests of participants) or by participants or
persons that hold interests through participants (with respect to beneficial
interests of beneficial owners). Owners of beneficial interests in the global
note will be entitled to physical delivery of notes in certificated form equal
in principal amount to their respective beneficial interests only under limited
circumstances. See "--Book-Entry System." Settlement of the notes will be made
in immediately available funds. The notes will trade in DTC's Same-Day Funds
Settlement System until maturity or earlier redemption, as the case may be, or
until the notes are issued in certificated form, and secondary market trading
activity in the notes will therefore settle in immediately available funds. All
payments of principal and interest in respect of the notes will be made by
Gables Realty Limited Partnership in immediately available funds. See
"--Same-day Settlement and Payment."
Except as described below under "Certain Covenants--Limitations on
Incurrence of Debt" and under "--Merger, Consolidation or Sale of Assets," the
Indenture does not contain any provisions that would limit the ability of Gables
Realty Limited Partnership to incur indebtedness or that would afford holders of
the notes protection in the event of: (i) a highly leveraged or similar
transaction involving Gables Realty Limited Partnership or Gables Residential
Trust or any affiliate of either such party; (ii) a change of control; or
(iii) a reorganization, restructuring, merger or similar transaction involving
Gables Realty Limited Partnership that may adversely affect the holders of the
notes. However, certain restrictions on the ownership and transfer of the common
shares of Gables Residential Trust designed to preserve its status as a REIT may
act to prevent or hinder a change of control. Gables Realty Limited Partnership
and its management have no present intention of engaging in a transaction which
would result in Gables Realty Limited Partnership's being highly leveraged or
that would result in a change of control.
PRINCIPAL AND INTEREST
The notes will mature on February 15, 2006 and will bear interest at 7.25%
per annum from February 22, 2001 or from the immediately preceding interest
payment date to which interest has been paid, payable semi-annually in arrears
on February 15 and August 15 of each year, commencing August 15, 2001 (each such
date being an "interest payment date"), to the persons in whose name the
applicable notes are registered in the Security Register at the close of
business 15 calendar days prior to such interest payment Date, I.E., January 31
and July 31, respectively (regardless of whether such day is a business day), as
the case may be (each such date being a "regular record date"). Interest on the
notes will be computed on the basis of a 360-day year of twelve 30-day months.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a note 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 note is registered at the close of business on a
special record date for the payment of such interest to be fixed by the trustee,
notice of which shall be given to the holder of such note not less than ten days
prior to such special record date, or may be paid at any time in any other
lawful manner, as more particularly described in the Indenture.
If any interest payment date or maturity falls on a day that is not a
business day, the required payment shall be on the next business day 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
maturity, as the case may be. A "business day" means any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in the City of New York are required or authorized by law,
regulation or executive order to close.
S-10
The principal of (and premium or Make-Whole Amount (as defined below), if
any) and interest on the notes will be payable at the corporate trust office of
the agent of the trustee in the City of Atlanta, Georgia, initially located at
999 Peachtree Street, N.E., in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debt, provided that, at the option of Gables Realty Limited Partnership,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the Security Register or by wire transfer of
funds to such person at an account maintained within the United States.
The notes will not be subject to any sinking fund provisions and will not be
convertible into or exchangeable for any equity interest in Gables Realty
Limited Partnership or Gables Residential Trust.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT.
Gables Realty Limited 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 Gables Residential Trust, any
of its Subsidiaries, Gables Realty Limited Partnership or the Management
Companies (as defined below), but only so long as such Debt is held solely by
any of the foregoing), if, immediately after giving effect to the incurrence of
such additional Debt and the application of the proceeds therefrom, the
aggregate principal amount of all outstanding Debt of Gables Realty Limited
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 60% of
the sum of (without duplication) (i) Gables Realty Limited Partnership's
Adjusted Total Assets (as defined below) as of the end of the calendar quarter
covered in Gables Realty Limited 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
Securities and Exchange Commission (or, if such filing is not permitted under
the Securities Exchange Act of 1934, as amended, filed with the trustee) prior
to the incurrence of such additional Debt, (ii) the purchase price of any real
estate assets or mortgages receivable (or interests therein) acquired by Gables
Realty Limited Partnership or any Subsidiary since the end of such calendar
quarter, including those obtained in connection with the incurrence of such
additional Debt and (iii) the amount of any securities offering proceeds
received by Gables Realty Limited Partnership or any Subsidiary since the end of
such calendar quarter (to the extent that such proceeds were not used to acquire
such real estate assets or mortgages receivable or used to reduce Debt).
Gables Realty Limited Partnership will not, and will not permit any
Subsidiary to, incur any Debt, other than intercompany Debt, if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the Annual
Debt Service Charge (as defined below) for the four consecutive fiscal quarters
most recently ended prior to the date on which such additional Debt is to be
incurred shall have been less than 1.5:1, 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 Gables Realty Limited Partnership and 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 Gables Realty
Limited Partnership and its Subsidiaries since the first day of such
four-quarter period had been 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) in the case of Acquired Debt (as defined below)
or Debt incurred in connection with any acquisition since the first day of such
four-quarter period, the related acquisition had occurred as of the first day of
such period with the appropriate adjustments with respect to such acquisition
being included in such pro forma calculation; and (iv) in the case of any
acquisition or disposition by Gables Realty Limited Partnership or its
Subsidiaries of any asset or group of assets since the first day of such
four-quarter period, whether by merger, stock purchase or
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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.
Gables Realty Limited 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 Gables
Realty Limited 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 Secured Debt and the application of the
proceeds therefrom, the aggregate principal amount of all outstanding Secured
Debt of Gables Realty Limited Partnership and its Subsidiaries on a consolidated
basis is greater than 40% of the sum of (without duplication) (i) Gables Realty
Limited Partnership's Adjusted Total Assets as of the end of the calendar
quarter covered in Gables Realty Limited 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 Securities and Exchange Commission (or, if such filing is not
permitted under the Securities Exchange Act of 1934, as amended, filed with the
Trustee) prior to the incurrence of such additional Debt, (ii) the purchase
price of any real estate assets or mortgages receivable (or interests therein)
acquired by Gables Realty Limited Partnership or any Subsidiary since the end of
such calendar quarter, including those obtained in connection with the
incurrence of such additional Debt and (iii) the amount of any securities
offering proceeds received by Gables Realty Limited Partnership or any
Subsidiary since the end of such calendar quarter (to the extent that such
proceeds were not used to acquire such real estate assets or mortgages
receivable or used to reduce Debt).
Gables Realty Limited Partnership will at all times maintain an Unencumbered
Total Asset Value (as defined below) in an amount not less than 150% of the
aggregate principal amount of all outstanding unsecured Debt of Gables Realty
Limited Partnership and its Subsidiaries on a consolidated basis.
As used herein, and in the Indenture:
"ACQUIRED DEBT" means Debt of a person (i) existing at the time such person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such person, in each case, other than Debt incurred in connection
with, or in contemplation of, such person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any person or the date the acquired person
becomes a Subsidiary.
"ADJUSTED TOTAL ASSETS" as of any date means the sum of (i) the amount
determined by multiplying the price at which the common shares of Gables
Residential Trust were offered in its initial public offering, or IPO, by the
sum of (A) the common shares issued in the IPO and (B) the common units of
limited partnership of Gables Realty Limited Partnership not held by Gables
Residential Trust that were issued in connection with the IPO, (ii) the
principal amount of outstanding Debt of Gables Realty Limited Partnership
immediately following the IPO and (iii) the purchase price or cost of any real
estate assets or mortgages receivable (or interests therein) acquired (including
the value of any common units of limited partnership issued in connection
therewith) or developed after the IPO and the amount of any securities offering
proceeds and other proceeds of Debt received after the IPO (to the extent such
proceeds were not used to acquire real estate assets or mortgages receivable or
used to reduce Debt), adjusted for the proceeds of any real estate assets
disposed of by Gables Realty Limited Partnership. This definition of "Adjusted
Total Assets" values the assets owned by Gables Realty Limited Partnership at
the time of the IPO at the market capitalization of Gables Realty Limited
Partnership at that time, which Gables Realty Limited Partnership believes to be
a more appropriate measure of the value of those assets than undepreciated book
value, which reflects their pre-IPO cost before accumulated depreciation.
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"ANNUAL DEBT SERVICE CHARGE" as of any date means the amount of any interest
expensed during the four consecutive fiscal quarters most recently ended prior
to such date.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income (as defined below) of Gables Realty Limited Partnership
and its Subsidiaries plus amounts which have been deducted for (i) interest on
Debt of Gables Realty Limited Partnership and its Subsidiaries, (ii) provision
for taxes of Gables Realty Limited Partnership and its Subsidiaries based on
income, (iii) amortization of debt discount, (iv) provisions for gains and
losses on properties, (v) depreciation and amortization, (vi) the effect of any
noncash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period and (vii) amortization of deferred
charges.
"CONSOLIDATED NET INCOME" for any period means the amount of net income (or
loss) of Gables Realty Limited Partnership and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"DEBT" of Gables Realty Limited Partnership or any Subsidiary means any
indebtedness of Gables Realty Limited Partnership or any Subsidiary, 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
owned by Gables Realty Limited Partnership or any Subsidiary,
(iii) reimbursement obligations 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 by Gables Realty
Limited Partnership or any Subsidiary as lessee which is reflected on Gables
Realty Limited Partnership's consolidated balance sheet as a capitalized lease
in accordance with generally accepted accounting principles; in the case of
items of indebtedness incurred under (i) through (iii) above to the extent that
any such items (other than letters of credit) would appear as a liability on
Gables Realty Limited Partnership's consolidated balance sheet in accordance
with generally accepted accounting principles; and also includes, to the extent
not otherwise included, any obligation of Gables Realty Limited Partnership or
any Subsidiary 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 (other than Gables Realty Limited Partnership or
any Subsidiary).
"MANAGEMENT COMPANIES" means certain corporations, of which Gables Realty
Limited Partnership owns 100% of the nonvoting stock and 1% of the voting stock,
which do not qualify as "qualified REIT subsidiaries" under the Internal Revenue
Code.
"SUBSIDIARY" means, with respect to any person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests of which are owned, directly
or indirectly, by such person. For the purposes of this definition, "voting
equity securities" means equity securities having voting power for the election
of directors, whether at all times or only so long as no senior class of
security has such voting power by reason of any contingency.
"UNENCUMBERED TOTAL ASSET VALUE" as of any date means the sum of (i) the
portion of Adjusted Total Assets allocable to Gables Realty Limited
Partnership's real estate assets and (ii) the value of all other assets of
Gables Realty Limited Partnership and its Subsidiaries on a consolidated basis
determined in accordance with generally accepted accounting principles (but
excluding intangibles and accounts receivable), in each case which are
unencumbered by any mortgage, lien, charge, pledge or security interest.
Compliance with the covenants described herein and with respect to the notes
generally may not be waived by Gables Realty Limited Partnership, or by the
trustee unless the holders of at least a majority in principal amount of all
outstanding notes consent to such waiver; provided, however, that the defeasance
and covenant defeasance provisions of the Indenture described under "Discharge,
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Defeasance and Covenant Defeasance," below, will apply to the notes, including
with respect to the covenants described in this prospectus supplement.
OPTIONAL REDEMPTION
The notes may be redeemed at any time at the option of Gables Realty Limited
Partnership, in whole or in part, at a redemption price equal to the sum of
(i) the principal amount of the notes being redeemed plus accrued interest
thereon to the redemption date and (ii) the Make-Whole Amount, if any, with
respect to such notes (the "Redemption Price").
If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any notes called for redemption shall have been made
available on the redemption date referred to in such notice, such notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the holders of the notes from and after the
redemption date will be to receive payment of the Redemption Price.
Notice of any optional redemption of any notes will be given to holders at
their addresses, as shown in the Security Register, not more than 60 nor less
than 30 days prior to the date fixed for redemption. The notice of redemption
will specify, among other items, the Redemption Price and the principal amount
of the notes held by such holder to be redeemed.
If less than all the notes are to be redeemed at the option of Gables Realty
Limited Partnership, Gables Realty Limited Partnership will notify the trustee
at least 45 days prior to giving the notice of redemption (or such shorter
period as is satisfactory to the trustee) of the aggregate principal amount of
notes to be redeemed and their redemption date. The trustee shall select, in
such manner as it shall deem fair and appropriate, notes to be redeemed in whole
or in part. Notes may be redeemed in part in the minimum authorized denomination
for notes or in any integral multiple thereof.
Neither Gables Realty Limited Partnership nor the trustee shall be required
to: (i) issue, register the transfer of or exchange notes during a period
beginning at the opening of business 15 days before any selection of notes to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
note, or portion thereof, called for redemption, except the unredeemed portion
of any note being redeemed in part; or (iii) issue, register the transfer of or
exchange any note that has been surrendered for repayment at the option of the
holder, except the portion, if any, of such note not to be so repaid.
As used herein and in the Indenture:
"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption or
accelerated payment of any note, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of such dollar if such redemption or accelerated
payment 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 or
declaration of acceleration is made) from the respective dates on which such
principal and interest would have been payable if such redemption or accelerated
payment had not been made, over (ii) the aggregate principal amount of the notes
being redeemed or paid.
"REINVESTMENT RATE" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to stated maturity of the principal being redeemed
(the "Treasury Yield"), plus 0.25%. For purposes hereof, the Treasury Yield
shall be equal to the arithmetic mean of the yields published in the Statistical
Release (as defined below) under the heading "Week Ending" for the "U.S.
Government Securities--Treasury Constant Maturities" with a maturity equal to
such remaining life; provided, that if no published
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maturity exactly corresponds to such remaining life, then the Treasury Yield
shall be interpolated or extrapolated on a straight-line basis from the
arithmetic means of the yields for the next shortest and next longest published
maturities. For purposes 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. If the format or content of the Statistical
Release changes in a manner that precludes determination of the Treasury Yield
in the above manner, then the Treasury Yield shall be determined in the manner
that most closely approximates the above manner, as reasonably determined by
Gables Realty Limited Partnership.
"STATISTICAL RELEASE" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which 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 of the Make-Whole Amount, then
such other reasonably comparable index which shall be designated by Gables
Realty Limited Partnership.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that Gables Realty Limited Partnership may, without
the consent of the holders of any outstanding Debt Securities, 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) either Gables Realty Limited
Partnership shall be the continuing entity, or the successor entity (if other
than Gables Realty Limited Partnership) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such assets
is organized under the laws of any domestic jurisdiction and assumes Gables
Realty Limited Partnership's obligations to pay principal of (and premium or
Make-Whole Amount, if any) and interest on all of 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 and treating any indebtedness that becomes an obligation of
Gables Realty Limited Partnership or any Subsidiary as a result thereof as
having been incurred by Gables Realty Limited Partnership or such Subsidiary at
the time of 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 officers'
certificate and legal opinion covering such conditions shall be delivered to the
trustee.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to the notes:
- default in the payment of any interest on any notes when such interest
becomes due and payable that continues for a period of 30 days
- default in the payment of the principal of (or premium or Make-Whole
Amount, if any, on) any notes when due and payable that continues for a
period of 5 days
- default in the performance, or breach, of any other covenant or warranty
of Gables Realty Limited Partnership in the Indenture with respect to the
notes and continuance of such default or breach for a period of 60 days
after there has been given to Gables Realty Limited Partnership by the
trustee, or to Gables Realty Limited Partnership and the trustee by the
holders of at least 25% in principal amount of the notes, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Indenture
- default under any bond, debenture, note, mortgage, Indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any indebtedness for money
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borrowed by Gables Realty Limited Partnership (or by any Subsidiary, the
repayment of which Gables Realty Limited Partnership has guaranteed or for
which Gables Realty Limited Partnership is directly responsible or liable
as obligor or guarantor), having an aggregate principal amount outstanding
of at least $10,000,000, whether such indebtedness now exists or shall
hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after there shall have
been given, by registered or certified mail, to Gables Realty Limited
Partnership by the trustee, or to Gables Realty Limited Partnership and
the trustee by the holders of at least 10% in principal amount of the
outstanding notes, a written notice specifying such default and requiring
Gables Realty Limited Partnership to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" under the Indenture,
provided, however, that such a default on indebtedness which constitutes
tax-exempt financing having an aggregate principal amount outstanding not
exceeding $25,000,000 that results solely from a failure of an entity
providing credit support for such indebtedness to honor a demand for
payment on a letter of credit shall not constitute an Event of Default
- certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of Gables Realty Limited
Partnership or any Significant Subsidiary or for all or substantially all
of either of its property
See "Description of Debt Securities--Events of Default, Notice and Waiver"
in the accompanying prospectus for a description of rights, remedies and other
matters relating to Events of Default.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance which are described in the accompanying prospectus will
apply to the notes, including without limitation the covenants described under
"Description of Notes--Certain Covenants."
BOOK-ENTRY SYSTEM
The notes will be issued in the form of one or more fully registered global
notes which will be deposited with, or on behalf of DTC, and registered in the
name of DTC's nominee, Cede & Co. Except under the circumstance described below,
the notes will not be issuable in definitive form. Unless and until it is
exchanged in whole or in part for the individual notes represented thereby, a
global note may not be transferred except as a whole by DTC to a nominee of DTC
or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee
of DTC to a successor depository or any nominee of such successor.
Upon the issuance of a global note, DTC or its nominee will credit on its
book-entry registration and transfer system the respective principal amounts of
the individual notes represented by such global note to the accounts of persons
that have accounts with DTC ("Participants"). Such accounts shall be designated
by the underwriters, dealers or agents with respect to the notes. Ownership of
beneficial interests in a global note will be limited to Participants or persons
that may hold interests through Participants. Ownership of beneficial interests
in such global note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with respect
to beneficial interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and laws may impair the
ability to own, pledge or transfer any beneficial interest in a global note.
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So long as DTC or its nominee is the registered owner of such global note,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by such global note for all purposes under the
Indenture and the beneficial owners of the notes will be entitled only to those
rights and benefits afforded to them in accordance with DTC's regular operating
procedures. Except as provided below, owners of beneficial interest in a global
note will not be entitled to have any of the individual notes registered in
their names, will not receive or be entitled to receive physical delivery of any
such notes in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Payments of principal of and any interest on, individual notes represented
by a global note registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the registered owner of the global
note representing such notes. None of Gables Realty Limited Partnership, the
trustee, any Paying Agent or the Security Registrar will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the global note for such notes or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Gables Realty Limited Partnership expects that DTC or its nominee, upon
receipt of any payment of principal or interest in respect of a permanent global
note representing any notes, immediately will credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such global note as shown on the records to DTC or its
nominee. Gables Realty Limited Partnership also expects that payments by
Participants to owners of beneficial interests in such global note held through
such Participants will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name." Such payments will be the
responsibility of such Participants.
If DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by Gables Realty Limited
Partnership within 90 days, Gables Realty Limited Partnership will issue
individual notes in exchange for the global note or notes representing the
notes. In addition, Gables Realty Limited Partnership may, at any time and in
its sole discretion, determine not to have any notes represented by one or more
global notes and, in such event, will issue individual notes in exchange for the
global note or notes representing the notes.
DTC has advised Gables Realty Limited Partnership of the following
information regarding DTC: DTC is a limited-purpose trust company organized
under the 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 pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC holds securities that its
Participants deposit with DTC. DTC also facilitates the settlement among its
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry charges in its
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of DTC include securities brokers
and dealers (including the underwriters), banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of its
direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct Participant of DTC, either directly or indirectly.
The rules applicable to DTC and its Participants are on file with the Securities
and Exchange Commission.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the notes will be made by the underwriters in immediately
available funds. All payments of principal and interest in respect of the notes
will be made by Gables Realty Limited Partnership in immediately available
funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
notes are issued in certificated form, and secondary market trading activity in
the notes 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 the notes.
GOVERNING LAW
The Indenture is governed by and shall be construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
entirely in such state.
NO PERSONAL LIABILITY OR RECOURSE
No recourse under or upon any obligation, covenant or agreement contained in
the Indenture or the notes, or because of any indebtedness evidenced thereby,
shall be had (i) against Gables Residential Trust or any other past, present or
future partner in Gables Realty Limited Partnership, (ii) against any other
person or entity which owns an interest, directly or indirectly, in any partner
of Gables Realty Limited Partnership, or (iii) against any past, present or
future shareholder, employee, officer or director, as such, of the Company or
any successor, either directly or through Gables Residential Trust or Gables
Realty Limited Partnership or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise. Each holder of notes waives and releases
all such liability by accepting such notes. The waiver and release are part of
the consideration for the issue of the notes.
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ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS
AND CONSEQUENCES OF YOUR INVESTMENT
The following is a supplemental discussion of the material federal income
tax considerations and consequences associated with an investment in our
securities, which supplements the considerations discussed under "Federal Income
Tax Considerations and Consequences of Your Investment" beginning on page 41 of
the accompanying prospectus.
WE URGE YOU, AS A PROSPECTIVE INVESTOR, TO CONSULT YOUR OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO YOU OF THE PURCHASE, HOLDING AND SALE OF OUR SECURITIES.
The REIT Modernization Act, effective for taxable years beginning after
December 31, 2000, reduced the minimum distribution requirement necessary in
order for us to be taxed as a REIT from 95% of our "REIT taxable income" to 90%
of our "REIT taxable income" (calculated, in each case, without regard to our
dividends paid deduction or capital gain). In addition, the REIT Modernization
Act liberalized the asset tests which we must satisfy in order to qualify to be
taxed as a REIT. As of January 1, 2001, the REIT Modernization Act permits us to
own up to 100% of the voting securities or value of any issuer provided that the
issuer elects to be a "taxable REIT subsidiary." In general, "taxable REIT
subsidiaries" are subject to corporate taxation and are permitted to render
non-customary services to our tenants (in addition to engaging in any other
activity), without causing income we receive from our tenants to fail to qualify
as "rents from real property."
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UNDERWRITING
We are offering the notes described in this prospectus supplement through a
number of underwriters. We entered into an underwriting agreement with the
underwriters. Subject to the terms and conditions of the underwriting agreement,
we agreed to sell to the underwriters, and each underwriter separately agreed to
purchase from us, the principal amount of notes listed next to its name below:
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ----------- ----------------
Lehman Brothers Inc......................................... $115,000,000
Chase Securities Inc........................................ 11,666,668
First Union Securities, Inc................................. 5,833,333
Legg Mason Wood Walker, Incorporated........................ 5,833,333
PNC Capital Markets, Inc.................................... 5,833,333
Wachovia Securities, Inc.................................... 5,833,333
------------
Total................................................. $150,000,000
The underwriting agreement provides that the underwriters must buy all of
the notes from us if they buy any of them.
MARKET MAKING. The notes are a new issue of securities with no established
trading market and will not be listed on any national securities exchange. The
underwriters have advised us that they intend to make a market for the notes,
but they have no obligation to do so and may discontinue market making at any
time without providing any notice. Consequently, an active trading market for
the notes may not develop.
DEALERS' COMPENSATION. The underwriters initially will offer the notes to
the public at the price specified on the cover page of this prospectus
supplement. The underwriters may allow to selected dealers a concession of not
more than 0.35% of the principal amount of the notes. The underwriters may also
allow, and any other dealers may reallow, a concession of not more than 0.25% of
the principal amount of the notes to some other dealers. If all the notes are
not sold at the public offering price, the underwriters may change the public
offering price and the other selling terms. A change in the public offering
price will not affect the amount of proceeds that we receive.
INDEMNIFICATION OF THE UNDERWRITERS. We will indemnify the underwriters
against some civil liabilities, including liabilities under the Securities Act
and liabilities arising from breaches of our representations and warranties
contained in the underwriting agreement. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.
STABILIZATION AND OTHER TRANSACTIONS. In connection with the offering of
the notes, the underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the notes. Specifically, the underwriters may
overallot in connection with the offering of the notes, creating a syndicate
short position. In addition, the underwriters may bid for, and purchase, notes
in the open market to cover syndicate short positions or to stabilize the price
of the notes. Finally, the underwriters may reclaim selling concessions allowed
for distributing the notes in the offering of the notes, if the syndicate
repurchases previously distributed notes in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the notes above independent market levels. The
underwriters are not required to engage in any of these activities, and may end
any of these activities at any time.
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OFFERING EXPENSES. The expenses of this offering, not including the
underwriting discount, are estimated to be approximately $350,000 and will be
paid by us. Expenses include the SEC filing fee, rating agency fees, printing
expenses, legal and accounting fees, trustee fees and other miscellaneous fees
and expenses.
RELATED TRANSACTIONS. Some of the underwriters have in the past and may in
the future perform financial advisory services for us. Affiliates of some of the
underwriters perform commercial banking services for us. Specifically,
affiliates of Chase Securities Inc., First Union Securities, Inc., PNC Capital
Markets, Inc. and Wachovia Securities, Inc. are among the lenders under our term
loans and credit facilities and will receive their share of the net offering
proceeds used to repay those loans and credit facilities. See "Use of Proceeds."
NASD RULE COMPLIANCE. Because more than 10% of the net offering proceeds
may be paid to affiliates of the underwriters, this offering is being conducted
in accordance with Conduct Rule 2710(c)(8) of the National Association of
Securities Dealers, Inc.
LEGAL MATTERS
Certain legal matters, including the legality of the notes being offered
hereby, are being passed upon for Gables Realty Limited Partnership by Goodwin
Procter LLP. Certain legal matters related to this offering are being passed
upon for the underwriters by O'Melveny & Myers LLP, San Francisco, California.
S-21
[LOGO]
$500,000,000
GABLES RESIDENTIAL TRUST
PREFERRED SHARES
COMMON SHARES
WARRANTS
$300,000,000
GABLES REALTY LIMITED PARTNERSHIP
DEBT SECURITIES
---------------------
This prospectus provides you with a general description of equity securities
that Gables Residential Trust may offer and debt securities that Gables Realty
Limited Partnership may offer. Each time we sell securities we will provide a
prospectus supplement that will contain specific information about the terms of
such offering and may add to or update the information in this prospectus.
Our common shares and currently outstanding Series A preferred shares are
listed on the New York Stock Exchange under the symbols "GBP" and "GBP Pra,"
respectively.
------------------------
BEGINNING ON PAGE 4, WE HAVE LISTED SEVERAL "RISK FACTORS" THAT YOU SHOULD
CONSIDER.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense. The Attorney General of the State of New York has not passed
on or endorsed the merits of this offering.
The date of this prospectus is June 7, 1999.
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "WE," US," "OUR
COMPANY" OR "GABLES TRUST" IN THIS PROSPECTUS REFER COLLECTIVELY TO GABLES
RESIDENTIAL TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST, AND ITS
SUBSIDIARIES, INCLUDING GABLES REALTY LIMITED PARTNERSHIP, A DELAWARE LIMITED
PARTNERSHIP, AND THEIR RESPECTIVE PREDECESSOR ENTITIES FOR THE APPLICABLE
PERIODS, CONSIDERED AS A SINGLE ENTERPRISE. GABLES GP, INC., A WHOLLY-OWNED
SUBSIDIARY OF GABLES TRUST, IS THE SOLE GENERAL PARTNER OF GABLES REALTY LIMITED
PARTNERSHIP.
RISK FACTORS
BEFORE YOU INVEST IN OUR SECURITIES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS TOGETHER WITH ALL OF THE INFORMATION INCLUDED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT BEFORE YOU DECIDE
TO PURCHASE OUR SECURITIES. THIS SECTION INCLUDES OR REFERS TO CERTAIN
FORWARD-LOOKING STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE
QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED IN
THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
DEVELOPMENT AND CONSTRUCTION RISKS COULD IMPACT OUR PROFITABILITY
We intend to continue to develop and construct multifamily apartment home
communities. Our development and construction activities may be exposed to the
following risks:
- we may be unable to obtain, or face delays in obtaining, necessary zoning,
land-use, building, occupancy, and other required governmental permits and
authorizations, which could result in increased costs and could require us
to abandon our activities entirely with respect to the project for which
we are unable to obtain permits or authorizations;
- we may abandon development opportunities that we have already begun to
explore, and as a result we may fail to recover expenses already incurred
in connection with exploring such development opportunities;
- we may incur construction costs for a community which exceed our original
estimates due to increased materials, labor or other costs, which could
make completion of the community uneconomical, and we may not be able to
increase rents to compensate for the increase in construction costs;
- occupancy rates and rents at a newly completed development may fluctuate
depending on a number of factors, including market and economic
conditions, and may result in the community not being profitable;
- we may not be able to obtain financing with favorable terms for the
development of a community, which may make us unable to proceed with its
development; and
- we may be unable to complete construction and lease-up of a community on
schedule, resulting in increased debt service expense and construction or
reconstruction costs.
Construction costs have been increasing in our target markets, and the cost
to update acquired communities has, in some cases, exceeded our original
estimates. We may experience similar cost increases in the future. Our inability
to charge rents that will be sufficient to offset the effects of any increases
in reconstruction costs may impact our profitability.
ACQUISITIONS MAY NOT YIELD ANTICIPATED RESULTS
We intend to continue to acquire multifamily apartment home communities on a
select basis. Our acquisition activities and their success may be exposed to the
following risks:
- the acquired property may fail to perform as we expected in analyzing our
investment; and
2
- our estimate of the costs of repositioning or redeveloping the acquired
property may prove inaccurate.
POLICY OF LIMITING DEBT LEVEL MAY BE CHANGED
While our current policy is not to incur debt that would make a ratio of
debt-to-total-market-capitalization greater than 60%, our Amended and Restated
Declaration of Trust, as amended, and Second Amended and Restated Bylaws, as
amended, do not contain any such limitations. Our ratio of
debt-to-total-market-capitalization (i.e., the total consolidated debt of Gables
Trust as a percentage of the market value of issued and outstanding equity
securities plus total consolidated debt) as of December 31, 1998 was
approximately 46.8%. Throughout this prospectus we will refer to our Amended and
Restated Declaration of Trust, as amended, as our "declaration of trust" and to
our Second Amended and Restated Bylaws, as amended, as our "bylaws." Because we
do not have any debt incurrence restrictions in our declaration of trust or
bylaws, we could increase the amount of outstanding debt at any time. In the
event that the price of our common shares increases, we could incur additional
debt without increasing the ratio of debt-to-total-market-capitalization and
without a concurrent increase in our ability to service such additional debt.
INCURRENCE OF ADDITIONAL DEBT AND RELATED ISSUANCE OF EQUITY MAY BE DILUTIVE TO
SHAREHOLDERS
Future issuance of equity may dilute the interest of existing shareholders.
To the extent that additional equity securities are issued to finance future
developments and acquisitions instead of incurring additional debt, the
interests of our existing shareholders could be diluted. Our ability to execute
our business strategy depends on our access to an appropriate blend of debt
financing, including unsecured lines of credit and other forms of secured and
unsecured debt, and equity financing, including common and preferred equity.
INSUFFICIENT CASH FLOW COULD AFFECT OUR DEBT FINANCING AND CREATE REFINANCING
RISK
We are subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to meet required
payments of principal and interest. We anticipate that only a small portion of
the principal of our debt will be repaid prior to maturity. Although we may be
able to use cash flow to make future principal payments, we cannot assure you
that sufficient cash flow will be available to make all required principal
payments. Therefore, we are likely to need to refinance at least a portion of
our outstanding debt as it matures. There is a risk that we may not be able to
refinance existing debt or that the terms of any refinancing will not be as
favorable as the terms of the existing debt.
RISING INTEREST RATES WOULD INCREASE INTEREST COSTS AND COULD AFFECT THE MARKET
PRICE OF OUR SECURITIES
We expect to incur variable rate debt under credit facilities in connection
with the acquisition, construction and reconstruction of multifamily apartment
communities in the future, as well as for other purposes. Accordingly, if
interest rates increase, so will our interest costs to the extent the variable
rate increase is not hedged effectively. In addition, an increase in market
interest rates may lead purchasers of our securities to demand a higher annual
yield, which could adversely affect the market price of our outstanding equity
or debt securities.
INTEREST RATE HEDGING CONTRACTS MAY INVOLVE MATERIAL CHANGES AND MAY NOT PROVIDE
ADEQUATE PROTECTION
From time to time when we anticipate offerings of debt securities, we may
seek to decrease our exposure to fluctuations in interest rates during the
period prior to the pricing of the securities by entering into interest rate
hedging contracts. We may do so to increase the predictability of our financing
costs. Also, from time to time we rely on interest rate hedging contracts to
offset our
3
exposure to moving interest rates with respect to debt financing arrangements at
variable interest rates. The settlement of interest rate hedging contracts has
in the past and may in the future involve charges to earnings that may be
material in amount. Such charges are typically driven by the extent and timing
of fluctuations in interest rates. Despite our efforts to minimize our exposure
to interest rate fluctuations, there is no guarantee that we will be able to
maintain our hedging contracts at their existing levels of coverage or that the
amount of coverage maintained will cover all of our outstanding indebtedness at
any such time. If our efforts are unsuccessful, we may not meet our objective of
reducing the extent of our exposure to interest rate fluctuations.
BOND COMPLIANCE REQUIREMENTS COULD LIMIT INCOME AND RESTRICT USE OF COMMUNITIES
AND CAUSE FAVORABLE FINANCING TO BECOME UNAVAILABLE
Some of our multifamily apartment communities are financed with obligations
issued by various local government agencies or instrumentalities, the interest
on which is exempt from federal income taxation. These obligations are commonly
referred to as "tax-exempt bonds." The bond compliance requirements for our
current tax-exempt bonds, and the requirements of any future tax-exempt bond
financing, may have the effect of limiting our income from communities subject
to such financing. Under the terms of our tax-exempt bonds, we must comply with
various restrictions on the use of the communities financed by such bonds,
including a requirement that a percentage of apartments be made available to low
and middle income households.
In addition, some of our tax-exempt bond financing documents require that a
financial institution guarantee payment of the principal of, and interest on,
the bonds. The guarantee may take the form of a letter of credit, surety bond,
guarantee agreement or other additional collateral. If the financial institution
defaults in its guarantee obligations, or we are unable to renew the applicable
guarantee or otherwise post satisfactory collateral, the local government agency
or instrumentality, as appropriate, will declare us in default under the
applicable tax-exempt bonds and could foreclose upon the community.
FAILURE TO GENERATE SUFFICIENT REVENUE COULD LIMIT CASH FLOW AVAILABLE FOR DEBT
SERVICE AND DISTRIBUTIONS TO SHAREHOLDERS
If our communities do not generate revenues sufficient to meet our operating
expenses, including debt service and capital expenditures, our cash flow and
ability to make required payments of interest and principal on our debt
securities and pay distributions to our shareholders will be adversely affected.
The following factors, among others, may adversely affect the revenues generated
by our apartment communities.
- the national and local economic climates;
- local real estate market conditions, such as oversupply of apartment
homes;
- the perceptions by prospective residents of the safety, convenience and
attractiveness of our communities and the neighborhoods where they are
located;
- our ability to provide adequate management, maintenance and insurance; and
- increased operating costs, including real estate taxes and utilities.
Significant expenditures associated with each investment such as debt
service payments, if any, real estate taxes, insurance and maintenance costs are
generally not reduced when circumstances cause a reduction in income from a
community. For example, if we mortgage a community to secure payment of debt and
are unable to meet the mortgage payments, we could sustain a loss as a result of
foreclosure on the community or the exercise of other remedies by the mortgagee.
4
UNFAVORABLE CHANGES IN MARKET AND ECONOMIC CONDITIONS COULD HURT OCCUPANCY OR
RENTAL RATES
The market and economic conditions in metropolitan areas of the southeastern
and southwestern regions of the United States may significantly affect apartment
home occupancy or rental rates. Occupancy and rental rates in those markets, in
turn, may significantly affect our profitability and our ability to satisfy our
financial obligations. The risks that may affect conditions in those markets
include the following:
- the economic climate, which may be adversely impacted by plant closings,
industry slowdowns and other factors;
- real estate conditions such as an oversupply of, or a reduced demand for,
apartment homes;
- a decline in household formation that adversely affects occupancy or
rental rates;
- the inability or unwillingness of residents to pay rent increases;
- the potential effect of rent control or rent stabilization laws, or other
laws regulating housing, on any of our communities, which could prevent us
from raising rents to offset increases in operating costs; and
- the condition of the rental market, which may limit the extent to which
rents may be increased to meet increased expenses without decreasing
occupancy rates.
Any of these risks could adversely affect our ability to achieve our desired
yields on our communities and to make expected distributions to shareholders.
DIFFICULTY OF SELLING APARTMENT COMMUNITIES COULD LIMIT FLEXIBILITY
Real estate in the metropolitan areas of the southeastern and southwestern
regions of the United States can be hard to sell, especially if market
conditions are poor. This difficulty may limit our ability to change our
portfolio promptly in response to changes in economic or other conditions. In
addition, federal tax laws limit our ability to sell communities that we have
owned for fewer than four years, and this limitation may affect our ability to
sell communities without adversely affecting returns to our shareholders.
INCREASED COMPETITION COULD LIMIT OUR ABILITY TO LEASE APARTMENT HOMES OR
INCREASE OR MAINTAIN RENTS
Our apartment communities in metropolitan areas compete with numerous
housing alternatives in attracting residents, including other rental apartments
and single-family homes that are available for rent, as well as new and existing
single-family homes for sale. Competitive residential housing in a particular
area could adversely affect our ability to lease apartment homes and increase or
maintain rents.
SIGNIFICANT NEW OPERATIONS AND ACQUIRED COMMUNITIES UNDER MANAGEMENT REQUIRE
INTEGRATION WITH THE EXISTING BUSINESS AND, IF NOT PROPERLY INTEGRATED, COULD
CREATE INEFFICIENCIES
Our ability to manage growth effectively will require us, among other
things, to successfully apply our experience in managing our existing portfolio
of multifamily apartment communities to a larger number of properties. In
addition, we must be able to successfully manage the integration of new
management and operations personnel as our organization grows in size and
complexity.
FAILURE TO SUCCEED IN NEW MARKETS MAY LIMIT GROWTH
We may make selected acquisitions outside of our current market areas from
time to time, if appropriate opportunities arise. Our historical experience in
the southeastern and southwestern regions of the United States does not ensure
we will be able to operate successfully in other market areas that
5
are new to us. We may be exposed to a variety of risks if we choose to enter
into new markets. These risks include, among others:
- a lack of market knowledge and understanding of the local economies;
- an inability to obtain land for development or to identify acquisition
opportunities;
- an inability to obtain construction tradespeople; and
- an unfamiliarity with local governmental and permitting procedures.
DECREASE OF FEE MANAGEMENT BUSINESS WOULD RESULT IN DECREASE IN REVENUES
We manage properties owned by third parties for a fee. Most of our
management contracts are terminable upon 30-days notice. There is a risk that
the management contracts will be terminated and/or that the rental revenues upon
which management fees are based will decline and management fee income will
decrease accordingly.
SHARE OWNERSHIP LIMIT MAY PREVENT TAKEOVERS BENEFICIAL TO SHAREHOLDERS
For us to maintain our qualification as a real estate investment trust for
federal income tax purposes, five or fewer individuals may not own, directly or
indirectly, more than 50% in value of our outstanding shares of beneficial
interest. As defined for federal income tax purposes, the term "individuals"
includes a number of specified entities. See "Federal Income Tax Considerations
and Consequences of Your Investment" on page 40. Our declaration of trust
includes restrictions regarding transfers of our shares of beneficial interest
and ownership limits that are intended to assist us in satisfying such
limitations. The ownership limit may have the effect of delaying, deferring or
preventing someone from taking control of us, even though such a change of
control could involve a premium price for our shareholders or otherwise could be
in our shareholders' best interests. See "Limits on Ownership of Shares of
Beneficial Interest" on page 35.
LIMITS ON CHANGES IN CONTROL MAY DISCOURAGE TAKEOVER ATTEMPTS BENEFICIAL TO
SHAREHOLDERS
Our declaration of trust, our bylaws and Maryland law may discourage a third
party from attempting to acquire us, which makes a change in control more
unlikely. The result may limit the opportunity for shareholders to receive a
premium for their common shares over then-prevailing market prices. See
"Important Provisions of Maryland Law and Our Declaration of Trust and Bylaws"
on page 37.
COMPLIANCE OR FAILURE TO COMPLY WITH AMERICANS WITH DISABILITIES ACT AND OTHER
SIMILAR LAWS
COULD RESULT IN SUBSTANTIAL COSTS
The Americans with Disabilities Act generally requires that public
accommodations, including office buildings and hotels, be made accessible to
disabled persons. Noncompliance could result in imposition of fines by the
federal government or the award of damages to private litigants. If, pursuant to
the Americans with Disabilities Act, we are required to make substantial
alterations and capital expenditures in one or more of our properties, including
the removal of access barriers, it could adversely affect our financial
condition and results of operations, as well as the amount of cash available for
distribution to our shareholders.
A number of additional federal, state and local laws exist that impact our
communities with respect to access thereto by disabled persons. For example, the
Fair Housing Act of 1988 requires apartment communities first occupied after
March 13, 1990 to be accessible to the handicapped. Noncompliance with the Fair
Housing Act of 1988 could result in the imposition of fines or an award of
damages to private litigants.
6
We cannot ascertain the ultimate cost of compliance with the Americans with
Disabilities Act or other similar legislation. The costs could be substantial.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST WOULD CAUSE US TO BE TAXED
AS A CORPORATION WHICH WOULD SIGNIFICANTLY LOWER FUNDS AVAILABLE FOR
DISTRIBUTION TO SHAREHOLDERS
If we fail to qualify as a real estate investment trust for federal income
tax purposes, we will be taxed as a corporation. We believe that we are
organized and qualify as a real estate investment trust and intend to operate in
such a manner that will allow us to continue to qualify as a real estate
investment trust. However, we cannot assure you that we are qualified as such or
that we will remain qualified as such in the future. This is because
qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code, as to
which there are only limited judicial and administrative interpretations, and
involves the determination of various factual matters and circumstances not
entirely within our control. In addition, future legislation, new regulations,
administrative interpretations or court decisions may significantly change the
tax laws or the application of the tax laws with respect to qualification as a
real estate investment trust for federal income tax purposes or the federal
income tax consequences of such qualification.
If, in any taxable year, we fail to qualify as a real estate investment
trust, we will be subject to federal income tax on our taxable income at regular
corporate rates, plus any applicable alternative minimum tax. In addition,
unless we are entitled to relief under applicable statutory provisions, we would
be disqualified from treatment as a real estate investment trust for the four
taxable years following the year in which we lose our qualification. The
additional tax liability resulting from the failure to qualify as a real estate
investment trust would significantly reduce or eliminate the amount of funds
available for distribution to our shareholders. Furthermore, we would no longer
be required to make distributions to our shareholders. See "Federal Income Tax
Considerations and Consequences of Your Investment" on page 40.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION COULD RESULT IN SUBSTANTIAL
COSTS
We are in the business of acquiring, owning, operating and developing real
estate properties. From time to time we will sell to third parties some of our
properties. Under various federal, state and local environmental laws, we may be
required to investigate and remediate the effects of hazardous or toxic
substances or petroleum product releases at our properties. This requirement is
often regardless of knowledge or responsibility but by virtue of our current or
previous ownership or operation of real estate. In addition, we may be held
liable to a governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by us in connection with the
contamination. These costs could be substantial. The presence of such substances
or the failure to properly remediate the contamination may materially and
adversely affect our ability to borrow against, sell or rent the affected
property. In addition, applicable environmental laws create liens on
contaminated sites in favor of the government for damages and costs it incurs in
connection with the contamination.
HOLDERS OF MAJORITY IN INTEREST OF DEBT SECURITIES MAY WAIVE RESTRICTIVE
COVENANTS
The holders of a majority in aggregate principal amount of any outstanding
series of debt securities may, on behalf of all of the holders of such series,
waive our compliance with some of the restrictive covenants contained in the
indenture governing such securities.
7
ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended, with respect
to the securities offered hereunder. Throughout this prospectus we will refer to
the common shares, the preferred shares, the warrants and the debt securities
offered hereunder as the "securities." This prospectus is part of the
registration statement. This prospectus does not contain all the information
contained in the registration statement because we have omitted parts of the
registration statement in accordance with the rules and regulations of the
Securities and Exchange Commission. For further information, we refer you to the
registration statement, which you may read and copy at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
Securities and Exchange Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies at
the prescribed rates from the Public Reference Section of the Securities and
Exchange Commission at its principal office in Washington, D.C. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants, including, Gables Trust and Gables
Realty Limited Partnership, that file electronically with the Securities and
Exchange Commission. You may access the Securities and Exchange Commission's web
site at http://www.sec.gov.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and we are required to file reports and proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information can be inspected and copied
at the locations described above. Copies of such materials can be obtained by
mail from the Public Reference Section of the Securities and Exchange Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. Our common shares and currently outstanding Series A
preferred shares are listed on the New York Stock Exchange under the symbols
"GBP" and "GBP Pra," respectively. You may also read our reports, proxy and
other information statements and other information which we file at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Securities and Exchange Commission allows us to incorporate by reference
the information that we file with them. The Securities and Exchange Commission
file number for Gables Residential Trust is 1-12590. The Securities and Exchange
Commission file number for Gables Realty Limited Partnership is 000-22683.
Incorporation by reference means that we can disclose important information to
you by referring you to other documents that are legally considered to be part
of this prospectus, and later information that we file with the Securities and
Exchange Commission will automatically update and supersede the information in
this prospectus and the documents listed below. We incorporate by reference the
specific documents listed below for both Gables Trust and Gables Realty Limited
Partnership and any future filings made with the Securities and Exchange
Commission under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange
Act until we sell all of the securities:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Current Report on Form 8-K dated March 8, 1999;
- Current Report on Form 8-K dated April 5, 1999;
- the Proxy Statement prepared by Gables Residential Trust in connection
with its 1999 Annual Meeting of Shareholders;
- the description of Gables Residential Trust's common shares contained in
its Registration Statement on Form 8-A, including all amendments and
reports updating such description;
8
- the description of Gables Residential Trust's 8.30% Series A Cumulative
Redeemable Preferred Shares contained in its Registration Statement on
Form 8-A; and
- Gables Realty Limited Partnership's Registration Statement on Form 10, as
filed with the Securities and Exchange Commission on June 11, 1997,
including all amendments and reports updating such Registration Statement.
You may request a copy of the documents incorporated by reference at no cost
by writing or telephoning us at the following address: Gables Residential Trust,
2859 Paces Ferry Road, Overlook III, Suite 1450, Atlanta, Georgia 30339,
attention: Chief Financial Officer. Our telephone number is (770) 436-4600.
9
GABLES TRUST AND GABLES REALTY LIMITED PARTNERSHIP
- We are one of the largest owners, operators, developers and acquirors of
multifamily apartment communities in the southeastern and southwestern
regions of the United States. We have a strategic focus on the ownership
of Class AA/A multifamily apartment communities that are situated in urban
locations or master-planned communities near major employment centers in
these regions.
- We obtain ownership in apartment communities by developing vacant land
into a new community or by acquiring an existing community that we
sometimes reposition or redevelop. In selecting sites for development,
redevelopment or acquisition, we focus on locations with close proximity
to expanding employment centers and convenience to recreation areas,
entertainment, shopping and dining. As a result, we believe that the
communities we currently own and the land parcels on which we have the
right to develop communities attract the type of residents we seek.
- Gables Trust is a real estate investment trust organized in 1993 under the
laws of the State of Maryland to continue and expand the operations of its
privately owned predecessor organization. Gables Trust has elected to be
taxed as a real estate investment trust for federal income tax purposes
and operates principally through Gables Realty Limited Partnership, a
Delaware limited partnership. Excluding Gables Realty Limited
Partnership's non-convertible preferred equity, Gables Trust is currently
an 80.3% economic owner of Gables Realty Limited Partnership. Gables Trust
controls Gables Realty Limited Partnership through Gables GP, Inc., a
Texas corporation and a wholly-owned subsidiary, which is the sole general
partner of Gables Realty Limited Partnership.
- Our executive offices are located at 2859 Paces Ferry Road in Atlanta,
Georgia 30339, and our telephone number is (770) 436-4600.
USE OF PROCEEDS
We are required by the terms of the partnership agreement of Gables Realty
Limited Partnership to invest the net proceeds of any sale of common shares or
preferred shares of Gables Trust in Gables Realty Limited Partnership in
exchange for additional units of limited partnership of Gables Realty Limited
Partnership or preferred units, as the case may be. We will refer to units of
limited partnership of Gables Realty Limited Partnership throughout this
prospectus as "units." As will be more fully described in the applicable
prospectus supplement, we intend to use the net proceeds from the sale of
securities for one or more of the following:
- repayment of indebtedness;
- acquisition or development of new properties;
- maintenance of currently owned properties; and
- general corporate purposes.
The prospectus supplement will also include the allocation of the net
proceeds from the sale of securities among the various uses listed above.
10
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of Gables Trust and the predecessor to Gables Trust for the periods
shown. The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of net income
(loss) before minority interest and extraordinary items, plus fixed charges.
Fixed charges consist of interest expense, capitalized interest, credit
enhancement fees and loan cost amortization.
YEARS ENDED DECEMBER 31, JANUARY 26- JANUARY 1-
----------------------------------------- DECEMBER 31, JANUARY 25
1998 1997 1996 1995 1994 1994(1)(2)
-------- -------- -------- -------- ------------ ----------
Ratios........................................... 1.53x 1.97x 1.83x 1.40x 1.83x .89x
- ------------------------
(1) The ratio for the period January 1 through January 25, 1994 reflects a
period prior to our recapitalization and initial public offering on
January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the consolidated ratios of earnings to
combined fixed charges and preferred dividends of Gables Trust and the
predecessor to Gables Trust for the periods shown. The ratios of earnings to
combined fixed charges and preferred dividends were computed by dividing
earnings by the aggregate of fixed charges and preferred dividends. For this
purpose, earnings consist of net income (loss) before minority interest and
extraordinary items, plus fixed charges and preferred dividends. Fixed charges
consist of interest expense, capitalized interest, credit enhancement fees and
loan cost amortization.
YEARS ENDED DECEMBER 31, JANUARY 26- JANUARY 1-
----------------------------------------- DECEMBER 31, JANUARY 25
1998 1997 1996 1995 1994 1994(1)(2)
-------- -------- -------- -------- ------------ ----------
Ratios........................................... 1.44x 1.86x 1.83x 1.40x 1.83x .89x
- ------------------------
(1) The ratio for the period January 1 through January 25, 1994 reflects a
period prior to our recapitalization and initial public offering on
January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
We will provide you with information in the applicable prospectus supplement
as to the ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred dividends of Gables Trust as of its most
recent fiscal quarter.
DESCRIPTION OF DEBT SECURITIES
The following is a description of the material terms of the debt securities.
Because Gables Trust conducts its business principally through Gables Realty
Limited Partnership, Gables Realty Limited Partnership, and not Gables Trust,
will issue the debt securities. Therefore, references to "we" and "us" in this
section refer to Gables Realty Limited Partnership and not Gables Trust. The
debt securities may be either senior debt securities or subordinated debt
securities. We will provide specific terms of a series of debt securities and
the extent to which these provisions apply to that series in a supplement to
this prospectus. Accordingly, for a description of the terms of any series of
debt securities, reference must be made to both this prospectus and any
accompanying prospectus supplement.
11
The senior debt securities will be issued under an indenture, dated as of a
date prior to such issuance, between us and First Union National Bank, as
trustee. We will refer to any such indenture throughout this prospectus as the
"senior indenture." The subordinated debt securities will be issued under a
separate indenture, dated as of a date prior to such issuance, between us and
the trustee. We will refer to any such indenture throughout this prospectus as
the "subordinate indenture" and to a trustee under any senior or subordinate
indenture as the "trustee." The trustee is one of the lenders to our revolving
line of credit, and may, from time to time, enter into other commercial
relationships with us. The senior indenture and the subordinated indenture are
sometimes collectively referred to in this prospectus as the "indentures." The
indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended. Copies of the indentures are filed as exhibits to our registration
statement and are incorporated into this prospectus by reference. The following
summarizes the material provisions of the indentures but may not contain all of
the information that is important to you. Except as otherwise indicated, the
terms of the indentures are identical. As used under this caption, the term
"debt securities" includes the debt securities being offered by this prospectus
and all other debt securities issued by us under the indentures. Capitalized
terms used herein and not defined shall have the meanings assigned to them in
the applicable indenture.
GENERAL
The indentures:
- do not limit the amount of debt securities that we may issue;
- allow us to issue debt securities in one or more series;
- do not require us to issue all of the debt securities of a series at the
same time;
- allow us to reopen series to issue additional debt securities without the
consent of the debt security holders of such series; and
- provide that the debt securities will be unsecured.
Unless we give you different information in the prospectus supplement, the
senior debt securities will be our unsubordinated obligations and will rank
equally with all of our other unsecured and unsubordinated indebtedness.
Payments on the subordinated debt securities will be subordinated to the prior
payment in full of all of our senior indebtedness, as described under
"--Subordination" and in the applicable prospectus supplement.
Each indenture provides that we may, but need not designate more than one
trustee thereunder. Any trustee under an indenture may resign or be removed and
a successor trustee may be appointed to act with respect to the series of debt
securities administered by the resigning or removed trustee. If 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 applicable
indenture separate and apart from the trust administered by any other trustee.
Except as otherwise indicated herein, any action described herein to be taken by
each 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 applicable indenture.
The prospectus supplement for each offering will provide the following
terms, where applicable:
- the title of the debt securities and whether they are senior or
subordinated;
- the aggregate principal amount of the debt securities being offered, the
aggregate principal amount of the debt securities outstanding as of the
most recent practicable date and any limit on their aggregate principal
amount, including the aggregate principal amount of debt securities
authorized;
- the price at which the debt securities will be issued expressed as a
percentage of the principal;
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- the portion of the principal payable upon declaration of acceleration of
the maturity, if other than the principal amount;
- the date or dates, or the method for determining the date or dates, on
which the principal of the debt securities will be payable;
- the fixed or variable interest rate or rates of the debt securities, or
the method by which the rate or rates is determined;
- the date or dates, or the method for determining the date or dates, from
which interest will accrue;
- the dates on which interest will be payable;
- the record dates for interest payment dates, or the method by which we
will determine those dates;
- the persons to whom interest shall be payable;
- the basis upon which interest will be calculated if other than that of a
360-day year of twelve 30-day months;
- the place or places where the principal, any premium and interest on the
debt securities will be payable;
- where the debt securities may be surrendered for conversion or
registration of transfer or exchange;
- where notices or demands to or upon us in respect of the debt securities
and the applicable indenture may be served;
- the times, prices and other terms and conditions upon which we may redeem
the debt securities;
- any obligation we have to redeem, repay or purchase the debt securities
pursuant to any sinking fund or analogous provision or at the option of
holders of the debt securities, and the times and prices at which we must
redeem, repay or purchase the debt securities pursuant to such an
obligation;
- the currency or currencies in which the debt securities are denominated
and payable if other than United States dollars, 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;
- whether the principal, any premium or interest on the debt securities of
the series are to be payable, at our election or at the election of a
holder, in a currency or currencies other than that in which the debt
securities are denominated or stated to be payable and other related terms
and conditions;
- whether the amount of payments of principal, any premium or interest on
the debt securities may be determined according to an index, formula or
other method and how such amounts will be determined;
- information with respect to the procedures for computerized recording if
there is no physical delivery of the debt securities and instead the debt
securities and any transactions thereon are evidenced by a computerized
entry in the records of a depository company;
- whether the debt securities will be in registered or bearer form and
(1) if in registered form, the denominations, if other than $1,000 or any
integral multiple, or (2) if in bearer form, the denominations and any
other terms and conditions;
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- any restrictions applicable to the offer, sale or delivery of securities
in bearer form and the terms upon which securities in bearer form of the
series may be exchanged for securities in registered form of the series
and vice versa if permitted by applicable laws and regulations;
- whether any debt securities of the series are to be issuable initially in
temporary global form and whether any debt securities of the series are to
be issuable in permanent global form with or without coupons and, if so,
whether beneficial owners of interests in any such permanent global
security may exchange their interests for other debt securities of the
series;
- the identity of the depository for securities in registered form, if such
series are to be issuable as a global security;
- the applicability, if any, of the defeasance and covenant defeasance
provisions described here or in the applicable indenture;
- whether and under what circumstances we will pay any additional amounts on
the debt securities in respect of any tax, assessment or governmental
charge and, if so, whether we will have the option to redeem the debt
securities in lieu of making such a payment;
- the circumstances, if any, in the applicable prospectus supplement, under
which beneficial owners of interests in the global security may obtain
definitive debt securities and the manner in which payments on a permanent
global debt security will be made if any debt securities are issuable in
temporary or permanent global form;
- with respect to any debt securities that provide for optional redemption
or prepayment upon the occurrence of events such as a change of control of
Gables Realty Limited Partnership, among others:
- the possible effects of such provisions on the market price of the
securities or in deterring particular mergers, tender offers or other
takeover attempts, and the intention of Gables Realty Limited Partnership
to comply with the requirements of Rule 14e-1 under the Securities
Exchange Act and any other applicable securities laws in connection with
such provisions;
- 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
- the existence of any limitation on Gables Realty Limited Partnership's
financial or legal ability to repurchase such debt securities upon the
occurrence of such an event 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;
- the name of the applicable trustee and the nature of any material
relationship with Gables Realty Limited Partnership or with any of its
affiliates, and the percentage of debt securities of the class necessary
to require the trustee to take action;
- any deletions from, modifications of, or additions to the events of
default or covenants of Gables Realty Limited Partnership, and any change
in the right of any trustee or any of the holders to declare the principal
amount of any of such debt securities due and payable; and
- any other terms of such debt securities not inconsistent with the
provisions of the applicable indenture.
We may issue debt securities at a discount below their principal amount and
provide for less than the entire principal amount thereof to be payable upon
declaration of acceleration of the maturity thereof. We will refer to any such
debt securities throughout this prospectus as "original issue discount
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securities." The applicable prospectus supplement will describe the federal
income tax consequences and other relevant considerations applicable to original
issue discount securities.
Except as described under "--Merger, consolidation or sale of assets" or as
may be set forth in any prospectus supplement, the debt securities will not
contain any provisions that (1) would limit our ability to incur indebtedness or
(2) would afford holders of debt securities protection in the event of (a) a
highly leveraged or similar transaction involving us, Gables Trust or any of our
respective affiliates or (b) a change of control or reorganization,
restructuring, merger or similar transaction involving us that may adversely
affect the holders of the debt securities. In the future, we may enter into
transactions, such as the sale of all or substantially all of our assets or a
merger or consolidation, that may have an adverse effect on our ability to
service our indebtedness, including the debt securities, by, among other things,
substantially reducing or eliminating our assets.
Neither Maryland General Corporation Law nor the governing instruments of
Gables Trust and Gables Realty Limited Partnership define the term
"substantially all" in connection with the sale of assets. Additionally,
Maryland cases interpreting the words "substantially all" rely heavily upon the
facts and circumstances of each particular case. Consequently, to determine
whether a sale of "substantially all" of our assets has occurred, a holder of
debt securities must review the financial and other information that we
disclosed to the public. Gables Trust's declaration of trust contains
restrictions on ownership and transfers of common shares and preferred shares of
Gables Trust that are designed to preserve Gables Trust's status as a real
estate investment trust and, therefore, may act to prevent or hinder a change of
control. See "Limits on Ownership of Shares of Beneficial Interest."
We will provide you with more information in the applicable prospectus
supplement regarding any deletions, modifications, 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.
PAYMENT
Unless we give you different information in the applicable prospectus
supplement, the principal, any premium and interest on any series of the debt
securities will be payable at the corporate trust office of the trustee. We will
provide you with the address of the trustee in the applicable prospectus
supplement. We may also pay interest by mailing a check to the address of the
person entitled to it as it appears in the applicable register for the debt
securities or by wire transfer of funds to that person at an account maintained
within the United States.
All monies that we pay to a paying agent or a trustee for the payment of the
principal, any premium or interest on any Debt Security will be repaid to us if
unclaimed at the end of two years after the obligation underlying payment
becomes due and payable. After funds have been returned to us, the holder of the
Debt Security may look only to us for payment.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the debt
securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Subject to the limitations imposed upon debt securities issued that are
evidenced by a computerized entry in the records of a depository company instead
of by physical delivery, a holder of debt securities of any series may:
- exchange them for any authorized denomination of other debt securities of
the same series and of a like aggregate principal amount and kind upon
surrender of such debt securities at the corporate trust office of the
applicable trustee or at the office of any transfer agent that we
designate for such purpose, and
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- surrender them for registration of transfer or exchange at the corporate
trust office of the applicable trustee or at the office of any transfer
agent that we designate for such purpose.
Every debt security surrendered for registration of transfer or exchange
must be duly endorsed or accompanied by a written instrument of transfer, and
the person requesting such action must provide evidence of title and identity
satisfactory to the applicable trustee or transfer agent. Payment of a service
charge will not be required for any registration of transfer or exchange of any
debt securities, but we or the trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
If in addition to the applicable trustee, the applicable prospectus supplement
refers to any transfer agent initially designated by us with respect to any
series of debt securities, we 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 we will be required to maintain a transfer
agent in each place of payment for such series. We may at any time designate
additional transfer agents with respect to any series of debt securities.
Neither we nor any trustee shall be required to:
- issue, register the transfer of or exchange debt securities of any series
during a period beginning at the opening of business 15 days before the
day that the notice of redemption of any debt securities selected for
redemption is mailed and ending at the close of business on the day of
such mailing;
- register the transfer of or exchange any debt security, or portion
thereof, so selected for redemption, in whole or in part, except the
unredeemed portion of any debt security being redeemed in part; and
- issue, register the transfer of or exchange any debt security that 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.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indentures provide that we may, without the consent of the holders of
any outstanding debt securities, (1) consolidate with, (2) sell, lease or convey
all or substantially all of our assets to, or (3) merge with or into any other
entity provided that:
- either we are the continuing entity, or the successor entity, if other
than us, assumes our obligations (A) to pay principal, any premium and
interest on all of the debt securities and (B) pursuant to the covenants
and conditions contained in each indenture;
- immediately after giving effect to such transaction and treating any
indebtedness that becomes our obligation or the obligation of any of our
subsidiaries as having been incurred by us or by such subsidiary at the
time of such transaction, no event of default under the indentures, and no
event which, after notice or the lapse of time, or both, would become such
an event of default, occurs and continues; and
- an officers' certificate and legal opinion covering such conditions are
delivered to each trustee.
COVENANTS
EXISTENCE. Except as permitted under "--Merger, consolidation or sale of
assets," the indentures require us to do or cause to be done all things
necessary to preserve and keep in full force and effect our existence, rights
and franchises. However, the indentures do not require us to preserve any right
or franchise if we determine that any right or franchise is no longer desirable
in the conduct of our business.
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MAINTENANCE OF PROPERTIES. If we deem it to be necessary to properly and
advantageously carry on our business, the indentures require us to:
- cause all of our material properties used or useful in the conduct of our
business or the business of any of our subsidiaries to be maintained and
kept in good condition, repair and working order and supplied with all
necessary equipment, and
- cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof.
However, the indentures do not prohibit us or our subsidiaries from selling
or otherwise disposing of our respective properties for value in the ordinary
course of business.
INSURANCE. The indentures require us and our subsidiaries' insurable
properties to be insured against loss or damage in an amount at least equal to
their then full insurable value with insurers of recognized responsibility and,
if described in the applicable prospectus supplement, having a specified rating
from a recognized insurance rating service.
PAYMENT OF TAXES AND OTHER CLAIMS. The indentures require us to pay or,
discharge or cause to be paid or discharged, before they become delinquent:
- all taxes, assessments and governmental charges levied or imposed on us,
our subsidiaries or our subsidiaries' income, profits or property, and
- all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien upon our or our subsidiaries' property.
However, we will not be required to pay, discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is contested in good faith.
ADDITIONAL COVENANTS. The prospectus supplement relating thereto will set
forth any additional covenants of Gables Realty Limited Partnership with respect
to any series of debt securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless the applicable prospectus supplement states otherwise, when we refer
to "events of default" as defined in the indentures with respect to any series
of debt securities issued thereunder, we mean:
- default for 30 days in the payment of any installment of interest on any
debt security of such series;
- default for 5 days in the payment of principal or any premium on any debt
security of such series at its maturity;
- default for 5 days in making any sinking fund payment as required for any
debt security of such series;
- default in the performance or breach of any other covenant or warranty of
Gables Realty Limited Partnership contained in the indenture continued for
60 days after written notice as provided in the applicable indenture, but
not of a covenant added to the indenture solely for the benefit of a
series of debt securities issued thereunder other than such series;
- a default under any bond, debenture, note, mortgage, indenture or
instrument:
(1) having an aggregate principal amount outstanding of at least
$10,000,000, and
(2) under which there may be issued, secured or evidenced any existing or
later created indebtedness for money borrowed by us or our
subsidiaries, if we are directly responsible or liable as obligor or
guarantor,
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if such default results in the indebtedness becoming or being declared due
and payable prior to the date it otherwise would have, without such
indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after we have been given
notice of such default. Such notice shall be given to us by the trustee,
or to us and the trustee by the holders of at least 10% in principal
amount of the outstanding debt securities of that series. The written
notice specifying such default and requiring us to cause such indebtedness
to be discharged or cause such acceleration to be rescinded or annulled
shall state that such notice is a "Notice of Default" under such indenture
and shall be delivered by registered or certified mail. A default on
indebtedness that would otherwise constitute an event of default under
this paragraph but that constitutes tax-exempt financing having an
aggregate principal amount outstanding not exceeding $25,000,000 that
results solely from a failure of an entity providing credit support for
such indebtedness to honor a demand for payment on a letter of credit
shall not constitute an event of default;
- bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of Gables Realty Limited Partnership or
any significant subsidiary of Gables Realty Limited Partnership; and
- any other event of default provided with respect to a particular series of
debt securities.
When we use the term "significant subsidiary" we refer to the meaning
ascribed to such term in Regulation S-X promulgated under the Securities Act.
If an event of default occurs and is continuing with respect to debt
securities of any series outstanding, then the applicable trustee or the holders
of 25% or more in principal amount of the debt securities of that series will
have the right to declare the principal amount of all the debt securities of
that series to be due and payable. If the debt securities of that series are
original issue discount securities or indexed securities, then the applicable
trustee or the holders of 25% or more in principal amount of the debt securities
of that series will have the right to declare the portion of the principal
amount as may be specified in the terms thereof to be due and payable. However,
at any time after such a declaration of acceleration has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable trustee, the holders of a minimum of a majority in principal amount
of outstanding debt securities of such series or of all debt securities then
outstanding under the applicable indenture may rescind and annul such
declaration and its consequences if:
- we have deposited with the applicable trustee all required payments of the
principal, any premium, and interest, plus applicable fees, expenses,
disbursements and advances of the applicable trustee; and
- all events of default, other than the non-payment of accelerated principal
or a specified portion thereof have been cured or waived.
The indentures also provide that the holders of at least a majority in
principal amount of the outstanding debt securities of any series or of all debt
securities then outstanding under the applicable indenture, may waive any past
default with respect to such series and its consequences, except a default:
- in the payment of the principal, any premium or interest; or
- in respect of a covenant or provision contained in the applicable
indenture that cannot be modified or amended without the consent of the
holders of the outstanding debt securities affected thereby.
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The indentures require each trustee to give notice to the holders of debt
securities within 90 days of a default unless such default has been cured or
waived. However, the trustee may withhold notice if specified responsible
officers of such trustee consider such withholding to be in the interest of the
holders of debt securities. The trustee may not withhold notice of a default in
the payment of principal, any premium 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.
The indentures provide that holders of debt securities of any series may not
institute any proceedings, judicial or otherwise, with respect to such indenture
or for any remedy thereunder, unless the trustee fails to act for a period of
60 days after the trustee has received a written request to institute
proceedings in respect of an event of default from the holders of 25% or more in
principal amount of the outstanding debt securities of such series, as well as
an offer of indemnity reasonably satisfactory to the trustee. However, this
provision will not prevent any holder of debt securities from instituting suit
for the enforcement of payment of the principal, any premium and interest on
such debt securities at the respective due dates thereof.
The indentures provide that, subject to provisions in each indenture
relating to its duties in case of default, a trustee has no obligation to
exercise any of its rights or powers at the request or direction of any holders
of any series of debt securities then outstanding under such indenture, unless
such holders have offered to the trustee reasonable security or indemnity. The
holders of at least a majority in principal amount of the outstanding debt
securities of any series or of all debt securities then outstanding under an
indenture shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable trustee, or
of exercising any trust or power conferred upon such trustee. However, a trustee
may refuse to follow any direction which:
- is in conflict with any law or the applicable indenture,
- may involve such trustee in personal liability or
- may be unduly prejudicial to the holders of debt securities of such series
not joining therein.
Within 120 days after the close of each fiscal year, we will be required to
deliver to each trustee a certificate, signed by one of several specified
officers of Gables GP, Inc., as our general partner, stating whether or not such
officer has knowledge of any default under the applicable indenture. If the
officer has knowledge of any default, the notice must specify the nature and
status of the default.
MODIFICATION OF THE INDENTURES
The indentures provide that modifications and amendments may be made only
with the consent of the affected holders of at least a majority in principal
amount of all outstanding debt securities issued under such indenture. However,
no such modification or amendment may, without the consent of the holders of the
debt securities affected thereby:
- change the stated maturity of the principal of, any installment of
interest on or any premium on any such debt security;
- reduce the principal amount of, the rate or amount of interest on or any
premium payable on redemption of any such debt security;
- 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
of 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;
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- impair the right to institute suit for the enforcement of any payment on
or with respect to any such debt security;
- reduce the above-stated percentage of any outstanding debt securities
necessary to modify or amend the applicable indenture with respect to such
debt securities, to waive compliance with particular provisions thereof or
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable indenture; and
- modify any of the foregoing provisions or any of the provisions relating
to the waiver of particular past defaults or covenants, except to increase
the required percentage to effect such action or to provide that some of
the other provisions may not be modified or waived without the consent of
the holder of such debt security.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series may, on behalf of all holders of debt securities
of that series, waive, insofar as that series is concerned, our compliance with
material restrictive covenants of the applicable indenture.
Gables Realty Limited Partnership and the respective trustee thereunder may
make modifications and amendments of an indenture without the consent of any
holder of debt securities for any of the following purposes:
- to evidence the succession of another person to us as obligor under such
indenture;
- to add to the covenants of Gables Realty Limited Partnership for the
benefit of the holders of all or any series of debt securities or to
surrender any right or power conferred upon us in such indenture;
- to add events of default for the benefit of the holders of all or any
series of debt securities;
- to add or change any provisions of an indenture (1) to facilitate the
issuance of, or to liberalize specified terms of, debt securities in
bearer form, or (2) 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;
- to change or eliminate any provisions of an indenture, provided that any
such change or elimination shall become effective only when there are no
debt securities outstanding of any series created prior thereto which are
entitled to the benefit of such provision;
- to secure the debt securities;
- to establish the form or terms of debt securities of any series;
- to provide for the acceptance of appointment by a successor trustee or
facilitate the administration of the trusts under an indenture by more
than one trustee;
- to cure any ambiguity, defect or inconsistency in an indenture, provided
that such action shall not adversely affect the interests of holders of
debt securities of any series issued under such indenture; and
- to supplement any of the provisions of an 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 outstanding debt securities of
any series.
The indentures provide 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,
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notice, consent or waiver thereunder or whether a quorum is present at a meeting
of holders of debt securities:
- 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;
- the principal amount of any debt security denominated in a foreign
currency that shall be deemed outstanding shall be the United States
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 United States dollar equivalent on the issue date of such
debt security of the amount determined as provided in the preceding bullet
point;
- 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 such indenture; and
- debt securities owned by us or any other obligor upon the debt securities
or by any affiliate of ours or of such other obligor shall be disregarded.
The indentures contain provisions for convening meetings of the holders of
debt securities of a series. A meeting will be permitted to be called at any
time by the applicable trustee, and also, upon request, by us 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 such indenture. Except
for any consent that must be given by the holder of each debt security affected
by the modifications and amendments of an indenture described above, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding debt securities of that series.
Notwithstanding the preceding paragraph, except as referred to above, any
resolution relating to a request, demand, authorization, direction, notice,
consent, waiver or other action that may be made, given or taken by 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 such holders.
Any resolution passed or decision taken at any properly held meeting of
holders of debt securities of any series will be binding on all holders of such
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. However, if any
action is to be taken relating to a consent or waiver which may be given by the
holders of at least a specified percentage in principal amount of the
outstanding debt securities of a series, the persons holding such percentage
will constitute a quorum.
Notwithstanding the foregoing provisions, the indentures provide that if any
action is to be taken at a meeting with respect to any request, demand,
authorization, direction, notice, consent, waiver and other action that such
indenture expressly provides may be made, given or taken by the holders of a
specified percentage in principal amount of all outstanding debt securities
affected thereby, or of the holders of such series and one or more additional
series:
- there shall be no minimum quorum requirement for such meeting; and
- the principal amount of the outstanding debt securities of such series
that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction,
notice, consent, waiver or other action has been made, given or taken
under such indenture.
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SUBORDINATION
Unless otherwise provided in the applicable prospectus supplement,
subordinated securities will be subject to the following subordination
provisions.
Upon any distribution to our creditors in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on any subordinated
securities will be subordinated to the extent provided in the applicable
indenture in right of payment to the prior payment in full of all senior debt.
However, our obligation to make payments of the principal of and interest on
such subordinated securities otherwise will not be affected. No payment of
principal or interest will be permitted to be made on subordinated securities at
any time if a default on senior debt exists that permits the holders of such
senior debt to accelerate its maturity and the default is the subject of
judicial proceedings or we receive notice of the default. After all senior debt
is paid in full and until the subordinated securities are paid in full, holders
of subordinated securities will be subrogated to the rights of holders of senior
debt to the extent that distributions otherwise payable to holders of
subordinated securities have been applied to the payment of senior debt. The
subordinated indenture will not restrict the amount of senior debt or other
indebtedness of Gables Realty Limited Partnership and its subsidiaries. As a
result of these subordination provisions, in the event of a distribution of
assets upon insolvency, holders of subordinated securities may recover less,
ratably, than our general creditors.
"Senior Debt" will be defined in the applicable indenture as the principal
of and interest on, or substantially similar payments to be made by us in
respect of, the following, whether outstanding at the date of execution of the
applicable indenture or thereafter incurred, created or assumed:
- indebtedness incurred by us for money borrowed or represented by
purchase-money obligations;
- indebtedness incurred by us evidenced by notes, debentures, bonds, or
other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement;
- obligations as lessee under leases of property either made as part of any
sale and leaseback transaction to which we are a party or otherwise;
- indebtedness, obligations and liabilities of others in respect of which we
are liable contingently or otherwise to pay or advance money or property
or as guarantor, endorser or otherwise or which we have agreed to purchase
or otherwise acquire;
- any binding commitment we have to fund any real estate investment or to
fund any investment in any entity making such real estate investment;
In each case, the following will not be Senior Debt:
- any such indebtedness, obligation or liability referred to in the
preceding clauses (1) that is outstanding and (2) if the instrument
creating or evidencing such indebtedness, obligation or liability provides
that the same is not superior to or ranks on an equal basis with the
subordinated securities with respect to right of payment;
- any such indebtedness, obligation or liability that is subordinated to
indebtedness incurred by us to substantially the same extent as or to a
greater extent than the subordinated securities are subordinated; and
- the subordinated securities.
No restrictions will be included in any indenture relating to subordinated
securities upon the creation of additional senior debt.
If this prospectus is being delivered in connection with a series of
subordinated securities, the accompanying prospectus supplement or the
information incorporated herein by reference will set forth the approximate
amount of senior debt outstanding as of the end of our most recent fiscal
quarter.
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, the
indentures allow us to discharge our obligations to holders of any series of
debt securities issued under any indenture that:
- have not already been delivered to the applicable trustee for cancellation
and
- have become due and payable, are scheduled for redemption or will become
due and payable within one year by irrevocably depositing with the
applicable 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, any premium
and interest to the date of such deposit if such debt securities have
become due and payable or, if they have not, to the stated maturity or
redemption date.
Unless otherwise indicated in the applicable prospectus supplement, the
indentures provide that, upon our irrevocable deposit with the applicable
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, 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, premium and interest on such debt
securities, and any mandatory sinking fund or analogous payments thereon, on the
scheduled due dates therefor, we may elect either:
- to defease and be discharged from any and all obligations with respect to
such debt securities, or
- to be released from our obligations with respect to such debt securities
under the applicable indenture or, if provided in the applicable
prospectus supplement, our obligations with respect to any other covenant,
and any omission to comply with such obligations shall not constitute an
event of default with respect to such debt securities.
Notwithstanding the above, we may not elect to defease and be discharged
from the obligation to pay any additional amounts upon the occurrence of
particular 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, or to hold monies for payment in trust.
The indentures only permit us to establish the trust described in the
paragraph above if, among other things, we have delivered to the applicable
trustee an opinion of counsel to the effect that the holders of such debt
securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to 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. Such opinion of counsel, in the case of defeasance, will be
required to refer to and be based upon a ruling received from or published by
the Internal Revenue Service or a change in applicable federal income tax law
occurring after the date of the indenture. In the event of such defeasance, the
holders of such debt securities would thereafter be able to look only to such
trust fund for payment of principal, any premium, and interest.
When we use the term "government obligations" we mean securities that are:
- direct obligations of the United States 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
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- obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States or other 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 or such other government,
which 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. However, 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
we have 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 applicable 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 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 will be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of, premium
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 cessation of usage
based on the applicable market exchange rate.
When we use the term "conversion event" we mean the cessation of use of:
- 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;
- the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities;
or
- 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 United States dollars.
In the event that (a) we effect covenant defeasance with respect to any debt
securities and (b) such debt securities are declared due and payable because of
the occurrence of any event of default, the amount in such currency, currency
unit or composite currency in which such debt securities are payable, and
government obligations on deposit with the applicable 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, we would remain liable to make payment of such amounts due at the time
of acceleration. Notwithstanding the first sentence of this paragraph, events of
default in (b) above shall not include the event of default described in
(1) the fourth bullet point under "--Events of default, notice and waiver" with
respect to specified sections of an indenture or (2) the seventh bullet point
under "--Events of default, notice and waiver" with respect to any other
covenant as to which there has been covenant defeasance.
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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
shares of beneficial interest of Gables Trust or any equity interest in Gables
Realty Limited 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 that will be deposited with, or on behalf
of, a depository identified in the applicable prospectus supplement relating to
such series. We may issue global securities in either registered or bearer form
and in either temporary or permanent form. We will describe the specific terms
of the depository arrangement with respect to a series of debt securities in the
applicable prospectus supplement relating to such series.
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DESCRIPTION OF PREFERRED SHARES
The following is a description of the material terms and provisions of our
preferred shares. It may not contain all the information that is important to
you. You can access complete information by referring to our declaration of
trust and bylaws and to any applicable amendment to the declaration of trust
designating terms of a series of preferred shares. You should note that Gables
Trust, not Gables Realty Limited Partnership, will issue preferred shares.
Therefore, references to "the Company," "we" and "us" in this section refer to
Gables Trust and not Gables Realty Limited Partnership.
GENERAL
Under our declaration of trust, we have authority to issue up to 171,000,000
shares of beneficial interest, consisting of 100,000,000 common shares, par
value $.01 per share, 51,000,000 excess shares of beneficial interest, par value
$.01 per share, and 20,000,000 preferred shares, par value $.01 per share. A
description of our cumulative redeemable preferred shares and their general
terms are set forth below:
- 8.30% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
outstanding 4,600,000 Series A shares. Dividends are cumulative from the
date of original issuance and are payable quarterly at the rate of 8.30%
per annum of the $25.00 liquidation preference. The Series A shares rank
as to rights to dividends and in liquidation on a parity with the
Series B shares and senior to the Series Z shares. We may redeem the
Series A shares at any time on or after July 24, 2002 for cash at a
redemption price of $25.00 per share, plus all accrued and unpaid
dividends. The Series A shares have no stated maturity and are not subject
to any sinking fund or mandatory redemption and are not convertible into
any other of our securities.
- 8.625% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
no Series B shares outstanding. However, we have reserved 2,000,000
Series B shares for issuance upon exercise by the holders of Gables Realty
Limited Partnership's 2,000,000 Series B preferred units of their right to
exchange Series B preferred units for the Series B shares on a one-for-one
basis. Holders of the Series B preferred units may exercise their exchange
right in whole but not in part (a) at any time on or after November 15,
2008, (b) at any time if full quarterly distributions are not made for six
quarters, or (c) upon the occurrence of particular specified events
related to the treatment of the Series B preferred units for federal
income tax purposes. Distributions on the Series B preferred units are,
and dividends on the Series B shares, if, and when issued, will be
cumulative from the date of original issuance and are, or will be, payable
quarterly at the rate of 8.625% per annum of the $25.00 liquidation
preference. The Series B shares rank as to rights to dividends and in
liquidation on a parity with the Series A shares and senior to the
Series Z shares. We may redeem the Series B preferred units and the
Series B shares at any time on or after November 15, 2003 for cash at a
redemption price of $25.00 per unit or share, plus all accumulated,
accrued and unpaid distributions or dividends. We may redeem the Series B
preferred units before November 15, 2003 if the holders elect to exchange
them for Series B shares. The Series B preferred units and the Series B
shares have no stated maturity, are not subject to any sinking fund or
mandatory redemption and are not convertible into any other of our
securities.
- 5.00% SERIES Z CUMULATIVE REDEEMABLE PREFERRED SHARES. We currently have
outstanding 180,000 Series Z shares. Dividends on the Series Z shares are
cumulative from the date of original issuance and are payable on June 18
of each year, commencing June 18, 2008, at the rate of 5.00% per annum of
the $25.00 liquidation preference. We may redeem the Series Z shares at
any time for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends. The Series Z shares are subject to mandatory
redemption on June 18, 2018 and are not subject to any sinking fund or
convertible into any other of our securities. With respect to
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dividends and liquidation distributions, the Series Z shares currently
rank junior to all other designated preferred shares, including the
Series A shares and the Series B shares.
We did not have any other preferred shares outstanding as of the date of
this prospectus. We may issue preferred shares from time to time, in one or more
series, as authorized by our Board of Trustees. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland General
Corporation Law and our declaration of trust to fix for each series, subject to
the provisions of our declaration of trust regarding excess shares of beneficial
interest, the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. When
issued, the preferred shares will be fully paid and nonassessable and will have
no preemptive rights. The Board of Trustees could authorize the issuance of
preferred shares with terms and conditions that could have the effect of
discouraging a takeover or other transaction that holders of common shares might
believe to be in their best interests or in which holders of some, or a
majority, of the common shares might receive a premium for their shares over the
then market price of such common shares.
TERMS
You should refer to the prospectus supplement relating to the preferred
shares offered thereby for specific terms, including:
- their title and stated value;
- the number of preferred shares offered, the liquidation preference per
share and the offering price;
- the applicable dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof;
- the date from which dividends on such preferred shares shall accumulate,
if applicable;
- any procedures for auction and remarketing;
- any provision for a sinking fund;
- any applicable provision for redemption;
- any securities exchange listing;
- the terms and conditions of convertibility into common shares, including
the conversion price or rate or manner of calculation thereof;
- any other specific terms, preferences, rights, limitations or
restrictions;
- a discussion of applicable federal income tax considerations;
- the relative ranking and preference as to dividend rights and rights upon
our liquidation, dissolution or the winding up of our affairs;
- any limitations on issuance of any series of preferred shares ranking
senior to or on a parity with such series of preferred shares as to
dividend rights and rights upon our liquidation, dissolution or the
winding up of our affairs; and
- any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a
real estate investment trust.
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RANK
Unless otherwise specified in the prospectus supplement, the preferred
shares will, with respect to dividend rights and rights upon a liquidation,
dissolution or winding up our affairs, rank:
- senior to all classes or series of our common shares, and to all equity
securities ranking junior to such preferred shares with respect to
dividend rights or rights upon liquidation, dissolution or winding up our
affairs;
- on a parity with all equity securities issued by us, the terms of which
specifically provide that such equity securities rank on a parity with the
preferred shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of our affairs; and
- junior to all equity securities issued by us, the terms of which
specifically provide that such equity securities rank senior to the
preferred shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of our affairs.
The term "equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the preferred shares of each series will be entitled to receive
cash dividends when, as and if declared by our Board of Trustees. We will pay
dividends out of assets that are legally available for payment of dividends. We
will specify the rate(s) of dividends and the dates that we will pay dividends
in the applicable prospectus supplement. Dividends will be payable to holders of
record as they appear on our share transfer books on such record dates as fixed
by our Board of Trustees.
Dividends on any series of the preferred shares 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 our Board of Trustees fails to declare a
dividend payable on a dividend payment date on any series of the preferred
shares for which dividends are non-cumulative, then the holders of that series
of the preferred shares will have no right to receive a dividend in respect of
the dividend period ending on that dividend payment date. Accordingly, we will
have no obligation to pay the dividend accrued for that period, whether or not
dividends on that series are declared payable on any future dividend payment
date.
If preferred shares of any series are outstanding, we will not declare, pay
or set aside funds to pay dividends on any of our shares of beneficial interest
of any other series ranking, as to dividends, on a parity with or junior to the
preferred shares of such series for any period unless,
- if that series of preferred shares has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside funds
to pay full cumulative dividends on the preferred shares of such series
for all past dividend periods and the then current dividend period; or
- if that series of preferred shares does not have a cumulative dividend, we
have declared and paid or contemporaneously declare and pay or set aside
funds to pay full dividends on the preferred shares of such series for the
then current dividend period.
We must declare all dividends pro rata on all series of preferred shares
that rank on a parity with the series of preferred shares upon which we paid
dividends if we did not pay or set aside funds to pay dividends on the series of
preferred shares in full. We must declare dividends pro rata to ensure that the
amount of dividends declared per preferred share bear in all cases the same
ratio that accrued dividends per preferred share bears to each other. We will
not accumulate unpaid dividends for prior dividend periods with respect to
accrued dividends on preferred shares that do not have cumulative
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dividends. No interest, or sum of money in lieu of interest, will be payable in
respect of any payments that may be in arrears.
Except as provided in the immediately preceding paragraph, unless:
- if such series of preferred shares has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside funds
to pay full cumulative dividends for all past dividend periods and the
then current dividend period; or
- if such series of preferred shares does not have a cumulative dividend, we
have declared and paid or contemporaneously declare and pay or set aside
funds to pay full dividends for the then current dividend period;
we will not: (1) declare, pay or set aside funds to pay dividends; (2) declare
or make any other distribution upon the common shares or any other of our shares
of beneficial interest ranking junior to or on a parity with the preferred
shares of such series as to dividends or upon liquidation; (3) redeem, purchase
or otherwise acquire for any consideration any common shares, or any other of
our shares of beneficial interest ranking junior to or on a parity with the
preferred shares of such series as to dividends; nor (4) pay any monies to or
make any monies available for a sinking fund to redeem any such shares, except
by conversion into or exchange for other of our shares of beneficial interest
ranking junior to the preferred shares of such series as to dividends or
liquidation. Notwithstanding the preceding sentence, we may declare or set aside
dividends in common shares or other shares of beneficial interest ranking junior
to the preferred shares of such series as to dividends and upon liquidation.
Any dividend payment we make on a series of preferred shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remain payable.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred shares
will be subject to mandatory redemption or redemption at our option, in whole or
in part, 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 shares that is
subject to mandatory redemption will specify the number of shares that will be
redeemed in each year commencing after a specified date at a specified
redemption price per share, together with an amount equal to all accrued and
unpaid dividends thereon to the date of redemption. Unless the shares have a
cumulative dividend, such accrued dividends will not include any accumulation in
respect of unpaid dividends for prior dividend periods. We may pay the
redemption price in cash or other property, as specified in the applicable
prospectus supplement. If the redemption price for preferred shares of any
series is payable only from the net proceeds of the issuance of our shares of
beneficial interest, the terms of such preferred shares may provide that, if no
such shares of beneficial interest 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 shares will automatically and
mandatorily convert into the applicable shares of beneficial interest pursuant
to conversion provisions specified in the applicable prospectus supplement.
Notwithstanding the foregoing, we will not redeem any preferred shares of a
series unless,
- if that series of preferred shares has a cumulative dividend, we have
declared and paid or contemporaneously declare and pay or set aside funds
to pay full cumulative dividends on the preferred shares for the past and
current dividend periods; or
- if that series of preferred shares does not have a cumulative dividend, we
have declared and paid or contemporaneously declare and pay or set aside
funds to pay full dividends on the preferred shares for the current
dividend period.
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However, in no case will we redeem any preferred shares of a series unless
we redeem all outstanding preferred shares of such series simultaneously.
In addition, we will not acquire any preferred shares of a series unless,
- if that series of preferred shares has a cumulative dividend, we have
declared and paid contemporaneously declare and pay or set aside funds to
pay full cumulative dividends on all outstanding shares of such series of
the preferred shares for all past dividend periods and the then current
dividend period; or
- if that series of preferred shares does not have a cumulative dividend, we
have declared and paid or contemporaneously declare and pay or set aside
funds to pay full dividends on the preferred shares of such series for the
then current dividend period.
However, at any time we may purchase or acquire preferred shares of that
series (1) to preserve our status as a real estate investment trust,
(2) pursuant to a purchase or exchange offer made on the same terms to holders
of all outstanding preferred shares of such series or (3) by conversion into or
exchange for our shares of beneficial interest ranking junior to the preferred
shares of such series as to dividends and upon liquidation.
If fewer than all of the outstanding preferred shares of any series are to
be redeemed, we will determine the number of shares that 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 or by any
other equitable manner that we determine. Such determination will reflect
adjustments to avoid redemption of fractional shares.
We will mail notice of redemption at least 30 days but not more than
60 days before the redemption date to each holder of record of preferred shares
to be redeemed at the address shown on our stock transfer books. Each notice
shall state:
- the redemption date;
- the number of shares and series to be redeemed;
- the redemption price;
- the place or places where certificates are to be surrendered for payment
of the redemption price;
- that dividends on the shares to be redeemed will cease to accrue on such
redemption date;
- the date upon which the holder's conversion rights, if any, as to such
shares shall terminate; and
- the specific number of shares to be redeemed from each such holder if
fewer than all the shares of any series are to be redeemed.
If notice of redemption has been given and we have set aside the funds
necessary for such redemption in trust for the benefit of the holders of any
shares so called for redemption, then from and after the redemption date,
dividends will cease to accrue on such shares, 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
our affairs, then, before we make any distribution or payment to the holders of
any common shares or any other class or series of our shares of beneficial
interest ranking junior to the preferred shares in the distribution of assets
upon any liquidation, dissolution or winding up of our affairs, the holders of
each series of preferred shares will be entitled to receive, out of assets
legally available for distribution to
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shareholders, liquidating distributions in the amount of the liquidation
preference per share set forth in the applicable prospectus supplement, plus any
accrued and unpaid dividends thereon. Such dividends will not include any
accumulation in respect of unpaid noncumulative dividends for prior dividend
periods. After full payment of their liquidating distributions, holders will
have no right or claim to any of our remaining assets. Upon any such voluntary
or involuntary liquidation, dissolution or winding up, if our available assets
are insufficient to pay the amount of the liquidating distributions on all
outstanding preferred shares and the corresponding amounts payable on all other
classes or series of our shares of beneficial interest ranking on a parity with
the preferred shares in the distribution of assets, then the holders of the
preferred shares and all other such classes or series of shares of beneficial
interest will share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be entitled.
Upon liquidation, dissolution or winding up and if we have made liquidating
distributions in full to all holders of preferred shares, we will distribute our
remaining assets among the holders of any other classes or series of shares of
beneficial interest ranking junior to the preferred shares according to their
respective rights and preferences and, in each case, according to their
respective number of shares. For such purposes, our consolidation or merger with
or into any other corporation, trust or entity, or the sale, lease or conveyance
of all or substantially all of our property or business will not be deemed to
constitute a liquidation, dissolution or winding up of our affairs.
VOTING RIGHTS
Holders of preferred shares will have no voting rights, except as described
in the next paragraph, as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
Unless otherwise provided for any series of preferred shares, so long as any
preferred shares of a series remain outstanding, we will not, without the
affirmative vote or consent of the holders of at least two-thirds of the
preferred shares of such series outstanding at the time, given in person or by
proxy, either in writing or at a meeting with each of such series voting
separately as a class,
- authorize, or create or increase the authorized or issued amount of any
class or series of shares of beneficial interest ranking senior to such
series of preferred shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, or
reclassify any of our authorized shares of beneficial interest into such
shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares; or
- amend, alter or repeal the provisions of our declaration of trust or the
amendment to our declaration of trust designating the terms for such
series of preferred shares, whether by merger, consolidation or otherwise,
so as to materially and adversely affect any right, preference, privilege
or voting power of such series of preferred shares or the holders thereof.
Notwithstanding the preceding bullet point, if the preferred shares remain
outstanding with the terms thereof materially unchanged, the occurrence of any
of the events described shall not be deemed to materially and adversely affect
the rights, preferences, privileges or voting power of holders of preferred
shares, even if upon the occurrence of such an event we may not be the surviving
entity. In addition, any increase in the amount of (1) authorized preferred
shares or the creation or issuance of any other series of preferred shares, or
(2) authorized shares of such series or any other series of preferred shares, in
each case ranking on a parity with or junior to the preferred shares 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 will be
effected, we have redeemed or called for
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redemption all outstanding shares of such series of preferred shares and, if
called for redemption, have deposited sufficient funds in trust to effect such
redemption.
CONVERSION RIGHTS
The terms and conditions upon which any series of preferred shares is
convertible into common shares will be set forth in the applicable prospectus
supplement relating thereto. Such terms will include the number of common shares
into which the preferred shares are convertible, the conversion price, rate or
manner of calculation thereof, the conversion period, provisions as to whether
conversion will be at our option or at the holders' option, the events requiring
an adjustment of the conversion price and provisions affecting conversion in the
event of the redemption.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code, a maximum of 50% in value of our outstanding shares of beneficial
interest may be owned, directly or indirectly, by five or fewer individuals
during the last half of a taxable year. To assist us in meeting this
requirement, we may take actions to limit the beneficial ownership, directly or
indirectly, by a single person of our outstanding equity securities, including
any of our preferred shares. Therefore, the amendment to our declaration of
trust designating each series of preferred shares may contain provisions
restricting the ownership and transfer of the preferred shares. The applicable
prospectus supplement will specify any additional ownership limitation relating
to a series of preferred shares. See "Limits on Ownership of Shares of
Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the preferred shares will be set forth
in the applicable prospectus supplement.
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DESCRIPTION OF COMMON SHARES
The following is a description of the material terms and provisions of our
common shares. It may not contain all the information that is important to you.
You can access complete information by referring to our declaration of trust and
bylaws. You should note that Gables Trust, not Gables Realty Limited
Partnership, will issue common shares. Therefore, references to "we" and "us" in
this section refer to Gables Trust and not Gables Realty Limited Partnership.
GENERAL
Under our declaration of trust, we have authority to issue 100,000,000
common shares, par value $.01 per share. As of December 31, 1998, 26,301,923
common shares were issued and outstanding. In addition, as of December 31, 1998,
6,448,391 units which are exchangeable for common shares on a one-for-one basis
were outstanding. All common shares, when issued, will be duly authorized, fully
paid and nonassessable. Thus, the full price for the outstanding common shares
will have been paid at the time of issuance and that any holder of our common
shares will not later be required to pay us any additional money for such common
shares.
DIVIDENDS
Subject to the preferential rights of any other shares of beneficial
interest or the provisions of our declaration of trust regarding excess shares,
holders of common shares may receive distributions out of assets that we can
legally use to pay distributions, when and if, they are authorized and declared
by our Board of Trustees. In the event we are liquidated, dissolved or our
affairs are wound up, after we pay or make adequate provision for all of our
known debts and liabilities, each holder of common shares receives dividends in
the same proportion as holders of the preferred shares out of assets that we can
legally use to pay distributions.
VOTING RIGHTS
Subject to the provisions of our declaration of trust regarding excess
shares, holders of common shares will have the exclusive power to vote on all
matters presented to our shareholders, including the election of trustees,
except as otherwise provided by Maryland law or as provided with respect to any
other shares of beneficial interest. Holders of common shares are entitled to
one vote per share. There is no cumulative voting in the election of our
trustees, which means that at any meeting of our shareholders, the holders of a
majority of the outstanding common shares can cast all of their votes for each
trustee to be elected at such meeting, elect all of the trustees then standing
for election and the votes held by the holders of the remaining common shares
will not be sufficient to elect any trustee.
OTHER RIGHTS
Subject to the provisions of our declaration of trust regarding excess
shares, all common shares have equal dividend, distribution, liquidation and
other rights, and have no preference, appraisal or exchange rights, except for
any appraisal rights provided by Maryland law.
Holders of common shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any of our securities.
Our declaration of trust prohibits us from merging or selling all or
substantially all of our assets without the approval of a majority of the
outstanding shares that are entitled to vote on such matters. In addition,
Gables Realty Limited Partnership's partnership agreement requires that such
actions also be approved by partners holding 75% of the units of Gables Realty
Limited Partnership.
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RESTRICTIONS ON OWNERSHIP
For us to qualify as a real estate investment trust under the Internal
Revenue Code, no more than 50% in value of our outstanding shares of beneficial
interest may be owned, directly or indirectly, by five or fewer individuals
during the last half of a taxable year. To assist us in meeting this
requirement, we may take actions such as the automatic exchange of shares in
excess of this ownership restriction to limit the beneficial ownership of our
outstanding equity securities, directly or indirectly, by one individual. See
"Limits on Ownership of Shares of Beneficial Interest" on page 35.
TRANSFER AGENT
The transfer agent and registrar for the common shares is BankBoston, N.A.,
Boston, Massachusetts.
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DESCRIPTION OF WARRANTS
We have no warrants or other share purchase rights outstanding other than
options issued under our Third Amended and Restated 1994 Share Option and
Incentive Plan, as amended. We may issue warrants for the purchase of preferred
shares or common shares. You should note that Gables Trust, not Gables Realty
Limited Partnership will issue warrants. Therefore, references to "we" and "us"
in this section refer to Gables Trust and not Gables Realty Limited Partnership.
Warrants may be issued independently, together with any other securities offered
by any prospectus supplement or through a dividend or other distribution to our
shareholders and may be attached to or separate from such securities. We may
issue warrants under a warrant agreement to be entered into between us and a
warrant agent. We will name any warrant agent in the applicable prospectus
supplement. The warrant agent will act solely as our agent in connection with
the warrants of a particular series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
warrants. The following is a description of the general terms and provisions of
any warrants we may issue and may not contain all the information that is
important to you. You can access complete information by referring to the
applicable prospectus supplement. In the applicable prospectus supplement, we
will describe the terms of the warrants and applicable warrant agreement,
including, where applicable:
- the title of such warrants;
- the aggregate number of warrants offered and the aggregate number of
warrants outstanding as of the most practicable date;
- the price or prices at which we will issue the warrants;
- the designation, number and terms of the preferred shares or common shares
that can be purchased upon exercise of the warrants;
- the designation and terms of the other securities, if any, with which such
warrants are issued and the number of such warrants issued with each such
security;
- the date, if any, on and after which the warrants and the related
preferred shares or common shares, if any, will be separately
transferable;
- the price at which each preferred share or common share that can be
purchased upon exercise of such warrants may be purchased;
- the date on which the right to exercise the warrants shall commence and
the date on which such right shall expire;
- the minimum or maximum amount of such warrants which may be exercised at
any one time;
- information with respect to the procedures of computerized recording, in
the event that there is no physical delivery of the warrants and instead
the warrants and any transactions thereon are evidenced by a computerized
entry in the records of a depository company;
- a discussion of applicable federal income tax considerations; and
- any other terms of such warrants, including terms, procedures and
limitations relating to the transferability, exchange and exercise of such
warrants.
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LIMITS ON OWNERSHIP OF SHARES OF BENEFICIAL INTEREST
OWNERSHIP LIMIT
For us to qualify as a real estate investment trust under the Internal
Revenue Code among other things, no more than 50% in value of our outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals during the last half of a taxable year other than the first
year. In addition, such shares of beneficial interest must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12 months
other than the first year or during a proportionate part of a shorter taxable
year. In order to protect us against the risk of losing our status as a real
estate investment trust due to a concentration of ownership among our
shareholders, our declaration of trust provides that no holder may own, or be
deemed to own by virtue of the attribution provisions of the Internal Revenue
Code, more than 9.8% of our shares of beneficial interest. Notwithstanding the
preceding sentence, the trustees at their option and in their discretion may
approve ownership greater than 9.8% by selected persons. The Board of Trustees
does not expect that it would waive the 9.8% ownership limit in the absence of
the ruling from the Internal Revenue Service or an opinion of counsel
satisfactory to it that the changes in ownership will not, then or in the
future, jeopardize our status as a real estate investment trust. Any transfer of
shares of beneficial interest including warrants or any security convertible
into shares of beneficial interest shall be void and have no effect if it:
(1) would create a direct or indirect ownership of shares of beneficial interest
in excess of the 9.8% ownership limit, (2) would result in our disqualification
as a real estate investment trust, including any transfer that results in the
shares of beneficial interest being owned by fewer than 100 persons or
(3) results in us being "closely held" within the meaning of Section 856(h) of
the Internal Revenue Code. The intended transferee will acquire no rights to the
shares of beneficial interest. The foregoing restrictions will not apply if our
Board of Trustees determines that it is no longer in our best interests to
attempt to qualify, or to continue to qualify, as a real estate investment
trust. In addition, the foregoing restrictions do not apply with respect to an
offeror that makes an all cash tender offer that has been accepted by at least
two-thirds of our outstanding shares.
SHARES OWNED IN EXCESS OF OWNERSHIP LIMIT
Shares of beneficial interest owned, or deemed to be owned, or transferred
to a shareholder in excess of the 9.8% ownership limit will automatically be
exchanged for excess shares that will be transferred, by operation of law, to us
as trustee of a trust. The trust will be for the exclusive benefit of the
transferees to whom such shares of beneficial interest may be ultimately
transferred without violating the 9.8% ownership limit. While the excess shares
are held in trust:
- they will not be entitled to vote;
- they will not be considered for purposes of any shareholder vote or the
determination of a quorum for such vote; and
- except upon liquidation, they will not be entitled to participate in
dividends or other distributions.
If we pay to a proposed transferee any dividend or distribution of excess
shares before we discover that shares of beneficial interest have been
transferred in violation of the provisions of our declaration of trust, the
proposed transferee must repay such excess shares to us upon demand. The excess
shares are not treasury shares, but rather constitute a separate class of our
issued and outstanding shares of beneficial interest. At any time the excess
shares are held in trust by us, the original transferee-shareholder may transfer
the interest in the trust representing the excess shares to any individual
provided (1) such individual's ownership of the shares of beneficial interest
that were exchanged into the excess shares would be permitted under the 9.8%
ownership limit and (2) such individual pays a price that is less than or equal
to the price paid by the original transferee-shareholder for the shares of
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beneficial interest that were exchanged for excess shares. If the transfer is
permitted, then immediately upon the transfer to the permitted transferee, the
excess shares will be automatically exchanged for shares of beneficial interest
of the class from which they were converted. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then at our option, we may deem the
intended transferee of any excess shares (a) to have acted as an agent on our
behalf in acquiring the excess shares and (b) to hold the excess shares on our
behalf.
RIGHT TO PURCHASE EXCESS SHARES
In addition to the foregoing transfer restrictions, for a period of 90 days
during the time any excess shares are held by us in trust, we have the right to
purchase all or any portion of the excess shares from the original
transferee-shareholder for the lesser of (1) the price paid for the shares of
beneficial interest by the original transferee-shareholder or (2) the market
price of the shares of beneficial interest on the date we exercise our option to
purchase. The market price will be determined in the manner set forth in our
declaration of trust. The 90-day period begins on the date of the violative
transfer if the original transferee-shareholder gives notice to us of the
transfer or, if no such notice is given, the date on which the Board of Trustees
determines that a violative transfer has been made.
Every owner of more than 5% of the issued and outstanding common shares must
file a written notice with us containing the information specified in our
declaration of trust no later than January 30 of each year. Owners of 5% or less
of the issued and outstanding common shares may be required by the Internal
Revenue Code or regulations thereunder to file such notice. Upon demand by us,
each shareholder will be required to disclose to us in writing any information
with respect to the direct, indirect and constructive ownership of shares of
beneficial interest as the Board of Trustees deems necessary to comply with the
provisions of the Internal Revenue Code applicable to real estate investment
trusts, to comply with the requirements of any taxing authority or governmental
agency or to determine any such compliance.
This ownership limitation may have the effect of preventing someone from
acquiring control of Gables Trust unless the Board of Trustees determines that
it is no longer in our best interest to maintain our real estate investment
trust status.
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IMPORTANT PROVISIONS OF MARYLAND LAW AND
OUR DECLARATION OF TRUST AND BYLAWS
The following is a summary of important provisions of Maryland law and our
declaration of trust and bylaws which affect us and you as a holder of
securities. The description below is intended only as a summary and is qualified
in its entirety by reference to Maryland General Corporation Law and our
declaration of trust and bylaws.
MARYLAND BUSINESS COMBINATION STATUTE
Maryland law establishes special requirements with respect to business
combinations between Maryland corporations and interested shareholders unless
exemptions are applicable. Among other things, for a period of five years, the
law prohibits a merger and other specified or similar transactions between a
company and an interested shareholder, and after the end of the five-year
period, the law requires a supermajority vote for such transactions.
When we refer to "interested shareholders," we mean all persons owning
beneficially, directly or indirectly, more than 10% of the outstanding voting
stock of the Maryland corporation. When we refer to "business combinations," we
mean any merger or similar transaction subject to a statutory vote and
additional transactions involving transfers of assets or securities in specified
amounts to interested shareholders or their affiliates. Unless an exemption is
available, transactions of these types may not be consummated between a Maryland
corporation and an interested shareholder or its affiliates for a period of five
years after the date on which the shareholder first became an interested
shareholder. Thereafter, the transaction may not be consummated unless
recommended by the board of directors and approved by the affirmative vote of at
least 80% of the votes entitled to be cast by all holders of outstanding voting
shares and 66 2/3% of the votes entitled to be cast by all holders of
outstanding voting shares other than the interested shareholder. A business
combination with an interested shareholder that is approved by the board of
directors of a Maryland corporation at any time before an interested shareholder
first becomes an interested shareholder is not subject to the special voting
requirements. An amendment to a Maryland corporation's charter electing not to
be subject to the foregoing requirements must be approved by the affirmative
vote of at least 80% of the votes entitled to be cast by all holders of
outstanding voting shares and 66 2/3% of the votes entitled to be cast by
holders of outstanding voting shares who are not interested shareholders. Any
such amendment is not effective until 18 months after the vote of shareholders
and does not apply to any business combination of a corporation with a
shareholder who was an interested shareholder on the date of the shareholder
vote.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
Maryland law provides that control shares of a Maryland real estate
investment trust acquired in a control share acquisition have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of beneficial interest owned by the
acquiror or by officers of trustees who are employees of the trust. When we
refer to "control shares," we mean voting shares of beneficial interest that, if
aggregated with all other such shares of beneficial interest previously acquired
by the acquiror or in respect of which the acquiror is able to exercise or
direct the exercise of voting power except solely by revocable proxy, would
entitle the acquiror to exercise voting power in electing trustees within one of
the following ranges of voting power: (a) one-fifth or more but less than
one-third, (b) one-third or more but less than a majority or (c) a majority of
all voting power. Control shares do not include shares of beneficial interest
that the acquiring person is then entitled to vote as a result of having
previously obtained shareholder approval. When we refer to "control share
acquisition," we mean the acquisition of control shares, subject to applicable
exceptions.
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A person who has made or proposes to make a control share acquisition may
compel the board of trustees to call a special meeting of shareholders to be
held within 50 days of demand to consider voting rights for the shares, upon
satisfaction of relevant conditions, including an undertaking to pay expenses.
If no request for a meeting is made, the trust may itself present the question
at any meeting of shareholders.
If voting rights for control shares are not approved at the meeting or if
the acquiring person does not deliver an acquiring person statement as required
by the statute with respect to the control shares, then, subject to applicable
conditions and limitations, the trust may redeem any or all of the control
shares. The redemption price will be fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares of beneficial
interest entitled to vote, all other shareholders may exercise appraisal rights.
The fair value of the shares of beneficial interest as determined for purposes
of such appraisal rights may not be less than the highest price per share paid
by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust.
The business combination statute and the control share acquisition statute
could have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offer.
LIMITATION OF SHAREHOLDER'S LIABILITY
Under Maryland law, shareholders generally are not responsible for the
corporation's debts or obligations, and our declaration of trust specifically
provides that no shareholder of ours will be personally liable for any of our
obligations. Our bylaws further provide that we will indemnify each shareholder
against any claim or liability to which the shareholder may become subject by
reason of his or her being or having been a shareholder. In addition, we will
reimburse each shareholder for all legal and other expenses reasonably incurred
by him or her in connection with any such claim or liability. However, with
respect to (1) tort claims, (2) contractual claims where shareholder liability
is not so negated, (3) claims for taxes and (4) particular statutory liability,
the shareholder may, in some jurisdictions, including Texas, be personally
liable to the extent that such claims are not satisfied by us. Inasmuch as we
will carry public liability insurance that we consider adequate, any risk of
personal liability to shareholders is limited to situations in which our assets
plus our insurance coverage would be insufficient to satisfy the claims against
us and our shareholders.
LIMITATION OF TRUSTEES' AND OFFICERS' LIABILITY
Under Maryland law, a real estate investment trust formed in Maryland is
permitted to limit, by provision in its declaration of trust, the liability of
trustees and officers so that none of its trustees or officers shall be liable
to it or to any shareholder for money damages except to the extent that:
- the trustee or officer actually received an improper benefit in money,
property or services for the amount of the benefit or profit in money,
property or services actually received; or
- a judgment or other final adjudication adverse to the trustee or officer
is entered in a proceeding based on a finding in a proceeding that the
trustee's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
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Our declaration of trust has incorporated the provisions of such law
limiting the liability of trustees and officers. Gables GP, Inc.'s articles of
incorporation contain similar provisions that are consistent with Texas law.
Our bylaws require us to indemnify, to the full extent of Maryland law, any
present or former trustee or officer and such person's spouse and children who
is or was a party or threatened to be made a party to any proceeding by reason
of his or her service in that capacity, against all expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with the proceeding, provided that we have received a written
affirmation by the person to be indemnified that he or she has met the standard
of conduct necessary for indemnification by us as authorized by our bylaws. Our
bylaws provide that we shall not be required to indemnify such person if:
- it is established that (a) such person's act or omission was committed in
bad faith or was the result of active or deliberate dishonesty, (b) such
person actually received an improper personal benefit in money, property
or services or (c) in the case of a criminal proceeding, such person had
reasonable cause to believe that the Indemnitee's act or omission was
unlawful;
- the proceeding was initiated by such person;
- such person received payment for such expenses pursuant to insurance or
otherwise; or
- the proceeding arises under Section 16 of the Securities Exchange Act.
Pursuant to our bylaws, the person to be indemnified is required to repay
the amount paid or reimbursed by us if it shall ultimately be determined that
the standard of conduct was not met. Our bylaws also permit us to provide such
other and further indemnification or payment or reimbursement of expenses as may
be permitted by the Maryland General Corporation Law or to which the person to
be indemnified may be entitled. Gables GP, Inc.'s bylaws contain similar
provisions that are consistent with Texas law.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our trustees
and officers. The indemnification agreements require, among other things, that
we indemnify our trustees and officers to the fullest extent permitted by law
and advance to our trustees and officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. Under these agreements, we must also indemnify and advance all
expenses incurred by our trustees and officers seeking to enforce their rights
under the indemnification agreements and cover our trustees and officers under
our directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by our declaration of trust and our bylaws, the indemnification
agreement provides greater assurance to our trustees and officers that
indemnification will be available. As a contract, our Board of Trustees and/or
our shareholders cannot unilaterally modify the indemnification agreement in the
future to eliminate the rights it provides.
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FEDERAL INCOME TAX CONSIDERATIONS AND
CONSEQUENCES OF YOUR INVESTMENT
The following is a general summary of the material federal income tax
considerations and consequences associated with an investment in the securities.
The following discussion is not exhaustive of all possible tax considerations
and is not tax advice. Moreover, this summary does not deal with all tax aspects
or consequences that might be relevant to a particular prospective
securityholder in light of his/her personal circumstances; nor does it deal with
particular types of securityholders that are subject to special treatment under
the Internal Revenue Code, such as insurance companies, financial institutions
and broker-dealers. The Internal Revenue Code provisions governing the federal
income tax treatment of real estate investment trusts are highly technical and
complex, and this summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof. The following
discussion is based on current law and on representations from us concerning our
compliance with the requirements for qualification as a real estate investment
trust.
WE URGE YOU, AS A PROSPECTIVE INVESTOR, TO CONSULT YOUR OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO YOU OF THE PURCHASE, HOLDING AND SALE OF OUR SECURITIES.
FEDERAL INCOME TAXATION
In the opinion of our tax counsel, Goodwin, Procter & Hoar LLP, commencing
with our first taxable year ended December 31, 1994, we have been organized in
conformity with the requirements for qualification as a real estate investment
trust under the Internal Revenue Code, and our method of operation will enable
us to continue to meet the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code, provided that we have
operated and continue to operate in accordance with various assumptions and
factual representations made by us concerning our business, properties and
operations. We may not, however, have met or continue to meet such requirements.
Qualification as a real estate investment trust depends upon us having met and
continuing to meet the various requirements imposed under the Internal Revenue
Code through actual operating results, as discussed below. In rendering its
opinion to Gables, Goodwin, Procter & Hoar LLP has relied on our representations
regarding our operations and has not and will not review these operating
results. No assurance can be given that actual operating results have met or
will continue to meet these requirements.
If we have qualified and continue to qualify for taxation as a real estate
investment trust, we generally will not be subject to federal corporate income
taxes on that portion of our ordinary income or capital gain that is currently
distributed to shareholders. The real estate investment trust provisions of the
Internal Revenue Code generally allow a real estate investment trust to deduct
dividends paid to its shareholders. This deduction for dividends paid to
shareholders substantially eliminates the federal double taxation of investment
earnings that C corporations would be required to pay. When we use the term
"double taxation," we refer to taxation of corporate income at two levels,
taxation at the corporate level when the corporation must pay tax on the income
it has earned and taxation again at the shareholder level when the shareholder
pays taxes on the distributions receives the corporation's income in the way of
dividends. Additionally, a real estate investment trust may elect to retain and
pay taxes on a designated amount of its net long-term capital gains, in which
case the shareholders of the real estate investment trust will include their
proportionate share of the undistributed long-term capital gains in income and
receive a credit or refund for their share of the tax paid by the real estate
investment trust.
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Even if we qualify for taxation as a real estate investment trust, we will
continue to be subject to federal income tax, as follows:
- First, we will be taxed at regular corporate rates on our undistributed
real estate investment trust taxable income, including undistributed net
capital gains.
- Second, we may be subject to the alternative minimum tax.
- Third, if we have 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, we will be subject to tax at the highest corporate
rate on such income. Foreclosure property is, in general, any real
property and any personal property incident to such real property acquired
through foreclosure or deed in lieu of foreclosure.
- Fourth, if we have net income from prohibited transactions, such income
will be subject to a 100% tax. Prohibited transactions are, in general,
sales or other dispositions of property other than foreclosure property
held primarily for sale to customers in the ordinary course of business.
- Fifth, if we should fail to satisfy either the 75% or 95% gross income
test but have nonetheless maintained our qualification as a real estate
investment trust because other requirements have been met, we will be
subject to a 100% tax on the net income attributable to the greater of the
amount by which we fail the 75% or 95% test, multiplied by a fraction
intended to reflect our profitability.
- Sixth, if we fail to distribute during each year at least the sum of
(a) 85% of our ordinary income for such year, (b) 95% of our capital gain
net income for such year and (c) any undistributed taxable income from
prior periods, we will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
- Seventh, if we should acquire any asset from a C corporation in a
carryover-basis transaction and we subsequently recognize gain on the
disposition of such asset during the ten-year period beginning on the date
on which we acquired the asset, then, to the extent of any 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. Built-in
gain means the excess of (a) the fair market value of the asset as of the
beginning of the applicable recognition period over (b) the adjusted basis
in such asset as of the beginning of such recognition period. A C
corporation is a corporation generally subject to full corporate-level
tax.
REQUIREMENTS FOR QUALIFICATION
We elected to be taxable as a real estate investment trust for federal
income tax purposes for our taxable year ended December 31, 1994. In order to
have so qualified, we must have met and continue to meet the requirements
discussed below, relating to our organization, sources of income, nature of
assets and distributions of income to shareholders.
ORGANIZATIONAL REQUIREMENTS. The Internal Revenue Code defines a real
estate investment trust as a corporation, trust or association that meets the
following conditions:
(1) is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest,
(3) would be taxable as a domestic corporation but for the real estate
investment trust requirements,
(4) is neither a financial institution nor an insurance company subject to
applicable provisions of the Internal Revenue Code,
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(5) the beneficial ownership of which is held by 100 or more persons, and
(6) during the last half of each taxable year, five or fewer individuals do not
own, directly or indirectly, more than 50% in value of the outstanding
stock, taking into account the applicable attribution rules.
In addition, other tests, described below, regarding the nature of income
and assets of the real estate investment trust also must be satisfied. The Code
provides that conditions (1) through (4), inclusive, must be met during the
entire taxable year. Condition (5) 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. Conditions (5) and (6) will not apply until after the first
taxable year for which an election is made to be taxed as a real estate
investment trust. For purposes of conditions (5) and (6), pension funds and
particular other tax-exempt entities are treated as individuals, subject to an
exception in the case of condition (6) that looks through the fund or entity to
actual participants of the fund or the entity to its beneficial owners in
determining the number of owners of the outstanding stock.
Our declaration of trust currently includes restrictions regarding transfers
of common shares and preferred shares, which restrictions are intended, among
other things, to assist us in continuing to satisfy conditions (5) and (6). In
rendering its opinion that we are organized and operated in a manner that has
allowed us to qualify as a real estate investment trust, Goodwin, Procter & Hoar
LLP is relying on our representations that the ownership of our common shares
and preferred shares will satisfy conditions (5) and (6). There can be no
assurance, however, that the restrictions in our declaration of trust will, as a
matter of law, preclude us from failing to satisfy these conditions or that a
transfer in violation of these restrictions would not cause us to fail these
conditions.
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. We have a calendar year
taxable year.
If a real estate investment trust owns a qualified real estate investment
trust subsidiary, the Internal Revenue Code provides that the qualified real
estate investment trust subsidiary is disregarded for federal income tax
purposes. Thus, all assets, liabilities and items of income, deduction and
credit of the qualified real estate investment trust subsidiary are treated as
assets, liabilities and such items of the real estate investment trust itself.
When we use the term "qualified real estate investment trust subsidiary," we
mean a corporation in which all of its shares of beneficial interest are held by
the real estate investment trust. Gables GP, Inc., the general partner of Gables
Realty Limited Partnership, and other entities organized to serve as the general
partner of special purpose limited partnerships are qualified real estate
investment trust subsidiaries. Thus, all of the assets, liabilities and items of
income, deduction and credit of Gables GP, Inc. and the other qualified real
estate investment trust subsidiaries will be treated as our assets and
liabilities and our items of income, deduction and credit. Unless the context
requires otherwise, all references to "we," "us" and "our Company" in this
"Federal Income Tax Considerations and Consequences of Your Investment" section,
refer to Gables Trust and its qualified real estate investment trust
subsidiaries.
In the case of a real estate investment trust that is a partner in a
partnership, regulations issued by the United States Treasury Department provide
that the real estate investment trust 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. A real estate investment
trust's proportional share of the assets of the partnership will be determined
based on the real estate investment trust's capital interest in the partnership.
In addition, the character of the assets and gross income of the partnership
shall retain the same character in the hands of the real estate investment trust
for purposes of Section 856 of the Internal Revenue Code, including satisfying
the gross income tests and asset tests. Thus, our proportionate share of the
assets, liabilities and items of income of Gables Realty Limited Partnership and
any other entity taxable as a partnership for federal income tax purposes in
which we hold an interest will be treated as our assets and liabilities and our
items of income for purposes of
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applying the requirements described herein. The assets, liabilities and items of
income of Gables Realty Limited Partnership include Gables Realty Limited
Partnership's share of the assets and liabilities and items of income with
respect to any partnership in which it holds an interest.
INCOME TESTS. To maintain qualification as a real estate investment trust,
two gross income requirements must be satisfied annually.
- First, at least 75% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property including rents from real property and, in particular
circumstances, interest or from particular types of temporary investments.
- Second, at least 95% of our gross income for each taxable year must be
derived from such real property investments and from dividends, interest
and gain from the sale or disposition of stock or securities or from any
combination of the foregoing. For purposes of this test, gross income
excludes gross income from prohibited transactions.
Additionally, with respect to each of our tax years beginning on or
before January 1, 1997, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and
gain from the sale or other disposition of real property held for less
than four years apart from involuntary conversions and sales of
foreclosure property must have represented less than 30% of our gross
income including gross income from prohibited transactions for each such
taxable year.
Rents received or deemed to be received by us will qualify as rents from
real property in satisfying the gross income requirements for a real
estate investment trust described above only if the following conditions
are met.
- Rents received generally must not be based in whole or in part on the
income or profits derived from any person.
- Rents received must not be from a related party tenant. A tenant is a
related party tenant if the real estate investment trust, directly or
indirectly, actually or constructively owns 10% or more of such tenant.
- Rents attributable to personal property that is leased in connection with
a lease of real property must not be greater than 15% of total rent
received under the lease. If so, the portion of rent attributable to the
personal property will not qualify as rents from real property.
- The real estate investment trust generally must not operate or manage the
property or furnish or render services to tenants. However, the real
estate investment trust may:
- provide services that are usually or customarily rendered in connection
with the rental of a room or other space for occupancy only and are not
otherwise considered rendered to the occupant;
- provide or furnish non-customary services through an independent
contractor if the independent contractor is adequately compensated and
the real estate investment trust derives no income from the independent
contractor; and
- for taxable years beginning after August 5, 1997, provide non-customary
services with respect to its properties if the income from the provision
of such services with respect to any particular property does not exceed
1% of all amounts received by the real estate investment trust from such
property.
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We have not charged, and do not anticipate charging, rent that is based in
whole or in part on the income or profits of any person. We have not derived,
and do not anticipate deriving, rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents.
We have provided and will provide services with respect to the multifamily
apartment communities. We believe that the services with respect to our
communities that have been and will be provided by us are usually or customarily
rendered in connection with the rental of space for occupancy only and are not
otherwise rendered to particular tenants; or, for tax years beginning after
August 5, 1997, income from the provision of other kinds of services with
respect to a given property has not and will not exceed 1% of all amounts
received by us from such property. Therefore, we believe that the provision of
such services has not and will not cause rents received with respect to our
communities to fail to qualify as rents from real property. We believe that
services with respect to our communities that we believe may not be provided by
us directly without jeopardizing the qualification of rent as rents from real
property have been and will be performed by independent contractors, which do
not include the management companies owned by Gables Realty Limited Partnership.
Generally the management companies owned by Gables Realty Limited
Partnership receive fees in consideration of the performance of property
management services with respect to properties owned by third parties. Any such
fee income is taxable to the management company that provided the services.
Gables Realty Limited Partnership may have received and may continue to receive
fees in consideration of the performance of property management services with
respect to properties not owned entirely by Gables Realty Limited Partnership. A
portion of such fees corresponding to that portion of a property owned by a
third party will not qualify under the 75% or 95% gross income tests.
Gables Realty Limited Partnership also has received and may continue to
receive other types of income with respect to the properties it owns that will
not qualify for the 75% or 95% gross income tests, including rent with respect
to some of the apartment units leased to particular management companies owned
by Gables Realty Limited Partnership, which constitutes nonqualifying rent from
related party tenants. In addition, interest payments on some of the notes of
the management companies held by Gables Realty Limited Partnership and dividends
on Gables Realty Limited Partnership's stock in the management companies will
not qualify under the 75% gross income test. We believe, however, that the
aggregate amount of such fees and other nonqualifying income in any taxable year
will not cause us to exceed the limits on nonqualifying income under the real
estate investment trust gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income test for
any taxable year, we may nevertheless qualify as a real estate investment trust
for that year if we are eligible for relief under the Internal Revenue Code.
These relief provisions generally will be available if:
- our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
- we attach a schedule of the sources of our income to our federal income
tax return; and
- any incorrect information on the schedule is not due to fraud with intent
to evade tax.
It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of these relief provisions. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on such income, the Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above in "Federal Income Tax Considerations and
Consequences of Your Investment-Federal income taxation," even if these relief
provisions apply, a tax would be imposed with respect to the excess net income.
No similar mitigation provision provides relief if we failed the 30% gross
income test in a taxable year beginning on or before January 1, 1997, and any
such failure to qualify would have caused us to fail to qualify as a real estate
investment trust. See the discussion below on the
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consequences of failing to qualify as a real estate investment trust in "Federal
Income Tax Considerations and Consequences of Your Investment-Failure to
qualify."
ASSET TESTS. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
- First, at least 75% of the value of our total assets must be represented
by real estate assets, cash, cash items and government securities.
- Second, no more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by us may not exceed 5% of the value of
our total assets, and we may not own more than 10% of any one issuer's
outstanding voting securities.
Gables Realty Limited Partnership owns 100% of the nonvoting stock and 1% of
the voting stock of particular property management companies. The management
companies owned by Gables Realty Limited Partnership do not qualify as qualified
real estate investment trust subsidiaries. By virtue of our ownership of units
of beneficial interest in Gables Realty Limited Partnership, we will be
considered to own our pro rata share of the stock of the management companies.
Neither we nor Gables Realty Limited Partnership, however, owns more than 1% of
the voting securities of any management company owned by Gables Realty Limited
Partnership. In addition, we and our senior management do not believe that our
pro rata share of the value of the securities of any of the management companies
owned by Gables Realty Limited Partnership exceeds 5% of the total value of our
assets. Our belief is based in part upon our analysis of the estimated value of
the securities of the management companies owned by Gables Realty Limited
Partnership relative to the estimated value of the other assets owned by Gables
Realty Limited Partnership. We have not obtained any independent appraisals to
support this conclusion. There can be no assurance that the Internal Revenue
Service might not contend that the value of such securities of a management
company owned by Gables Realty Limited Partnership held by our Company through
Gables Realty Limited Partnership exceeds the 5% value limitation.
The 5% test referred to above generally must be met for any quarter in which
we acquire securities of an issuer. Thus, the 5% value requirement must be
satisfied not only on the date we acquire equity and debt securities of the
management companies owned by Gables Realty Limited Partnership, but also each
time we increase our ownership of such securities of the management companies,
including as a result of increasing our interest in Gables Realty Limited
Partnership as limited partners exercise their redemption rights. Although we
plan to take steps to ensure that we satisfy the 5% value test for any quarter
with respect to which retesting occurs, such steps may not always be successful
or may require a reduction in our overall interest in a management company owned
by Gables Realty Limited Partnership.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a real estate investment trust 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 nonqualifying assets within 30 days after the close of
that quarter. We intend to maintain and believe that we have maintained adequate
records of the value of our 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 real estate
investment trust, we are required to distribute dividends, other than capital
gain dividends, to our shareholders in an amount at least equal to
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(a) the sum of (1) 95% of our real estate investment trust taxable income,
which is computed without regard to the dividends-paid deduction and our
capital gain, and (2) 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 particular items of noncash income.
Such distribution must be paid in the taxable year to which it relates, or
in the following taxable year if declared before we timely file our federal
income tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Capital gain dividends are not included
in the calculation to determine whether we satisfy the above-described
distribution requirement. In general, a capital gain dividend is a dividend
attributable to net capital gain recognized by us and properly designated as
such.
Even if we satisfy the foregoing distribution requirements, to the extent
that we do not distribute all of our net capital gain or real estate investment
trust taxable income as adjusted, we will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if we should fail to
distribute during each calendar year at least the sum of
(a) 85% of our ordinary income for that year,
(b) 95% of our capital gain net income for that year, and
(c) any undistributed taxable income from prior periods,
we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, during our
recognition period, if we dispose of any asset subject to the rules regarding
built-in gain, pursuant to guidance issued by the Internal Revenue Service, we
will be required to distribute at least 95% of any after tax built-in gain
recognized on the disposition of the asset. As stated above, the term
"built-in-gain" refers to the excess of (a) the fair market value of the asset
as of the beginning of the applicable recognition period over (b) the adjusted
basis in such asset as of the beginning of such recognition period.
We believe that we have made and intend to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, Gables Realty Limited Partnership's partnership agreement
authorizes Gables GP, Inc., as general partner, to take such steps as may be
necessary to cause Gables Realty Limited Partnership to distribute to its
partners an amount sufficient to permit us to meet these distribution
requirements.
It is expected that our real estate investment trust taxable income has been
and will be less than our cash flow due to the allowance of depreciation and
other noncash charges in computing real estate investment trust taxable income.
Accordingly, we anticipate that we will generally have sufficient cash or liquid
assets to enable us to satisfy the 95% distribution requirement. It is possible,
however, that we, 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, due to
timing differences between (a) the actual receipt of income and the actual
payment of deductible expenses and (b) the inclusion of such income and the
deduction of such expenses in arriving at our taxable income, or as a result of
nondeductible expenses such as principal amortization or capital expenditures in
excess of noncash deductions. In the event that such timing differences occur,
we may find it necessary to arrange for borrowings or, if possible, pay taxable
stock dividends in order to meet the dividend requirement.
Under some circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying dividends to shareholders in a
later year, which may be included in our deduction for dividends paid for the
earlier year. We will refer to such dividends as "deficiency dividends." Thus,
we may be able to avoid being taxed on amounts distributed as deficiency
dividends.
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We will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
EARNINGS AND PROFITS. The existence of undistributed earnings and profits
of a non-real estate investment trust predecessor corporation at the close of
the taxable year generally will preclude a successor corporation from qualifying
to be taxed as a real estate investment trust. In connection with our initial
public offering, we acquired the assets of Wood Properties, Inc. We believe that
as of the time of our acquisition of the assets of Wood Properties, Wood
Properties had no earnings and profits for federal income tax purposes. Our
belief is based upon a review of Wood Properties' tax returns, as well as a
review of the minute books of Wood Properties for such periods. Nothing came to
our attention during the course of such reviews that would cause us to believe
that Wood Properties had undistributed C corporation earnings and profits. If,
as a result of an examination of Wood Properties' returns by the Internal
Revenue Service, the Internal Revenue Service determines that Wood Properties
had undistributed earnings and profits at the time of our acquisition of its
assets, we believe that distributions to shareholders in 1994 in excess of
current earnings and profits likely would have been sufficient to distribute any
such accumulated earnings and profits that carried over from Wood Properties. In
the event that 1994 distributions were insufficient to distribute any such
earnings and profits, and we were unable to utilize the deficiency dividend
procedures in the United States Treasury Department regulations, we would fail
to qualify as a real estate investment trust.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a real estate investment trust in any
taxable year and the relief provisions do not apply, we will be subject to tax
on our taxable income at regular corporate rates, including any applicable
alternative minimum tax. Distributions to shareholders in any year in which we
fail to qualify will not be deductible by us nor will they be required to be
made. In such event, to the extent of current or accumulated earnings and
profits, all distributions to shareholders will be dividends, taxable as
ordinary income, and subject to limitations of the Internal Revenue Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless we are entitled to relief under specific statutory provisions, we also
will be disqualified from taxation as a real estate investment trust for the
four taxable years following the year during which qualification was lost. It is
not possible to state whether in all circumstances we would be entitled to such
statutory relief. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we intentionally incur exceeds the limit on
such income, the Internal Revenue Service could conclude that our failure to
satisfy the tests was not due to reasonable cause.
TAXATION OF UNITED STATES SHAREHOLDERS AND POTENTIAL TAX CONSEQUENCES OF THEIR
INVESTMENT IN THE SECURITIES
When we refer to a United States shareholder, we mean a holder of common
shares or preferred shares that is for federal income tax purposes
- an individual who is a citizen or resident of the United States,
- a corporation created or organized in or under the laws of the United
States, any state thereof or the District of Columbia, or
- a partnership, trust or estate treated as a domestic partnership, trust or
estate.
For any taxable year for which we qualify for taxation as a real estate
investment trust, amounts distributed to taxable United States Shareholders will
be taxed as follows.
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DISTRIBUTIONS GENERALLY. Distributions other than capital gain dividends to
United States shareholders will be taxable as dividends to the extent of our
current or accumulated earnings and profits as determined for federal income tax
purposes. For purposes of determining whether distributions are out of current
or accumulated earnings and profits, our earnings and profits will be allocated
first to any of our outstanding preferred shares and then to our common shares.
Such dividends will be taxable to the holders as ordinary income and will not be
eligible for the dividends-received deduction for corporations. To the extent
that we make a distribution to a United States shareholder in excess of current
or accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital with respect to the shares, reducing the United
States shareholder's tax basis in the shares, and the distribution in excess of
a United States shareholder's tax basis in the shares will be taxable as gain
realized from the sale of the shares. Dividends declared by our Company in
October, November or December of any year payable to a shareholder of record on
a specified date in any such month shall be treated as both paid by us and
received by the shareholder on December 31 of the year, provided that the
dividend is actually paid by us during January of the following calendar year.
United States shareholders may not include on their own federal income tax
returns any of our tax losses.
The Internal Revenue Service will deem us to have sufficient earnings and
profits to treat as a dividend any distribution by us up to the amount required
to be distributed in order to avoid imposition of the 4% excise tax discussed in
"Federal Income Tax Considerations and Consequences of Your Investment--Federal
income taxation" above. Moreover, any deficiency dividend will be treated as an
ordinary or capital gain dividend, as the case may be, regardless of our
earnings and profits. As a result, shareholders may be required to treat
particular distributions that would otherwise result in a tax-free return of
capital as taxable dividends.
CAPITAL GAIN DIVIDENDS. Dividends to United States shareholders that are
properly designated by us as capital gain dividends will be treated as long-term
capital gains, to the extent they do not exceed our actual net capital gains,
for the taxable year without regard to the period for which the shareholder has
held his stock. However, corporate shareholders may be required to treat up to
20% of particular capital gain dividends as ordinary income. Capital gain
dividends are not eligible for the dividends-received deduction for
corporations.
RETAINED CAPITAL GAINS. A real estate investment trust may elect to retain,
rather than distribute, its net long-term capital gains received during the
year. To the extent designated by the real estate investment trust in a notice
to its shareholders, the real estate investment trust will pay the income tax on
such gains, and the real estate investment trust shareholders must include their
proportionate share of the undistributed long-term capital gains so designated
in income. Each real estate investment trust shareholder will be deemed to have
paid its share of the tax paid by the real estate investment trust, which will
be credited or refunded to the shareholder. The basis of each shareholder's real
estate investment trust shares will be increased by its proportionate amount of
the undistributed long-term capital gains, net of the tax paid by the real
estate investment trust, included in such shareholder's long-term capital gains.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS. Distributions,
including deemed distributions of undistributed long-term capital gains, from
our Company and gain from the disposition of the securities will not be treated
as passive activity income, and therefore shareholders may not be able to apply
any passive losses against such income. Dividends from our Company, to the
extent they do not constitute a return of capital, will generally be treated as
investment income for purposes of the investment income limitation on the
deductibility of investment interest. However, net capital gain from the
disposition of the securities or capital gain dividends, including deemed
distributions of undistributed long-term capital gains, generally will be
excluded from investment income.
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SALE OF THE SECURITIES. Upon the sale or exchange of the securities, the
holder will generally recognize gain or loss equal to the difference between the
amount realized on such sale and the tax basis of such securities. Assuming such
securities are held as a capital asset, such gain or loss will be a long-term
capital gain or loss if the securities have been held for more than one year.
However, any loss recognized by a holder on the sale of common shares or
preferred shares held for not more than six months and with respect to which
capital gains were required to be included in such holder's income will be
treated as a long-term capital loss to the extent of the amount of such capital
gains so included.
TREATMENT OF TAX-EXEMPT SECURITY HOLDERS. Distributions, including deemed
distributions of undistributed long-term capital gains, from our Company to a
tax-exempt employee pension trust or other domestic tax-exempt shareholder
generally will not constitute unrelated business taxable income unless the
shareholder has borrowed to acquire or carry its common shares or preferred
shares. However, qualified trusts that hold more than 10% by value of the shares
of particular real estate investment trusts may be required to treat a specified
percentage of these distributions, including deemed distributions of
undistributed long-term capital gains, as unrelated business taxable income. The
percentage of any real estate investment trust dividend, including deemed
distributions of undistributed long-term capital gains, treated as unrelated
business taxable income is equal to the ratio of (1) the unrelated business
taxable income earned by the real estate investment trust and treating the real
estate investment trust as if it were a qualified trust and therefore subject to
tax on unrelated business taxable income to (2) the total gross income, less
particular associated expenses, of the real estate investment trust. An
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year. For these purposes, a qualified trust is any trust
described in section 401(a) of the Internal Revenue Code and exempt from tax
under section 501(a) of the Internal Revenue Code.
The requirement that a percentage of dividends be treated as unrelated
business taxable income will apply only if (a) the real estate investment trust
would not qualify as such for federal income tax purposes but for the
application of an exception to the five or fewer requirement applicable to
shares held by qualified trusts that looks through to the actual participants in
the qualified trust to determine the number of owners and (b) the real estate
investment trust is predominantly held by qualified trusts. A real estate
investment trust is predominantly held by qualified trusts if either (a) a
single qualified trust holds more than 25% by value of the real estate
investment trust interests or (b) one or more qualified trusts, each owning more
than 10% by value of the real estate investment trust interests, hold in the
aggregate more than 50% of the real estate investment trust interests.
Distributions by Gables Realty Limited Partnership to a tax-exempt holder of
debt securities will generally not constitute unrelated business taxable income
unless the acquisition of such debt securities is debt financed within the
meaning of section 514(c) of the Internal Revenue Code.
TAXATION OF HOLDERS OF DEBT SECURITIES AND POTENTIAL TAX CONSEQUENCES OF THEIR
INVESTMENT
IN THE DEBT SECURITIES
STATED INTEREST AND MARKET DISCOUNT. Holders of debt securities will be
required to include stated interest on the debt securities in gross income for
federal income tax purposes in accordance with their methods of accounting for
tax purposes. Purchasers of debt securities should be aware that the holding and
disposition of debt securities may be affected by the market discount provisions
of the Internal Revenue Code. These rules generally provide that if a holder of
a debt instrument purchases it at a market discount and thereafter recognizes
gain on a disposition of the debt instrument, including a gift or payment on
maturity, the lesser of such gain or appreciation, in the case of a gift, and
the portion of the market discount that accrued while the debt instrument was
held by such holder will be treated as ordinary interest income at the time of
the disposition. For this purpose, a purchase at a market discount includes a
purchase after original issuance at a price below the debt instrument's stated
principal amount. The market discount rules also provide that a holder who
acquires a debt instrument
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at a market discount and who does not elect to include such market discount in
income on a current basis may be required to defer a portion of any interest
expense that may otherwise be deductible on any indebtedness incurred or
maintained to purchase or carry such debt instrument until the holder disposes
of the debt instrument in a taxable transaction.
A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Securities and Exchange Commission or the Internal Revenue
Service. If a holder of a debt security elects to include market discount in
income in accordance with the preceding sentence, the foregoing rules with
respect to the recognition of ordinary income on a sale or particular other
dispositions of such debt security and the deferral of interest deductions on
indebtedness related to such debt security would not apply.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis of an obligation held
as a capital asset exceeds the amount payable at maturity of the obligation,
such excess may constitute amortizable bond premium that the holder may elect to
amortize under the constant interest rate method and deduct the amortized
premium over the period from the holder's acquisition date to the obligation's
maturity date. A holder who elects to amortize bond premium must reduce the tax
basis in the related obligation by the amount of the aggregate deductions
allowable for amortizable bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each prospective
purchaser is urged to consult his tax advisor as to the consequences of the
treatment of such premium as an offset to interest income for federal income tax
purposes.
DISPOSITION. In general, a holder of a debt security will recognize gain or
loss upon the sale, exchange, redemption, payment upon maturity or other taxable
disposition of the debt security. The gain or loss is measured by the difference
between (a) the amount of cash and the fair market value of property received
and (b) the holder's tax basis in the debt security as increased by any market
discount previously included in income by the holder and decreased by any
amortizable bond premium deducted over the term of the debt security. However,
the amount of cash and the fair market value received excludes cash or other
property attributable to the payment of accrued interest not previously included
in income, which amount will be taxable as ordinary income. Subject to the
market discount and amortizable bond premium rules above, any such gain or loss
will generally be long-term capital gain or loss, provided the debt security was
a capital asset in the hands of the holder and had been held for more than one
year.
BACKUP WITHHOLDING ON SECURITIES
Under the backup withholding rules, a domestic holder of securities may be
subject to backup withholding at the rate of 31% with respect to interest or
dividends paid on, and gross proceeds from the sale of, the securities unless
such holder (a) is a corporation or comes within other specific exempt
categories and, when required, demonstrates this fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of securities who does not provide us with his
current taxpayer identification number may be subject to penalties imposed by
the Commissioner of the Internal Revenue Service. Any amount paid as backup
withholding will be creditable against the holder's income tax liability.
We will report to holders of securities and the Internal Revenue Service the
amount of any interest or dividends paid and any amount withheld with respect to
the securities during the calendar year.
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OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF GABLES REALTY LIMITED PARTNERSHIP ON REAL ESTATE
INVESTMENT TRUST QUALIFICATION. Substantially all of our investments are through
Gables Realty Limited Partnership. Gables Realty Limited Partnership may involve
special tax considerations. Such considerations include
- the allocations of income and expense items of Gables Realty Limited
Partnership, which could affect the computation of our taxable income,
- the status of Gables Realty Limited Partnership as a partnership as
opposed to an association taxable as a corporation for income tax
purposes, and
- the taking of actions by Gables Realty Limited Partnership that could
adversely affect our qualifications as a real estate investment trust.
In addition, Gables Realty Limited Partnership owns properties through
subsidiary partnerships. These partnerships have been structured in a manner
that is intended to qualify them for taxation as partnerships for federal income
tax purposes. If Gables Realty Limited Partnership or any other partnership in
which Gables Realty Limited Partnership has an interest were treated as an
association taxable as a corporation, we would fail to qualify as a real estate
investment trust for a number of reasons.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution. Pursuant to section 704(c) of the Internal Revenue Code, income,
gain, loss and deduction attributable to such contributed property must be
allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss 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 the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. We will refer
to this allocation as the "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.
Gables Realty Limited Partnership was formed by way of contributions of
appreciated property, including some of the multifamily apartment communities or
interests therein. Consequently, Gables Realty Limited Partnership's partnership
agreement requires tax allocations to be made in a manner consistent with
section 704(c) of the Internal Revenue Code. The Treasury regulations under
section 704(c) of the Internal Revenue Code provide partnerships with a choice
of several methods of accounting for book-tax differences for property
contributed on or after December 21, 1993, including the retention of the
traditional method that was available under prior law or the election of
particular alternative methods. Gables Realty Limited Partnership has elected
the traditional method of section 704(c) allocations. Under the traditional
method, which is the least favorable method from our perspective, the carryover
basis of contributed interests in the multifamily apartment communities in the
hands of Gables Realty Limited Partnership could cause us (a) to be allocated
lower amounts of depreciation deductions for tax purposes than would be
allocated to us if all our communities were to have a tax basis equal to their
fair market value at the time of the contribution and (b) to be allocated
taxable gain in the event of a sale of such contributed interests in our
communities in excess of the economic or book income allocated to us as a result
of such sale, with a corresponding benefit to the other partners in Gables
Realty Limited Partnership. These allocations possibly could cause us to
recognize taxable income in excess of cash proceeds, which might adversely
affect our ability to comply with real estate investment trust distribution
requirements. However, we do not anticipate that this adverse effect will occur.
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Interests in the multifamily apartment communities purchased by Gables
Realty Limited Partnership, other than in exchange for interests in Gables
Realty Limited Partnership, simultaneously with or subsequent to our admission
to Gables Realty Limited Partnership acquired an initial tax basis equal to
their fair market value. Thus, section 704(c) of the Internal Revenue Code will
not apply to such interests.
MANAGEMENT COMPANIES. A portion of the amounts to be used to fund
distributions to shareholders is expected to come from the management companies
owned by Gables Realty Limited Partnership, through dividends on stock of these
management companies held by Gables Realty Limited Partnership and interest on
the debt securities of these companies held by Gables Realty Limited
Partnership. In general, the management companies owned by Gables Realty Limited
Partnership conduct activities, such as property management for third parties,
that generate nonqualifying income for purposes of the real estate investment
trust income tests described above. The management companies will not qualify as
real estate investment trusts and will pay federal, state and local income taxes
on their taxable incomes at normal corporate rates. We anticipate that,
initially, deductions for interest and amortization will largely offset the
otherwise taxable income of the management companies owned by Gables Realty
Limited Partnership, but there can be no assurance that this will be the case or
that the Internal Revenue Service will not challenge such deductions. Moreover,
such deductions may not be available for any additional management companies
owned by Gables Realty Limited Partnership, if any, established by us. Any
federal, state or local income taxes that the management companies owned by
Gables Realty Limited Partnership are required to pay will reduce the cash
available for distribution by us to our shareholders.
As described above, the value of the equity and debt securities of a
management company held by us cannot exceed 5% of the value of our assets at a
time when a holder of units in Gables Realty Limited Partnership exercises his
redemption right or we otherwise are considered to acquire additional securities
of a management company owned by Gables Realty Limited Partnership. See "Federal
Income Tax Considerations and Considerations of Your Investment-Requirements for
qualification." This limitation may restrict the ability of a management company
owned by Gables Realty Limited Partnership to increase the size of its
respective business unless the value of our assets is increasing at a
commensurate rate.
SPECIAL TAX CONSIDERATIONS OF NON-UNITED STATES SHAREHOLDERS AND POTENTIAL TAX
CONSEQUENCES OF THEIR INVESTMENT IN THE SECURITIES
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. IF YOU ARE A PROSPECTIVE NON-UNITED STATES SHAREHOLDER,
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT BY YOU IN
THE SECURITIES, INCLUDING ANY REPORTING REQUIREMENTS.
DISTRIBUTIONS NOT ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A UNITED
STATES REAL PROPERTY INTEREST. Distributions to non-United States shareholders
that are not attributable to gain from sales or exchanges by us of United States
real property interests and are not designated by us as capital gains dividends
will be treated as dividends of ordinary income to the extent that they are made
out of our current or accumulated earnings and profits. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross amount
of the distribution unless an applicable tax treaty reduces or eliminates that
tax. However, if income from the investment in the common shares or preferred
shares is treated as effectively connected with the non-United States
shareholder's conduct of a United States trade or business, the non-United
States shareholder generally will be subject to federal income tax at graduated
rates, in the same manner as United States shareholders are taxed with respect
to such distributions. In the case of a non-United States shareholder that is a
non-United States
53
corporation, the holder may also be subject to the 30% branch profits tax.
Distributions in excess of our current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that such distributions do not
exceed the adjusted basis of the shareholder's common shares or preferred
shares, but rather will reduce the adjusted basis of such shares. To the extent
that such distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a non-United States shareholder's shares of
common shares or preferred shares, such distributions will give rise to tax
liability if the non-United States shareholder otherwise would be subject to tax
on any gain from the sale or disposition of his common shares or preferred
shares.
DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A UNITED
STATES REAL PROPERTY INTEREST. For any year in which we qualify as a real estate
investment trust, distributions that are attributable to gain from sales or
exchanges by us of United States real property interests will be taxed to a
non-United States shareholder under the provisions of the Foreign Investment in
Real Property Tax Act of 1980. Under the Real Property Tax Act, distributions
attributable to gain from sales of United States real property interests are
taxed to a non-United States shareholder as if such gain were effectively
connected with United States business. Non-United States shareholders thus would
be taxed at the normal capital gain rates applicable to United States
shareholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals.
Distributions subject to the Real Property Tax Act also may be subject to a 30%
branch profits tax in the hands of a non-United States corporate shareholder not
entitled to treaty relief or exemption.
WITHHOLDING OBLIGATIONS FROM DISTRIBUTIONS TO FOREIGN
STOCKHOLDERS. Although tax treaties may reduce our withholding obligations, we
generally will be required to withhold from distributions to non-United States
shareholders, and remit to the Internal Revenue Service, (a) 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 (b) 30% of ordinary
dividends paid out of earnings and profits. In addition, if we designate prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of our earnings and
profits will be subject to 30% dividend withholding if at the time of the
distribution it cannot be determined whether the distribution will be in an
amount in excess of our current or accumulated earnings and profits. If the
amount of tax withheld by our Company with respect to a distribution to a
non-United States shareholder exceeds the shareholder's United States tax
liability with respect to such distribution, the non-United States shareholder
may file for a refund of such excess from the Internal Revenue Service.
Furthermore, the United States Treasury Department has issued final Treasury
regulations governing information reporting and certification procedures
regarding withholding and backup withholding on certain amounts paid to
non-United States shareholders. These withholding regulations, which will apply
to covered payments after December 31, 1999, may alter the procedure for
claiming the benefits of an income treaty.
SALES OF COMMON SHARES OR PREFERRED SHARES BY A NON-UNITED STATES
SHAREHOLDER. Gain recognized by a non-United States shareholder upon a sale of
his common shares or preferred shares generally will not be taxed under the
Foreign Investment in Real Property Tax Act of 1980 if we are a domestically
controlled real estate investment trust. A domestically controlled real estate
investment trust is defined generally as a real estate investment trust in which
at all times during a specified testing period less than 50% in value of the
stock was held directly or indirectly by non-United States persons. It is
currently anticipated that we will be a domestically controlled real estate
investment trust, and, therefore, sales of common shares or preferred shares
will not be subject to taxation under the Real Property Tax Act. However,
because the common shares and preferred shares will be traded publicly, we may
not continue to be a domestically controlled real estate investment trust.
Furthermore, gain not subject to the Real Property Tax Act will be taxable to a
non-United States shareholder if (a) investment in the common shares or
preferred shares is effectively connected with the non-United States
shareholder's United States trade or business, in which case the non-United
States shareholder
54
will be subject to the same treatment as United States shareholders with respect
to such gain, or (b) the non-United States shareholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and other conditions apply, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. If
the gain on the sale of common shares or preferred shares were to be subject to
taxation under the Real Property Tax Act, the non-United States shareholder will
be subject to the same treatment as United States shareholders with respect to
such gain. The non-United States shareholder may, however, be subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of Non-United States corporations. In addition, a
purchaser of common shares or preferred shares subject to taxation under the
Real Property Tax Act would generally be required to deduct and withhold a tax
equal to 10% of the amount realized on the disposition by a non-United States
shareholder. Any amount withheld would be creditable against the non-United
States shareholder's Foreign Investment in Real Property Tax Act of 1980 tax
liability. See "--Withholding obligations from distributions to foreign
shareholders" of this section for a discussion of the withholding regulations.
STATE AND LOCAL TAX
Our Company and its shareholders 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 our Company and the
shareholders in such jurisdictions may differ from the federal income tax
treatment described above. Consequently, as a prospective investor, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our securities.
55
PLAN OF DISTRIBUTION
Gables Trust may sell preferred shares, common shares and warrants. Gables
Realty Limited Partnership may sell debt securities to or through one or more
underwriters or dealers for public offering and sale by or through them,
directly to one or more individual, institutional or other purchasers, through
agents or through a combination of any such methods of sale. Any such
underwritten offering may be on a best efforts or a firm commitment basis. We
may also make direct sales to investors through subscription rights distributed
to our shareholders on a pro rata basis, which may or may not be transferrable.
In connection with any distribution of subscription rights to shareholders, if
all of the underlying securities are not subscribed for, we may then sell the
unsubscribed securities directly to third parties or may engage the services of
one or more underwriters, dealers or agents, including standby underwriters, to
sell the unsubscribed securities to third parties.
The distribution of the securities may be effected from time to time in one
or more transactions (1) at a fixed price or prices, which may be changed,
(2) at market prices prevailing at the time of sale, (3) at prices related to
such prevailing market prices, or (4) at negotiated prices. Any of the prices
may represent a discount from the prevailing market prices.
In connection with the sale of the securities, underwriters or agents may
receive compensation from us or from purchasers of the securities, for whom they
may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell the 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
agents. Underwriters, dealers and agents that participate in the distribution of
the securities may be deemed to be underwriters under the Securities Act, and
any discounts or commissions they receive from us and any profit on the resale
of securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. The applicable prospectus supplement will,
where applicable:
- identify any such underwriter or agent,
- describe any compensation in the form of discounts, concessions,
commissions or otherwise received from us by each such underwriter or
agent and in the aggregate to all underwriters and agents,
- identify the amounts underwritten, and
- identify the nature of the underwriter's obligation to take the
securities.
Unless otherwise specified in the related prospectus supplement, each series
of securities will be a new issue with no established trading market, other than
the common shares which are listed on the New York Stock Exchange. Any common
shares sold pursuant to a prospectus supplement will be listed on the New York
Stock Exchange, subject to official notice of issuance. We may elect to list any
series of debt securities or preferred shares, respectively, on an exchange, but
we are not obligated to do so. It is possible that one or more underwriters may
make a market in a series of securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of, or the
trading market for, any series of debt securities, preferred shares or warrants.
Until the distribution of the securities is completed, rules of the
Securities and Exchange Commission may limit the ability of any underwriters and
selling group members to bid for and purchase the securities. As an exception to
these rules, underwriters are permitted to engage in some transactions that
stabilize the price of the securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
securities.
56
If any underwriters create a short position in the securities in connection
with an offering whereby they sell more securities than are set forth on the
cover page of the applicable prospectus supplement, the underwriters may reduce
that short position by purchasing the securities in the open market.
The lead underwriters may also impose a penalty bid on other underwriters
and selling group members participating in an offering. This means that if the
lead underwriters purchase securities in the open market to reduce the
underwriters' short position or to stabilize the price of the securities, they
may reclaim the amount of any selling concession from the underwriters and
selling group members who sold those securities as part of the offering.
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. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
We do not make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the securities. In addition, we do not make any representation that
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Under agreements into which we may enter, underwriters, dealers and agents
who participate in the distribution of the securities may be entitled to
indemnification by us against some liabilities, including liabilities under the
Securities Act.
Underwriters, dealers and agents may engage in transactions with us, perform
services for us or be our tenants in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by
institutions to purchase the securities from us at the public offering price set
forth in such prospectus supplement pursuant to delayed delivery contracts
providing the payment and delivery on the date or dates stated in such
prospectus supplement. Institutions with which such contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases we must approve such institutions. The obligations of any
purchaser under any such contracts will be subject to the condition that the
purchase of the securities shall not at the time of delivery be prohibited under
the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by
particular institutions to purchase debt securities from Gables Realty Limited
Partnership at the public offering price set forth in such prospectus supplement
pursuant to delayed delivery contracts providing for payment and delivery on the
date or dates stated in such prospectus supplement. Each delayed delivery
contract will be for an amount no less than, and the aggregate principal amounts
of debt securities sold pursuant to delayed delivery contracts shall be not less
nor more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with which such contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others, but
will in all cases be subject to our approval. The obligations of any purchaser
under any such contract will be subject to the conditions that (a) the purchase
of the debt securities shall not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which such purchaser is
subject, and (b) if the debt securities are being sold to underwriters, Gables
Realty Limited Partnership shall have sold to such underwriters the total
principal amount of the debt securities less the principal amount thereof
covered by Gables Realty Limited Partnership Contracts.
57
The underwriters and such other agents will not have any responsibility in
respect of the validity or performance of such contracts.
To comply with applicable state securities laws, the securities offered
hereby will be sold, if necessary, in such jurisdictions only through registered
or licensed brokers or dealers. In addition, securities may not be sold in some
states unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
LEGAL MATTERS
Particular legal matters, including the legality of the securities, will be
passed upon for us by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
58
$150,000,000
[LOGO]
GABLES REALTY LIMITED PARTNERSHIP
7.25% SENIOR NOTES DUE 2006
-----------------------
PROSPECTUS SUPPLEMENT
FEBRUARY 15, 2001
---------------------
LEHMAN BROTHERS
JPMORGAN
FIRST UNION SECURITIES, INC.
LEGG MASON WOOD WALKER
INCORPORATED
PNC CAPITAL MARKETS, INC.
WACHOVIA SECURITIES, INC.