Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission and has become effective. These securities
may not be sold nor may offers to buy be accepted without the delivery of a
final prospectus supplement and accompanying prospectus. This prospectus
supplement and the accompanying prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there by any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
FILED PURSUANT TO RULE 424(b)(3)
UNDER REGISTRATION STATEMENT
NUMBER 33-93120
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED NOVEMBER 5, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 15, 1996)
[LOGO]
2,500,000 SHARES
AMLI RESIDENTIAL PROPERTIES TRUST
COMMON SHARES
------------------
Amli Residential Properties Trust (the "Company") is a self-administered and
self-managed real estate investment trust (a "REIT") that was formed in February
1994 to engage in the business of owning, managing, leasing, acquiring and
developing institutional quality apartment communities. The Company wholly-owns
or has a co-investment interest in and operates a portfolio of 46 multifamily
residential apartment communities, comprised of 16,229 apartment homes, 34 of
which, totalling 12,775 apartment homes, were stabilized as of September 30,
1996 and 12 of which, totalling 3,454 apartment homes, were under development or
in lease-up as of such date. The Company's communities and the communities owned
through co-investment joint ventures are located in seven major metropolitan
markets in the Southwest, Southeast and Midwest regions of the United States.
All of the common shares of beneficial interest of the Company, $.01 par
value per share (the "Common Shares"), offered hereby (the "Offering") are being
offered by the Company. The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "AML." The last reported sale price of
the Common Shares on the NYSE on November 4, 1996 was $22.00. See "Price Range
of Common Shares and Distribution History."
To ensure that the Company maintains its qualification as a REIT for federal
income tax purposes, it expects to continue to pay regular quarterly
distributions to its shareholders. In addition, the Declaration of Trust of the
Company restricts the ownership of more than 5% of the Common Shares by any
person or affiliated group, with certain exceptions.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
Per Share........................... $ $ $
Total(3)............................ $ $ $
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $275,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 375,000 additional Common Shares solely to cover
over-allotments. If all of such Common Shares are purchased, the total Price
to Public, Underwriting Discount, and Proceeds to Company would be
$ , $ and $ , respectively. See "Underwriting."
--------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York,
on or about November , 1996.
--------------------------
LEHMAN BROTHERS
DEAN WITTER REYNOLDS INC.
MERRILL LYNCH & CO.
EVEREN SECURITIES, INC.
The date of this Prospectus Supplement is November , 1996.
[The inside front cover shows a partial map of the United States indicating the
cities in which AMLI's headquarters, AMLI's regional offices and AMLI's
communities are located.]
# OF APARTMENT HOMES
REGION
- ------------------------------------ --------------------
Southeast........................... 4,694 29%
Southwest........................... 7,477 46%
Midwest............................. 4,058 25%
--------- ---
Total............................... 16,229 100%
includes communities under development
[The inside front cover shows a picture of AMLI at Pleasant Hill in Atlanta and
of AMLI at Chevy Chase in Chicago.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR
INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS INDICATED OTHERWISE, THE
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES (I) A PUBLIC
OFFERING PRICE OF $22.00 PER COMMON SHARE AND (II) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL
REFERENCES TO THE "COMPANY" OR "AMLI" IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS SHALL BE DEEMED TO INCLUDE THE COMPANY, ITS
PREDECESSORS, AND THOSE ENTITIES IN WHICH THE COMPANY HOLDS A MAJORITY OF THE
ECONOMIC INTERESTS, INCLUDING AMLI RESIDENTIAL PROPERTIES, L.P. (THE "OPERATING
PARTNERSHIP"), AMLI MANAGEMENT COMPANY (THE "MANAGEMENT COMPANY"), AMLI
INSTITUTIONAL ADVISORS, INC. ("AIA") AND AMLI RESIDENTIAL CONSTRUCTION, INC.
("AMRESCON"). THE MANAGEMENT COMPANY, AIA AND AMRESCON ARE COLLECTIVELY REFERRED
TO AS THE "SERVICE COMPANIES."
THE COMPANY
Amli Residential Properties Trust ("AMLI" or the "Company") is a
self-administered and self-managed real estate investment trust (a "REIT")
engaged in the development, acquisition and management of upscale, institutional
quality multifamily apartment communities in seven major metropolitan markets in
the Southeast, Southwest and Midwest regions of the United States. Founded in
1980, AMLI became a publicly traded company through an initial public offering
in February, 1994.
As part of its core strategy, AMLI differentiates itself through an internal
growth strategy focused on branding its product and services, an external growth
strategy balanced between both development and acquisition, geographic
diversification in three regions and seven core cities, and accessing capital
from both the public markets and from co-investment relationships with
institutional partners. Since its initial public offering, the Company has
formed strategic alliances with five institutional investors in 13 separate
institutional joint ventures representing a total anticipated investment of
approximately $300 million.
As of September 30, 1996, AMLI owned or had co-investment interests in 46
multifamily apartment communities (the "Communities") comprised of 16,229
apartment homes. Thirty-four of these communities, totalling 12,775 apartment
homes, were stabilized as of September 30, 1996. An additional 12 communities
were under development or in lease-up as of such date. When completed, these
development communities will total 3,454 apartment homes. In addition, the
Company owns land for future development of four additional communities
totalling approximately 1,674 apartment homes.
COMPETITIVE ADVANTAGES
The Company seeks to increase cash flow by intensively managing the
Communities, selectively developing and acquiring additional high-quality
multifamily communities and advising and co-investing with institutional
partners. In pursuit of these strategies, the Company benefits from the
following competitive advantages:
DEVELOPMENT AND ACQUISITION EXPERTISE. AMLI has extensive experience in
both the acquisition and development of upscale multifamily communities. AMLI
focuses on institutional quality multifamily communities having high-quality
construction, amenities, location and market position. The Company believes that
over time these communities will realize returns exceeding national averages for
multifamily properties due to higher expected annual growth in cash flows,
reduced on-going maintenance costs and capital expenditures, and higher relative
levels of residual values. The Company develops in markets where the Company
believes there is an imbalance between the demand for and the supply of quality
rental housing. The Company applies a long-term ownership perspective to the
development process utilizing high-quality building materials and designs
communities which satisfy the current needs of residents and anticipate their
future needs. AMLI acquires assets at times when capitalization rates are
attractive and enhanced performance from the target communities is possible
through application of the Company's management expertise.
S-3
INSTITUTIONAL CO-INVESTMENTS. AMLI actively acquires and develops
multifamily communities in co-investment joint ventures with institutional
investment partners such as insurance companies, endowments, foundations, and
public and private pension funds. The Company believes that co-investment
partnerships create an opportunity to leverage the Company's acquisition,
development and management expertise and generate higher returns on its invested
equity capital. Since its initial public offering, AMLI has formed 13 such
co-investment joint ventures, several of which involve new development,
representing a total anticipated project cost of approximately $300 million. The
Company's invested capital in these 13 joint ventures is expected to total
approximately $40.6 million. In connection with its co-investment business, the
Company has established strategic alliances with Allstate Insurance Company,
Erie Insurance Group, The New York Common Retirement Fund, Northwestern Mutual
Life Insurance Company and The Rockefeller Foundation.
AMLI-REGISTERED TRADEMARK- BRAND. All of the Communities are operated by
the Company under the AMLI-Registered Trademark- brand name. AMLI believes
promoting its brand name creates an awareness in the marketplace of quality
rental living and extraordinary customer service for both current and
prospective residents. To maximize the effectiveness of the
AMLI-Registered Trademark- brand name, the Company has a wide range of programs
and practices to maintain uniformly high quality service and consistent
apartment quality at all of the Communities.
RECENT DEVELOPMENTS
DEVELOPMENT ACTIVITIES
The Company is currently in the process of developing 12 apartment
communities, containing a total of 3,454 apartment homes (the "Development
Communities"). Seven of the Development Communities, containing a total of 1,628
apartment homes, are being developed on a wholly-owned basis (the "Company
Development Communities") and five communities, containing a total of 1,826
apartment homes, are being developed on behalf of joint ventures between the
Company and institutional partners (the "Co-Investment Development
Communities"). The aggregate construction cost for the Development Communities
is anticipated to be approximately $217.1 million, $99.1 million for the Company
Development Communities and $118.0 million for the Co-Investment Development
Communities. Additionally, the Company has acquired four parcels of land for
future development encompassing an aggregate of 106 acres. The Company
anticipates developing approximately 1,674 apartment homes on these parcels
either for its own account or on behalf of one or more co-investment joint
ventures.
ACQUISITION ACTIVITIES
In 1996, the Company acquired two Communities located in metropolitan
Chicago containing a total of 1,080 apartment homes for an aggregate purchase
price of approximately $81.6 million. One Community was acquired in a
co-investment joint venture with Allstate Insurance Company, the other in a
co-investment joint venture with Erie Insurance Group. These acquisitions
significantly expanded the Company's market presence in the Chicago metropolitan
area.
CO-INVESTMENT ACTIVITIES
In September 1996, the Company announced that it had entered into two joint
ventures with a new institutional partner, The New York Common Retirement Fund,
for the development of a multifamily community in each of metropolitan Chicago
and Ft. Worth. The aggregate development budget for these two communities is
approximately $48.2 million. The New York Common Retirement Fund is being
advised in these joint ventures by Heitman Capital Management Corporation. The
Company anticipates entering into one or more additional joint ventures with
this institutional investor.
FINANCING ACTIVITIES
During 1996, the Company completed two significant transactions which have
improved the Company's capital structure:
S-4
- The Company directly issued 1.2 million shares of convertible preferred
shares of beneficial interest during the first quarter of 1996. Proceeds
to the Company from this offering were approximately $24 million and were
applied to pay down variable rate borrowings under the Company's primary
lines of credit.
- During the second quarter of 1996, the Company secured three long-term,
fixed rate loans totalling approximately $86 million. These loans have a
weighted average maturity of nine years and a weighted average interest
rate of 7.56%. This financing was used in part to repay two shorter term
mortgage loans. As a result of the repayment of these loans, four
previously mortgaged Communities became unencumbered.
UICI INVESTMENT IN THE COMPANY
On November 6, 1996, UICI, a NASDAQ National Market traded holding company
with interests in insurance, financial services and technology and total assets
of approximately $1.2 billion, acquired, through a stock for stock exchange, all
of the outstanding capital stock of Amli Realty Co. ("ARC"), a predecessor of
the Company and the Company's largest shareholder. Separately, on November 4,
1996, UICI, through one of its affiliates, acquired 500,000 Common Shares from
an existing shareholder of the Company. As a result of these transactions, UICI,
after completion of the Offering, will beneficially own approximately 14.5% of
the Company. The Chairman of UICI and its largest shareholder, Ronald L. Jensen,
has had an association with members of AMLI's senior management for over 20
years, was one of ARC's original founders, and served on its Board of Directors
from 1980 through 1982.
THE COMMUNITIES
STABILIZED COMMUNITIES
The Communities include 34 stabilized multifamily apartment communities
containing 12,775 apartment homes operated under the AMLI-Registered Trademark-
brand name. Twenty-four of the stabilized Communities, containing an aggregate
of 9,600 apartment homes, are directly owned by the Company (the "Wholly-Owned
Communities") and ten Communities, containing an aggregate of 3,175 apartment
homes, are owned through co-investment joint ventures (the "Co-Investment
Communities"). The stabilized Communities are located in the markets described
in the table below:
STABILIZED COMMUNITIES
WHOLLY-OWNED CO-INVESTMENT
TOTAL COMMUNITIES COMMUNITIES
---------------------- ---------------------- -----------
NO. NO. NO.
LOCATION -- UNITS -- UNITS --
- ----------------------------------------------------------------- --------- ---------
Dallas/Ft. Worth, Texas.......................................... 11 4,088 11 4,088 --
Atlanta, Georgia................................................. 6 2,812 4 2,420 2
Chicago, Illinois................................................ 5 1,694 1 253 4
Austin, Texas.................................................... 4 1,523 3 935 1
Indianapolis, Indiana............................................ 1 996 1 996 --
Eastern Kansas................................................... 4 908 4 908 --
Houston, Texas................................................... 3 754 -- -- 3
-- -- --
--------- ---------
Total........................................................ 34 12,775 24 9,600 10
-- -- --
-- -- --
--------- ---------
--------- ---------
LOCATION UNITS
- ----------------------------------------------------------------- ---------
Dallas/Ft. Worth, Texas.......................................... --
Atlanta, Georgia................................................. 392
Chicago, Illinois................................................ 1,441
Austin, Texas.................................................... 588
Indianapolis, Indiana............................................ --
Eastern Kansas................................................... --
Houston, Texas................................................... 754
---------
Total........................................................ 3,175
---------
---------
As of September 30, 1996, the average age of the stabilized Communities was
approximately 7.9 years, the average occupancy rate of the stabilized
Communities was 94.1%, and the average monthly rental rate per apartment home
was $679.
S-5
DEVELOPMENT COMMUNITIES
The Development Communities consist of 12 multifamily apartment communities
or new phases of existing Communities which upon completion will contain 3,454
apartment homes. See "Growth Strategies-Development Strategy" for a discussion
of the Company's development activities. The Development Communities are under
development in the markets described in the table below:
DEVELOPMENT COMMUNITIES
CO-
COMPANY INVESTMENT
DEVELOPMENT DEVELOPMENT
TOTAL COMMUNITIES COMMUNITIES
---------------------- ---------------------- -----------
NO. NO. NO.
LOCATION -- UNITS -- UNITS --
- --------------------------------------------------------------------- --------- ---------
Atlanta, Georgia..................................................... 5 1,882 2 712 3
Dallas/Ft. Worth, Texas.............................................. 4 1,112 3 728 1
Chicago, Illinois.................................................... 1 272 -- -- 1
Eastern Kansas....................................................... 2 188 2 188 --
-- -- --
--------- ---------
Total............................................................ 12 3,454 7 1,628 5
-- -- --
-- -- --
--------- ---------
--------- ---------
LOCATION UNITS
- --------------------------------------------------------------------- ---------
Atlanta, Georgia..................................................... 1,170
Dallas/Ft. Worth, Texas.............................................. 384
Chicago, Illinois.................................................... 272
Eastern Kansas....................................................... --
---------
Total............................................................ 1,826
---------
---------
THE OFFERING
Common Shares Offered(1).......... 2,500,000
Common Shares Outstanding After
the Offering(2)(3).............. 18,298,892
Use of Proceeds................... The proceeds of the Offering will be used to repay
indebtedness and to provide funds for future development
and acquisition activities.
New York Stock Exchange Symbol.... AML
- ---------
(1) Assumes the Underwriters' (as defined herein) over-allotment option to
purchase up to 375,000 Common Shares is not exercised. See "Underwriting."
(2) Includes 2,901,154 Common Shares reserved for issuance, as of September 30,
1996, upon the exchange of outstanding ownership units in the Operating
Partnership and 1,100,000 Common Shares issuable upon exchange of
outstanding preferred shares of beneficial interest of the Company. See "The
Company." Pursuant to the partnership agreement of the Operating
Partnership, each ownership unit in the Operating Partnership (each, an "OP
Unit") is exchangeable for one Common Share.
(3) Excludes 159,190 Common Shares issuable upon the exercise of employee and
Trustee options ("Options") granted by the Company pursuant to the Amli
Residential Properties Option Plan, 15,190 of which are currently
exercisable and 144,000 of which become exercisable in February, 1997.
Excludes 53,140 OP Units issued by the Operating Partnership subsequent to
September 30, 1996 and Common Shares and OP Units which may be issued by the
Company after September 30, 1996 under the Company's Executive Share
Purchase Plan. The Company estimates that 40,000 to 70,000 Common Shares may
be issued by the Company under this plan during November.
S-6
THE COMPANY
AMLI is a self-administered and self-managed real estate investment trust
engaged in the development, acquisition and management of upscale, institutional
quality multifamily apartment communities in seven major metropolitan markets in
the Southeast, Southwest and Midwest regions of the United States. Founded in
1980, AMLI became a publicly traded company through an initial public offering
in February, 1994.
As part of its core strategy, AMLI differentiates itself through an internal
growth strategy focused on branding its product and services, an external growth
strategy balanced between both development and acquisition, geographic
diversification in three regions and seven core cities, and accessing capital
from both the public markets and from co-investment relationships with
institutional partners. Since its initial public offering, the Company has
formed strategic alliances with five institutional investors in 13 separate
institutional joint ventures representing a total anticipated investment of
approximately $300 million.
As of September 30, 1996, AMLI owned or had co-investment interests in 46
multifamily apartment communities comprised of 16,229 apartment homes.
Thirty-four of these Communities, totalling 12,775 apartment homes, were
stabilized as of September 30, 1996. An additional 12 Communities were under
development or in lease-up as of such date. When completed, these Development
Communities will total 3,454 apartment homes. In addition, the Company owns land
for future development of four additional communities totalling approximately
1,674 apartment homes.
AMLI is the sole general partner of, and controls a majority of the limited
partnership interests in, Amli Residential Properties, L.P., a Delaware limited
partnership (the "Operating Partnership") through which it owns its interests in
the Communities. As of September 30, 1996, the Company owned 81.6% of the
outstanding partnership interests ("OP Units") in the Operating Partnership. OP
Units are convertible into Common Shares on a one-for-one basis. The Company
conducts all its business through the Operating Partnership and its subsidiaries
and affiliates.
The Company's headquarters offices are located at 125 S. Wacker Drive, Suite
3100, Chicago, Illinois 60606, and its telephone number is (312) 443-1477. In
addition, AMLI has regional offices in both Dallas and Atlanta.
GROWTH STRATEGIES
The Company seeks to increase cash flow by intensively managing the
Communities, selectively developing and acquiring additional high-quality
multifamily communities, and advising and co-investing with institutional
partners. The Company believes that, over time, a portfolio consisting of
high-quality properties, which the Company believes is typical of its portfolio,
will realize returns exceeding national averages for multifamily properties due
to expected higher annual growth in cash flows, reduced on-going maintenance
costs and capital expenditures, and higher relative levels of residual market
values.
GROWTH FROM PROPERTY OPERATIONS
The Company seeks to increase cash flow at the Communities through rent
increases while maintaining high occupancy rates and aggressive management of
its operating expenses. As of September 30, 1996, the weighted average occupancy
rate of the stabilized Communities was 94.1%, and the average monthly rental
rate per apartment home was $679, or $0.80 per square foot. The Company owns
multifamily communities with service, lifestyle and physical amenities that
residents value and that support higher rental rates. Typical services that are
provided at the Communities, which are customary for similar upscale multifamily
properties, include pet care or plant watering for out-of-town tenants; on-site
overnight delivery drop-off boxes; on-site pick-up of dry cleaning or other
items; occasional social events for residents designed to provide a sense of
community; frequent maintenance programs; and a policy of guaranteeing attention
to any maintenance or repair request from a tenant within 48 hours.
AMLI believes that a key element of its continued success is its ability to
create brand loyalty in the mind of the resident customer. All communities owned
and operated by the Company use the AMLI-Registered Trademark- brand name as
part of the strategy to promote brand identity for quality living, as well as to
create franchise value.
S-7
The Company believes that the AMLI-Registered Trademark- brand name creates an
awareness in the marketplace such that customers of the Company equate the
AMLI-Registered Trademark- brand with quality multifamily communities and
exceptional customer service.
The Company believes the expertise and experience of its on-site personnel
are essential to the success of its brand strategy and cash flow growth from the
Communities. A wide range of programs and practices are in place to ensure that
the Company's on-site personnel provide uniformly high-quality service. These
programs and practices include the following: (i) incentive-based compensation
that rewards employees who achieve superior results; (ii) extensive training
programs focusing on marketing, selling skills and negotiating techniques; (iii)
requiring leasing agents to have a strong knowledge of the Communities and
competing properties; (iv) periodic unit inspections designed to ensure that
vacant apartments are rent-ready and attractive to show; (v) a newsletter that
creates a sense of a team and gives special recognition to employees who have
made outstanding contributions or who have experienced a significant personal
event; (vi) manager training programs that focus on the financial analysis
applicable to apartment communities; (vii) development training for all
maintenance staff to further skills and knowledge of industry practices (viii)
annual incentive group trips for managers, leasing personnel and maintenance
employees; and (ix) written manuals describing various policies and procedures
that are to be observed by employees. In addition, the Company has training
facilities in Dallas and Atlanta that are used for training programs and
seminars for management, leasing and maintenance employees.
By establishing critical mass in each of its markets, the Company expects to
achieve economies of scale in its operations, resulting in reduced operating and
administrative expenses without reductions in service. In addition, the
relatively low average age of the Communities contributes to reduced operating
and maintenance expenses. At September 30, 1996, the average age of the
stabilized Communities was 7.9 years. The Company also believes that attention
to landscaping and physical appearance contributes to reducing resident turnover
and enhances the rental rates and occupancy levels of the Communities.
Additionally, AMLI has a dedicated team whose function is to evaluate new or
enhanced products, features or services that might be incorporated in either the
apartment homes or the Communities to produce complementary income from property
operations and maximize customer/resident satisfaction within the Communities.
Some of the products, features and services either in existence or being
considered include the construction of carports and garages, private phone and
cable systems, custom rental insurance, energy efficient lighting programs,
water submetering, bulk purchases of utilities and card key systems for laundry
facilities. During the third quarter ended September 30, 1996, on a same store
basis, revenue from such programs and services grew 30% from the prior period in
1995.
DEVELOPMENT STRATEGY
The Company actively pursues the development of new properties. The Company
seeks to develop multifamily properties that meet an identified market demand,
are well-located in markets the Company believes will experience above-average
growth rates and produce first-year stabilized cash on cash returns of 125 to
200 basis points higher than capitalization rates available on acquisitions in
these markets. The Company's management has significant experience in the
development of multifamily properties and believes that this expertise will
permit it to successfully capitalize on new development opportunities.
The Company has identified certain sub-markets within its seven identified
cities where strong multifamily property demand exceeds the level of new
construction. The Company currently has development under way in Chicago,
Atlanta, Dallas and Kansas City. In addition, the Company owns a land parcel in
each of Chicago, Atlanta, Austin and Dallas, which in the aggregate are
comprised of 106 acres, on which it expects to develop approximately 1,674
apartment homes.
S-8
The following table summarizes the Company's development activities for the
period from the date of its initial public offering in February, 1994 (the
"Initial Offering") through September 30, 1996:
AMLI DEVELOPMENT ACTIVITIES
NO. OF COMMUNITIES
DEVELOPED OR NO. OF APARTMENT ESTIMATED
YEAR UNDER DEVELOPMENT(1) HOMES DEVELOPMENT BUDGET(2)
- ---------------------------------------------- ----------------------------- ----------------- ----------------------
1994.......................................... 2 734 $ 37,600,000
1995.......................................... 5 1,280 75,900,000
1996.......................................... 6 1,672 114,600,000
--
----- ----------------------
Total..................................... 13 3,686 $ 228,100,000
--
--
----- ----------------------
----- ----------------------
- ---------
(1) Represents the number of Communities for which development was commenced
during the applicable year. Of the Communities developed by the Company
since the Initial Offering, eight Communities were developed by the Company
for its own account and five for co-investment joint ventures. The Company's
ownership interest in these co-investment joint ventures ranges from 25% to
40%.
(2) The Company's share of the total estimated development budget is expected to
be $148.7 million.
AMLI's development philosophy is to design communities and apartment homes
that meet the needs of both current and prospective residents. The Company
builds to hold and manage for long-term investment and, as such, utilizes high
quality, long-lasting building products for exterior and interior construction.
The Communities are extensively landscaped to enhance curb appeal and to create
an attractive living environment for the residents. The apartment homes are
designed and appointed with features in select units such as more closet space,
larger kitchens with mirrored backsplashes and upgraded appliance packages, nine
foot ceilings, crown molding, built-in work spaces, additional wiring to
accommodate private phone and cable systems, garden-style tubs and double
vanities.
ACQUISITION STRATEGY
The Company actively pursues the acquisition of new properties. The Company
seeks to acquire, directly or through co-investments, multifamily communities
that are available at attractive prices, capable of enhanced performance through
application of the Company's management expertise and that are in the Company's
target markets. The Company follows a strategy of acquiring (directly or through
co-investments) institutional quality apartment communities, which typically
have high-quality construction, amenities, location and market position, and are
therefore attractive investments for institutional investors, such as insurance
companies, endowments, foundations and pension funds.
The following table summarizes the Company's acquisition activities for the
period from the date of the Initial Offering through September 30, 1996:
AMLI ACQUISITION ACTIVITIES
NO. OF COMMUNITIES NO. OF APARTMENT TOTAL ACQUISITION
YEAR ACQUIRED(1) HOMES COSTS(2)
- ------------------------------------------------------ ----------------------- ----------------- -------------------
1994.................................................. 8 2,184 $ 99,428,000
1995.................................................. 3 794 $ 51,763,000
1996.................................................. 2 1,080 $ 82,152,000
--
----- -------------------
Total............................................. 13 4,058 $ 233,343,000
--
--
----- -------------------
----- -------------------
- ---------
(1) Of these acquisitions, five Communities were acquired by the Company
directly and eight through co-investment joint ventures. The Company's
ownership interest in these co-investment joint ventures ranges from 15% to
40%.
(2) The Company's share of the total acquisition costs was $104.5 million.
S-9
The Company currently focuses on acquiring properties in selected markets in
the Southwest, Southeast and Midwest regions of the United States. The Company's
acquisition teams consist of experienced finance, development and asset
management professionals working together to identify opportunities, evaluate
property information, negotiate and successfully execute favorable transactions
for the Company. The Company's acquisition process is driven by thorough market
research. Successful acquisitions are based upon a knowledge and careful
analysis of employment, population and income trends, quality of infrastructure,
retail and commercial services, transportation and utility systems, schools and
property tax policies. The Company's acquisition teams review and monitor
economic data and economic development information and maintain close contact
with real estate owners, developers, brokers, lenders, insurance companies,
government agencies and other institutions to identify potential properties for
acquisition by the Company.
INSTITUTIONAL CO-INVESTMENTS
AMLI actively acquires and develops multifamily communities in co-investment
joint ventures with institutional investment partners such as insurance
companies, endowments, foundations, and public and private pension funds. The
Company believes that these co-investment partnerships create an opportunity to
leverage the Company's acquisition, development and management experience and
generate higher returns on its invested capital.
AMLI differentiates itself from other multifamily REITs through its
co-investment business and its established relationships with a number of
institutional partners. By co-investing, AMLI is able to (i) generate higher
returns on its equity investment (as compared to wholly-owned communities)
through the receipt of supplemental acquisition, development, construction and
other fee income; (ii) build market share and thereby benefit from economies of
scale; (iii) expand the AMLI-Registered Trademark- brand identity; and (iv)
diversify its sources of capital for its acquisition and development activities.
In addition to the incremental fee income, AMLI receives its pro rata share of
the real estate income generated by the on-going operation of each community
owned through a co-investment joint venture. All of the Co-Investment
Communities are managed by the Company and operated under the
AMLI-Registered Trademark- brand name.
While each co-investment is structured individually, in a typical venture
the Company (i) acts as the general partner or managing member of the venture;
(ii) handles the administration of the venture; (iii) manages the day-to-day
operations of the community held by the venture; (iv) in the case of a venture
with a property under development, oversees construction and development; and
(v) recommends the sale or refinancing of the property. All of AMLI's
co-investments are made on a pari passu basis with its co-investment partners
and any disputes over sale or refinancing decisions are generally resolved
through the exercise of a buy-sell provision. As of September 30, 1996, the
Company had established co-investment relationships with Allstate Insurance
Company, Erie Insurance Group, The New York Common Retirement Fund, Northwestern
Mutual Life Insurance Company and The Rockefeller Foundation.
Since the Initial Offering, the Company has entered into 13 co-investment
relationships for the acquisition or development of multifamily apartment
communities. The table below summarizes the co-investment activities of the
Company since the Initial Offering:
AMLI CO-INVESTMENT ACTIVITIES
NO. OF NO. OF NO. OF NO. OF
COMMUNITIES APARTMENT HOMES COMMUNITIES APARTMENT HOMES
YEAR ACQUIRED ACQUIRED DEVELOPED(1) DEVELOPED(2)
- ---------------------------- ------------------- ------------------- ------------------- -------------------
1994........................ 3 1,026 1 502
1995........................ 3 794 1 446
1996........................ 2 1,080 3 878
- -
----- -----
Total................... 8 2,900 5 1,826
- -
- -
----- -----
----- -----
TOTAL
NO. OF
YEAR APARTMENT HOMES
- ---------------------------- -------------------
1994........................ 1,528
1995........................ 1,240
1996........................ 1,958
-----
Total................... 4,726
-----
-----
- ---------
(1) Represents the number of Communities for which development was commenced
during the applicable year.
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(2) Represents the number of apartment homes planned for the Community for which
development was commenced in the applicable year.
The table below sets forth the total expected capital outlays for all 13 of
these development and acquisition ventures, the Company's expected share of such
capital requirements and the one-time and recurring annual fee income that the
Company and the Service Companies have received from these 13 joint venture
relationships through September 30, 1996:
CO-INVESTMENT ACTIVITIES SINCE THE INITIAL OFFERING
1994 1995 1996 TOTAL (4)
------------- ------------- -------------- --------------
Total Expected Project Cost(1)......................... $ 71,191,204 $ 79,681,765 $ 147,818,975 $ 298,691,944
AMLI Expected Equity Investment........................ $ 7,640,881 $ 7,548,315 $ 25,415,391 $ 40,604,587
Actual Fee Income to AMLI and the Service Companies
Initial or One-Time Fees(2).......................... $ 286,654 $ 607,211 $ 1,139,587 $ 2,033,452
Annual Fee Income(3)................................. $ 221,250 $ 769,204 $ 989,203 $ 1,979,657
- ---------
(1) Includes $157.9 million which has been or will be debt financed. Total
expected costs are included in the year in which a development project
begins or an acquisition closes.
(2) The one-time fee income is shown net of intercompany eliminations to the
extent of the Company's percentage interest in its co-investment joint
ventures. One time fees include general contractor fees, development and
redevelopment fees and property acquisition fees. The amounts shown
represent the portion of the fees earned in the applicable year. The initial
and one-time fee income for 1996 represents amounts earned by the Company
for the period from January 1, 1996 through September 30, 1996. Subsequent
to September 30, 1996, additional one time fees of approximately $2,774,543
are anticipated to be earned by the Company and the Service Companies in
connection with the completion of four Communities under development on
behalf of existing co-investment joint ventures.
(3) Annual fee income includes property management fees, asset management fees
and partnership administration fees. The amounts shown represent the portion
of the fees earned in the applicable year. The annual fee income for 1996
represents amounts earned by the Company for the period from January 1, 1996
through September 30, 1996. Annual fee income will increase as additional
co-investment communities under development are completed.
The Company has received indications of interest and is pursuing other
commitments for the acquisition or development of additional co-investment
communities. In addition, the Company is continually working to expand the base
of its institutional joint venture partners.
RECENT DEVELOPMENTS
Since the Initial Offering, the Company has expanded its portfolio of
Communities through the acquisition, development and selective expansion of its
apartment communities.
DEVELOPMENT
At the time of the Initial Offering, the Company and its predecessors had
not begun the development of a new multifamily community for five years. Since
that time, the development pipeline has grown extensively. Approximately, 50% of
the 3,686 apartment homes developed or under development by the Company have
been built with a co-investment partner and the other 50% have been developed or
are under development solely for the Company.
The tables set forth below summarize the following information related to
the Company Development Communities and the Co-Investment Development
Communities: (i) the name and location of the community; (ii) the number of
apartment homes to be constructed at each community; (iii) the projected
completion date of each community and the percentage completion of the community
as of September 30, 1996;
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(iv) the anticipated development cost of each community and the amount thereof
expended as of September 30, 1996; and (v) with respect to each Co-Investment
Community, the Company's percentage ownership interest therein and the name of
the joint venture partner with respect to each Co-Investment Development
Community. The Company Development Communities exclude AMLI at Sope Creek
Crossing Phase IV, a 232 apartment home community, which is now completed.
COMPANY DEVELOPMENT COMMUNITIES
AMOUNT
COMPANY PROJECTED ANTICIPATED EXPENDED
DEVELOPMENT NO. OF COMPLETION COMPLETION DEVELOPMENT THROUGH
COMMUNITY LOCATION UNITS PERCENTAGE DATE COST 9/30/96
- ------------------------------ -------------------- ----------- -------------- ----------- ------------ --------------
AMLI at Gleneagles
Phase II.................... Dallas, Texas 264 86% Dec. 1996 $13,800,000 $ 11,932,000
AMLI at Regents Center Overland Park,
Phase III................... Kansas 124 70% Dec. 1996 7,700,000 5,419,000
AMLI at Crown Colony
Phase II.................... Topeka, Kansas 64 30% Feb. 1997 3,600,000 1,094,000
AMLI at Autumn Chase
Phase III................... Carrollton, Texas 240 13% Nov. 1997 14,100,000 1,787,000
AMLI at Northwinds
Phase I..................... Atlanta, Georgia 400 17% Feb. 1998 26,800,000 4,423,000
AMLI at Peachtree City........ Atlanta, Georgia 312 20% Nov. 1997 21,900,000 4,379,000
AMLI at Autumn Chase Completed;
Phase II.................... Carrollton, Texas 224 100% In Lease-up 11,200,000 11,200,000
----- ------------ --------------
TOTAL..................... 1,628 $99,100,000 $ 40,234,000
----- ------------ --------------
----- ------------ --------------
CO-INVESTMENT DEVELOPMENT COMMUNITIES
AMOUNT
CO-INVESTMENT COMPANY NO. PROJECTED ANTICIPATED EXPENDED
DEVELOPMENT PERCENTAGE OF COMPLETION COMPLETION DEVELOPMENT THROUGH
COMMUNITY OWNERSHIP LOCATION UNITS PERCENTAGE DATE COST 9/30/96
- -------------------- --------------- ---------------- ----- ---------------- ----------- ------------ --------------
AMLI at Pleasant Completed;
Hill.............. 40% Atlanta, Georgia 502 97% In Lease-up $26,600,000 $ 25,676,000
AMLI at Barrett
Lakes............. 35% Atlanta, Georgia 446 39% Nov. 1997 27,800,000 10,848,000
AMLI at River Park.. 40% Atlanta, Georgia 222 49% June 1997 15,400,000 7,497,000
AMLI at Aurora
Crossing.......... 25% Aurora, Illinois 272 32% July 1997 24,500,000 7,885,000
AMLI at Fossil
Creek............. 25% Ft. Worth, Texas 384 11% Feb. 1998 23,700,000 2,654,000
----- ------------ --------------
TOTAL........... 1,826 1$18,000,000 $ 54,560,000
----- ------------ --------------
----- ------------ --------------
CO-INVESTMENT
DEVELOPMENT CO-INVESTMENT
COMMUNITY PARTNER
- -------------------- -------------
AMLI at Pleasant
Hill.............. NML
AMLI at Barrett
Lakes............. NML
AMLI at River Park.. Erie
AMLI at Aurora
Crossing.......... NYCRF
AMLI at Fossil
Creek............. NYCRF
TOTAL...........
The Company believes that the operating prospects for the Communities under
development remain favorable based on current economic and other conditions
existing in the areas in which the Company's development activities are focused.
As with any development project, there are uncertainties and risks associated
with development. While the Company has prepared development budgets and has
estimated completion and stabilization target dates for each of the Development
Communities based on what it believes are reasonable assumptions, there can be
no assurance that actual costs will not exceed current budgets or that the
Company will not experience construction delays due to the unavailability of
building materials, weather conditions or other events beyond the Company's
control. Similarly, adverse market conditions at the time that the Development
Communities become available for leasing could affect the
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rental rates that may be charged and the period necessary to achieve
stabilization at the Development Communities, which could have a material
adverse effect on the financial condition of the affected Development
Communities.
CO-INVESTMENT VENTURES
In September 1996, AMLI closed on two separate joint ventures with The New
York Common Retirement Fund ("NYCRF") for the development of two multi-family
residential communities. Through these ventures, the Company will develop a 272
apartment home community in metropolitan Chicago, Illinois and a 384 apartment
home community in Ft. Worth, Texas. Construction of each of these Development
Communities had been commenced earlier in the year by AMLI. Construction of AMLI
at Aurora Crossing, the Development Community located in metropolitan Chicago,
is projected to be completed in July of 1997, with stabilization expected in the
fourth quarter of 1997. The development budget for this Development Community is
approximately $24.5 million. Construction of AMLI at Fossil Creek, the
Development Community located in Ft. Worth, is expected to be completed during
the first quarter of 1998, with stabilization expected in early 1999. The
development budget for this Development Community is approximately $23.7
million. The Company owns a 25% interest in the joint ventures that own these
Development Communities and The New York Common Retirement Fund owns a 75%
interest.
ACQUISITIONS
In March 1996, the Company, through a co-investment joint venture with Erie
Insurance Group, acquired AMLI at Chevy Chase (formerly known as The Lincoln
Club Apartments), a 592 unit luxury apartment community located in Buffalo
Grove, Illinois, for a purchase price of approximately $45 million.
Approximately $30 million of the purchase price was financed through 6.67% per
annum, seven year mortgage debt. The AMLI at Chevy Chase Community was
constructed in 1988 and contains 480,688 square feet in 19 two-story and 17
three-story buildings. This Community is set on 43.2 acres of land and has a
clubhouse, two heated swimming pools, four tennis courts and a state-of-the-art
fitness center. The Company owns a 33% interest and Erie Insurance Group owns a
67% interest in the joint venture that owns this Community.
In April 1996, AMLI further expanded its presence in metropolitan Chicago
through the acquisition of AMLI at Willowbrook (formerly Stewart's Glen
Apartments) through a joint venture with Allstate Insurance Company for
approximately $36 million. Approximately $24.5 million of the purchase price was
financed through 7.79% per annum, seven year mortgage debt. AMLI at Willowbrook
is a 488 unit luxury garden apartment community located in Willowbrook,
Illinois. This Community was constructed in three phases, with Phase I having
been completed in 1985 and Phases II and III in 1987. AMLI at Willowbrook
contains 418,384 square feet in 59 two-story buildings. This Community is set on
36.5 acres of land and has two clubhouses, two state-of-the-art fitness centers,
an aerobics room, two swimming pools, a tennis court, a volleyball court and
laundry facilities in each building. The Company owns a 40% interest in the
joint venture which owns this Community and Allstate Insurance Company owns a
60% interest.
FINANCING ACTIVITIES
During 1996, the Company continued to improve its balance sheet, capital
structure and financing flexibility. Beginning in the first quarter, AMLI
directly issued to four institutions and ARC 1,200,000 Series A Cumulative
Convertible Preferred Shares of Beneficial Interest for $20 per share or $24
million. The proceeds of the offering, less $82,500 of transaction costs, were
used to reduce the Company's debt and to fund development and working capital
requirements. The preferred shares are entitled to a preference upon liquidation
of the Company and cumulative quarterly dividends equal to the greater of $0.43
per share or the current quarterly per share dividend on Common Shares. In March
of 1996, ARC converted the 100,000 preferred shares acquired by it for Common
Shares.
During the second quarter three long-term fixed-rate loans were closed and
two medium-term loans were simultaneously repaid. The Company closed two seven
year fixed rate loans with Connecticut General Life Insurance Company ("CIGNA")
in the aggregate principal amount of $42 million that carry an average interest
rate of 7.31% per annum. In April, AMLI obtained a ten year loan with the
Federal National Mortgage Association ("Fannie Mae") in an aggregate principal
amount of approximately $44 million. This
S-13
loan carries a fixed-rate of interest of 7.79% per annum. In connection with
these fixed rate financings, two medium term loans with an aggregate outstanding
balance of approximately $65 million were prepaid. As a result of these
transactions, the weighted average maturity of the Company's outstanding
indebtedness was increased to approximately 5.3 years, the weighted average
interest rate was reduced to 6.93% and four previously mortgaged wholly-owned
Communities became unencumbered.
During June 1996, AMLI renegotiated one of its primary lines of credit with
Wachovia Bank (the "Wachovia Line"). The line is used for general working
capital needs and to fund construction of development properties. The line was
increased in size from $50 million to $60 million and the interest rate on the
facility was reduced to LIBOR plus 1.65% for borrowings secured by communities
under development and to LIBOR plus 1.35% for borrowings secured by stabilized
communities. As of September 30, 1996, a total of $32.5 million was outstanding
under this facility.
UICI INVESTMENT
On November 6, 1996, UICI, a NASDAQ National Market traded holding company
with interests in insurance, financial services and technology and total assets
of approximately $1.2 billion, acquired, through a stock for stock exchange, all
of the outstanding capital stock of ARC, a predecessor of the Company and the
Company's largest shareholder. Separately, on November 4, 1996, UICI, through
one of its affiliates, acquired 500,000 Common Shares from an existing
shareholder of the Company. As a result of these transactions, UICI, after
completion of the Offering, will beneficially own approximately 14.5% of the
Company. The Chairman of UICI and its largest shareholder, Ronald L. Jensen, has
had an association with members of AMLI's senior management for over 20 years,
was one of ARC's original founders, and served on its Board of Directors from
1980 through 1982.
ARC has informed the Company that it agreed to effect the exchange with UICI
in order to provide liquidity to its shareholders, approximately 60% of which
are not Trustees, officers or employees of the Company, and to once again
involve Mr. Jensen in the ownership and strategic direction of ARC.
At a meeting of the Board of Trustees of the Company held on October 28,
1996, the Company exempted UICI and its affiliates from the ownership
limitations in the Company's Declaration of Trust. As a result of this action,
UICI and Gregory T. Mutz, the Chairman of the Company's Board of Trustees, may
collectively own up to 34.9% of the outstanding shares of beneficial interest of
the Company and UICI and Mr. Mutz may individually own 29.9% and 24.9%,
respectively, of the outstanding shares of beneficial interest of the Company,
subject to the group restrictions. Further, UICI, as an affiliate of ARC, will
be exempt from the "business combinations" and "control share acquisition"
restrictions of the Maryland General Corporation Law. See "Shares of Beneficial
Interest and Shareholder Liability" in the accompanying Prospectus.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Shares in the
Offering, after paying underwriting discounts and transactional expenses, are
expected to be approximately $51.8 million (approximately, $59.6 million if the
Underwriters' over-allotment option is exercised in full). The Company expects
to use the net proceeds of the Offering to repay approximately $40.0 million
outstanding under its primary lines of credit with Wachovia Bank and First
Chicago (the "First Chicago Line"). The Wachovia Line and the First Chicago Line
had outstanding balances of approximately $32.5 million and $14.0 million,
respectively, as of October 31, 1996 and carried interest at floating rates of
LIBOR plus 1.35% and LIBOR plus 1.65%, respectively. Borrowings under the
Wachovia Line mature in May, 1998, and borrowings under the First Chicago Line
mature in February, 1998. An additional $4.7 million of the net proceeds will be
used to prepay the 9.38% fixed rate first mortgage loan secured by AMLI at
Alvamar which matures on March 1, 1997. The balance of the net proceeds of
approximately $7.1 million will be used to fund the future acquisition and
development activity of the Company.
Pending application of the net proceeds as set forth above, such net
proceeds will be invested in interest-bearing accounts and short-term,
interest-bearing securities, which are consistent with the Company's intention
to qualify for taxation as a REIT. Such investments may include, for example,
obligations of the
S-14
Government National Mortgage Association, government and government agency
securities, certificates of deposit, commercial paper, money market funds that
invest in government securities and interest-bearing bank deposits.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares have been traded on the NYSE under the symbol "AML" since
the Initial Offering. The following table sets forth the quarterly high and low
sales prices per Common Share reported on the NYSE.
DISTRIBUTIONS
HIGH LOW DECLARED(2)
--------- --------- ---------------
1995
First Quarter.............................................................. $ 19.75 $ 17.00 $ .43
Second Quarter............................................................. $ 20.50 $ 17.63 $ .43
Third Quarter.............................................................. $ 20.13 $ 18.25 $ .43
Fourth Quarter............................................................. $ 20.38 $ 18.38 $ .43
1996
First Quarter.............................................................. $ 21.25 $ 19.63 $ .43
Second Quarter............................................................. $ 20.88 $ 18.88 $ .43
Third Quarter.............................................................. $ 20.88 $ 19.88 $ .43
Fourth Quarter(1).......................................................... $ 22.00 $ 20.38
- ---------
(1) October 1, 1996 through November 4, 1996.
(2) Distributions are declared and paid in the quarter immediately following the
quarter for which they are paid.
On November 4, 1996, the last reported sale price of the Common Shares on
the NYSE was $22.00 per share. On November 4, 1996, the Company had 180
shareholders of record.
The Company intends to continue to pay regular quarterly distributions to
holders of Common Shares. The quarterly distribution rate of $.43, if
annualized, would equal an annual distribution rate of $1.72 per Common Share.
The distribution for the quarter ended September 30, 1996 represented
approximately 83% of the Company's funds from operations for that quarter. See
Selected Financial Information for a discussion of the Company's funds from
operations. On October 28, 1996, the Board of Trustees declared its regular
quarterly distribution of $.43 per Common Share payable to shareholders of
record as of November 8, 1996. Although the Company intends to maintain this
current distribution rate, future distributions by the Company will be at the
discretion of the Board of Trustees and will depend on the actual Funds from
Operations of the Company, its financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Code and such
other factors as the Board of Trustees deems relevant.
The Company has implemented a dividend reinvestment program (the "DRIP")
under which the holders of Common Shares may elect automatically to reinvest
their dividends in additional Common Shares (and/or to make optional cash
purchases of Common Shares free of brokerage commissions and charges). Shares
purchased directly from the Company with reinvested dividends pursuant to the
DRIP will be purchased at fair market value.
S-15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and of the Company on a pro forma basis assuming, as of such
date, the completion of the Offering and the application of the net proceeds as
described under the caption "Use of Proceeds." The information set forth in the
following table should be read in conjunction with the financial statements and
notes thereto incorporated herein and in the accompanying Prospectus by
reference and the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
SEPTEMBER 30, 1996
-----------------------
COMPANY
COMPANY PRO FORMA
---------- -----------
(IN THOUSANDS)
Debt(1)................................................................................... $ 233,567 $ 201,766
Minority Interest......................................................................... 41,409 43,476
Shareholders' Equity:
Common Shares of Beneficial Interest, $0.01 par value per share, 148,500,000 authorized,
11,797,738 Common Shares issued and outstanding (14,297,738 Common Shares pro
forma)(2)(3).......................................................................... 118 143
Series A Cumulative Convertible Preferred Shares of Beneficial Interest, $0.01 par value
per share, 1,500,000 authorized, 1,100,000 Preferred Shares issued and outstanding
(1,100,000 Preferred Shares pro forma)(2)............................................. 11 11
Additional paid-in capital.............................................................. 242,487 292,213
Distributions in excess of net income................................................... (58,328) (58,328)
---------- -----------
Total capitalization................................................................ $ 459,264 $ 479,281
---------- -----------
---------- -----------
- ---------
(1) The Company Pro Forma debt is shown net of the portion of the net proceeds
of the Offering used to pay down the specific debt existing as of September
30, 1996. Additional indebtedness incurred after September 30, 1996 to fund
the Company's development activity is anticipated to be repaid following the
closing of the Offering from the net proceeds of the Offering.
(2) Does not include 2,901,154 Common Shares reserved for issuance upon exchange
of issued OP Units or 159,190 Common Shares reserved for issuance on the
exercise of Options which have been granted by the Company, 15,190 of which
are currently exercisable and 144,000 of which become exercisable in
February, 1996. Any number of authorized and unissued Common Shares may be
classified by the Trustees as preferred shares with such preferences,
conversions or other rights as the Trustees may decide. Under the Company's
Declaration of Trust, 150,000,000 Common Shares are authorized, and pursuant
to Articles Supplementary filed January 30, 1996, 1,500,000 such Common
Shares were designated as Series A Cumulative Convertible Preferred Shares
of Beneficial Interest. In March 1996, 100,000 of the 1,200,000 Series A
Cumulative Convertible Preferred Shares of Beneficial Interest issued by the
Company were converted into Common Shares.
(3) Assumes the Underwriters' over-allotment option to purchase up to 375,000
Common Shares is not exercised. See "Underwriting."
S-16
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro forma
basis for the Company and on a historical basis for the Company and its
predecessor, Amli Residential Properties Group ("ARPG"). For periods after the
closing of the Initial Offering on February 15, 1994, the accompanying selected
financial data is presented on a consolidated basis and includes the accounts of
the Company and the Operating Partnership. For the periods prior to the Initial
Offering, the accompanying selected financial data reflects the combined
accounts of ARPG.
ARPG consisted of various limited partnerships sponsored by ARC which
previously owned 20 residential properties, general partner interests in three
additional limited partnerships sponsored by ARC, and certain property
management, landscaping, investment advisory and asset management subsidiaries
and divisions of ARC which were contributed to the Company. The accounts are
presented on a combined basis because of the common ownership interest and
management. The historical operating data for AMLI, for the years ended December
31, 1995 and 1994 and for ARPG, for the years ended December 31, 1993, 1992 and
1991 have been derived from the historical financial statements audited by KPMG
Peat Marwick LLP, independent auditors. The operating data for the nine months
ended September 30, 1996 and 1995 has been derived from the unaudited combined
financial statements of the Company. In the opinion of management, the operating
data for the nine months ended September 30, 1996 and 1995 include all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the information set forth therein. The results of the operations
for the nine months ended September 30, 1996 are not necessarily indicative of
the Company's future results of operations for the full year ending December 31,
1996.
The pro forma operating data is presented as if: (i) the Common Shares were
sold in the Offering at the offering price of $22.00 per share; and (ii) the net
proceeds of the Offering were applied as described in "Use of Proceeds" as of
the beginning of the periods presented for the operating data and as of
September 30, 1996 for the balance sheet data.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and all of the financial
statements incorporated by reference in the accompanying Prospectus. The pro
forma financial information is not necessarily indicative of what the actual
financial position and results of operations of the Company would have been as
of and for the periods indicated, nor does it purport to represent the future
financial position and results of operations for future periods.
S-17
SELECTED FINANCIAL INFORMATION
AMLI RESIDENTIAL PROPERTIES TRUST AND
AMLI RESIDENTIAL PROPERTIES GROUP
(IN THOUSANDS EXCEPT PER SHARE AND PROPERTY INFORMATION)
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
1996 --------- --------- --------- --------- --------- --------- ---------
------------
PRO FORMA
OPERATING DATA:
REVENUES:
Property:
Rental............................. $ 53,420 $ 53,420 $ 52,057 $ 69,341 $ 61,123 $ 45,438 $ 36,489 $ 32,744
Other.............................. 2,427 2,427 2,094 2,797 2,338 1,709 1,317 1,063
Income from Service Companies(1)..... (160) (160) 40 3 100 884 1,068 782
Interest from Service Companies...... 342 342 342 455 398
Other interest....................... 1,143 392 308 407 491 313 260 325
Other................................ 1,596 1,596 572 874 765 190 146 400
------------ --------- --------- --------- --------- --------- --------- ---------
Total revenues..................... 58,768 58,017 55,413 73,877 65,215 48,534 39,280 35,314
------------ --------- --------- --------- --------- --------- --------- ---------
EXPENSES:
Property operating and maintenance
expenses........................... 22,729 22,729 21,265 28,451 24,834 19,908 15,688 15,080
Property management fees............. 1,396 1,396 1,353 1,803 1,411
Landscape services................... 11 107 194 129
Interest............................. 7,184 8,981 9,844 12,926 11,557 15,842 15,181 15,312
Amortization of deferred expenses.... 1,104 1,104 1,342 1,792 2,659 729 531 543
Depreciation and amortization........ 8,345 8,354 8,218 10,785 10,627 9,687 7,852 7,477
General and administrative........... 1,703 1,703 1,446 1,932 1,616 3,257 2,631 2,797
Expenses associated with the AMLI
brand name......................... 680 680
Writedown of vacant land............. 67 600
------------ --------- --------- --------- --------- --------- --------- ---------
Total expenses................... 42,461 44,267 44,148 58,369 52,715 49,530 42,144 41,938
------------ --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
minority interest and non-recurring
gains.............................. 16,307 13,750 11,265 15,508 12,500 (996) (2,864) (6,624)
Gain on sale of residential
property............................ 1,514 1,498
Gain resulting from interest cap
contracts........................... 584 584 960
Provision for income taxes........... (62) (699) (440) (217)
------------ --------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
items............................... 16,891 14,334 12,779 17,006 13,398 (1,695) (3,304) (6,841)
Minority interest.................... 2,646 2,605 2,481 3,287 2,681
------------ --------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
items(2)........................... $ 14,245 $ 11,729 $ 10,298 $ 13,719 $ 10,717 $ (1,695) $ (3,304) $ (6,841)
------------ --------- --------- --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common share
before extraordinary items(3)...... $ 0.91 $ 0.88 $ 0.88 $ 1.18 $ 0.92
------------ --------- --------- --------- ---------
------------ --------- --------- --------- ---------
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NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------------------------- -----------------------------------------------------
1996 1996 1995 1995 1994 1993 1992 1991
------------ --------- --------- --------- --------- --------- --------- ---------
PRO FORMA
OTHER DATA:
Funds from operations(4)............. $ 25,612 $ 23,055 $ 20,439 $ 27,404 $ 25,002 $ 8,021 $ 4,744 $ 1,453
EBITDA(5)............................ $ 33,891 $ 33,140 $ 31,625 $ 42,122 $ 37,670 $ 25,262 $ 20,700 $ 16,708
Net cash from (for) operating
activities.......................... $ 23,599 $ 21,880 $ 29,152 $ 27,510 $ 10,594 $ 5,195 $ 2,507
Net cash from (for) investing
activities.......................... $ (42,197) $ 2,867 $ (3,369) $(143,999) $ (71,796) $ (29,838) $ (22,048)
Net cash from (for) financing
activities.......................... $ 19,962 $ (25,867) $ (26,964) $ 110,326 $ 64,951 $ 26,902 $ 18,530
Wholly-Owned Communities (at end of
period)............................. 24 24 24 24 25 19 17 14
Apartment homes--Wholly-Owned
Communities (at end of period)...... 9,600 9,600 9,368 9,600 9,789 8,207 6,793 5,673
Physical occupancy--Wholly-Owned
Communities (weighted average)...... 93.4% 93.4% 96.7% 96.0% 94.9% 94.2% 95.6% 94.3%
Co-Investment Communities (at end of
period)............................. 10 10 7 8 5
Apartment homes--Co-Investment
Communities (at end of period)...... 3,175 3,175 1,853 2,095 1,301
Physical Occupancy--Co-Investment
Communities (weighted average)...... 94.5% 94.5% 94.1% 90.9% 90.7%
------------ --------- --------- --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- --------- --------- ---------
SEPTEMBER 30 DECEMBER 31
SEPTEMBER 30 -------------------- -----------------------------------------------------
1996 1996 1995 1995 1994 1993 1992 1991
------------ --------- --------- --------- --------- --------- --------- -------
(PRO FORMA) (IN THOUSANDS)
BALANCE SHEET DATA:
Residential real estate, before
accumulated depreciation........... $ 475,515 $ 475,515 $ 439,031 $ 442,865 $ 451,762 $ 338,895 $ 263,877 $ 227,372
Total assets......................... 494,165 474,148 430,712 433,227 442,619 311,236 242,680 211,444
Total debt (6)....................... 201,766 233,567 210,040 215,255 217,687 263,021 202,360 180,673
Minority interest.................... 43,476 41,409 39,522 39,077 42,743
Stockholders' equity................. 234,039 184,288 167,696 166,163 170,161 39,157 33,340 24,566
------------ --------- --------- --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- --------- --------- ---------
- ------------
(1) Amounts from 1991 through 1993 include revenues from property management and
landscape services provided by the Management Company. Since the Initial
Offering, the amounts reflect the Company's proportionate share of the net
income of the Management Company, AIA and Amrescon after elimination of
intercompany profit on construction activities.
(2) Represents the Company's income (loss) after minority interest of the
holders of OP Units.
(3) Assumes average Common Shares outstanding of 14,280,934 (pro forma),
11,780,934, 11,620,375, 11,634,776, 11,488,651, respectively. 1996 earnings
per share is exclusive of $1,273,000 dividends paid to holders of preferred
shares. 1994 earnings per share is for the period from February 15, 1994 to
December 31, 1994.
(4) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. Funds from
operations is defined as income (loss) before minority interest of the
holders of OP Units and extraordinary items (computed in accordance with
generally accepted accounting principles) plus certain non-cash items,
primarily depreciation. Adjustments for all periods consist only of
depreciation and certain non-recurring gains and losses, including a gain on
sale of residential property in 1995, gains resulting from interest rate cap
contracts in 1994 and 1996, expenses associated with the AMLI-Registered
Trademark-brand name in 1995, and write down of vacant land and imputed
interest on debt in 1991 and 1992. The Company believes that funds from
operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flows from operating activities,
financing activities and investing activities, it provides investors an
understanding of the ability of the Company to incur and service debt and to
make capital expenditures. Funds from operations should not be considered as
an alternative to net income or any other GAAP measurement as an indication
of the Company's performance or to cash flow as a measure of liquidity.
(5) EBITDA means operating income before mortgage and other interest, income
taxes, depreciation and amortization. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, is not to be
considered as an alternative to net income or any other GAAP measurement as
a measure of operating performance and is not necessarily indicative of cash
available to fund all cash needs. The Company has included EBITDA herein
because the Company believes that it is one measure used by certain
investors to determine operating cash flow.
(6) The Company pro forma total debt is shown net of the portion of the net
proceeds of the Offering used to pay down specific debt existing as of
September 30, 1996. Additional indebtedness incurred after September 30,
1996 to fund the Company's development activity is anticipated to be repaid
following the closing of the Offering from the net proceeds of the Offering.
S-19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the information
under "Selected Financial Information" and the financial statements and notes
thereto incorporated by reference in the accompanying Prospectus.
As of September 30, 1996, the Company owned an 81.6% general partnership
interest in the Operating Partnership, which holds the operating assets of the
Company. The limited partners hold OP Units that are convertible into shares of
the Company on a one-for-one basis, subject to certain limitations. The Company
has qualified, and anticipates continuing to qualify, as a REIT for Federal
income tax purposes.
RESULTS OF OPERATIONS
During the period from January 1, 1995 through September 30, 1996, growth in
property revenues and property operating expenses resulted from increases at
Communities owned as of January 1, 1995 and from the newly-constructed
Communities.
During the same period, the Company has invested in five co-investment
partnerships, which own the 236-unit AMLI at Windbrooke in Buffalo Grove,
Illinois, the 242-unit AMLI at Willeo Creek in Roswell, Georgia, the 316-unit
AMLI at Greenwood Forest in Houston, Texas, the 592-unit AMLI at Chevy Chase in
Buffalo Grove, Illinois, and the 488-unit AMLI at Willowbrook in Willowbrook,
Illinois.
For the nine months ended September 30, 1996, net income attributable to
Common Shares was $9,338,000, or $.79 per share, on total revenues of
$58,017,000. For the nine months ended September 30, 1995, net income was
$10,298,000, or $.88 per share, on total revenues of $55,413,000.
On a "same community" basis, weighted average occupancy of the stabilized
Communities decreased slightly to 94.2% for the nine months ended September 30,
1996 from 96.0% for the same period in the prior year. For the nine months ended
September 30, 1996, weighted average collected rents increased by 4.8% to $648
from $618 per unit per month for the nine months ended September 30, 1995.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Income before non-recurring items, minority interests, and extraordinary
items increased to $13,750,000 for the nine months ended September 30, 1996 from
$11,265,000 for the nine months ended September 30, 1995. This increase in net
income was primarily attributable to an $863,000 decrease in interest expense
and a $2,604,000 increase in total revenues, reduced by a $1,507,000 increase in
property operating expenses. For the nine months ended September 30, 1996 and
1995, net income was $10,611,000 and $10,298,000, respectively.
Total property revenues increased by $1,696,000, or 3.1%. On a same
community basis, total property revenues increased by $2,087,000, or 4.0%.
The $1,024,000 increase in other revenue includes a $390,000 increase in
share of income from co-investment ventures, a $358,000 increase in development
fees, a $196,000 increase in asset management fees, and a $96,000 increase in
acquisition fees.
Property operating expenses increased by $1,507,000, or 6.7%. On a same
community basis, property operating expenses increased by $1,358,000, or 6.2%.
Interest expense, net of the amounts capitalized, decreased from $9,844,000
to $8,981,000, or 8.8%.
General and administrative expenses increased from $1,446,000 for the nine
months ended September 30, 1995 to $1,703,000 for the nine months ended
September 30, 1996. The increase is primarily attributable to increased
compensation and compensation-related costs.
S-20
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $3,643,000 in cash and cash
equivalents and $52,965,000 in availability under its two primary bank lines of
credit, the Wachovia Line, a $60,000,000 line of credit, and the First Chicago
Line, a $29,500,000 line of credit which the Company anticipates will increase
by $11,747,000 to $41,247,000 during November 1996.
At September 30, 1996, the Company had outstanding borrowings of
approximately $32,535,000 on the Wachovia Line which is secured by mortgages on
two Wholly-Owned Communities in Georgia. Of the total outstanding, the rate on
$12,400,000 has been fixed at 6.47% per annum until February 15, 1997 and the
rate on $14,000,000 has been fixed at 6.65% per annum through February 24, 1997
through use of interest rate swap contracts. In addition, $5,845,000 has an
interest rate cap contract in place as protection against increases in LIBOR
above 3.875% through February 15, 1998. The Wachovia Line bears interest at an
annual rate of LIBOR plus 1.65% for borrowings secured by communities under
development and LIBOR plus 1.35% for borrowings secured by stabilized
communities. The remaining credit availability of $27,465,000 is anticipated to
be used to fund future working capital needs and acquisition and development
activities.
At September 30, 1996, the Company had outstanding borrowings of
approximately $4,000,000 on the First Chicago Line which bears interest at an
annual rate of LIBOR plus 1.65%. This facility was used to fund a portion of the
construction of the second phases of AMLI at Autumn Chase and AMLI at
Gleneagles. The remaining credit availability of $25,500,000 and the expected
increased availability of $11,747,000 on the First Chicago Line is expected to
be used by the Company to fund construction of AMLI at Autumn Chase Phase III,
future working capital needs and acquisition and development activities.
On April 29, 1996, the Company closed on a $43,907,000 10-year, 7.79% loan
provided by Fannie Mae. This loan is secured by mortgages on three properties in
Dallas, Texas. The loan proceeds, net of a .75% financing fee and an original
issue discount of $673,000, were used to retire the Company's then existing
balance on its line of credit with Lehman Brothers Holdings, Inc. ("Lehman")
which, beginning in August, 1997, would carry interest at a fixed rate of 8.35%
and to reduce the balance on the First Chicago Line.
On June 11, 1996, the Company closed with CIGNA on two seven-year loans
aggregating $42,000,000 with an average interest rate of 7.31% per annum.
Concurrently, the Company repaid the then existing balance on the Company's
$54,835,000 whole loan with Lehman. As a result of the refinancings completed by
the Company in April and June as described above, the Company improved its
balance sheet, financing structure and capability as follows:
- the Company increased the weighted average annual interest rate by 0.4% to
6.9% through August 1, 1997 and decreased the weighted average annual
interest rate by 0.2% during the four years thereafter;
- the Company increased the weighted average maturity of its outstanding
indebtedness to 5.3 years;
- the Company increased the percentage of debt that is fixed-rate debt to
66% from 54%;
- the Company wrote off expenses previously deferred in conjunction with the
repaid loans thereby decreasing its deferred expenses and amortization,
particularly for the period through August 1, 1997;
- the Company increased the number of unencumbered Wholly-Owned Communities
from one to five;
- the Company incurred net extraordinary or otherwise non-recurring charges
of $781,000, which is primarily attributable to the non-cash write-off of
deferred expenses relating to the Lehman loans.
At September 30, 1996, the Company had a $13,701,000 outstanding balance on
its $20,100,000 loan provided by Teachers Insurance and Annuity Association.
This loan is secured by AMLI at Regents Center in Overland Park, Kansas. The
remaining commitment is anticipated to fund in November, 1996 upon substantial
completion of the additional 124-unit Phase III under construction at this
Community.
S-21
At September 30, 1996, the $6,230,000 construction loan provided by Harris
Trust and Savings Bank for Phase III of AMLI at Regents Center had an
outstanding balance of $3,509,000. This loan was repaid in full by the Company
in October, 1996.
For the nine months ended September 30, 1996, net cash provided by operating
activities was $23,599,000. For the nine months ended September 30, 1995, cash
provided by operating activities was $21,880,000. The increase was primarily
attributable to the $2,604,000 increase in total revenues and the $863,000
decrease in interest expense, net of $1,507,000 increase in operating expenses.
During the second and third quarters of 1996, a total of $274,000 of cash was
used in operating activities for start-up losses from the initial lease-up of
the second phases of AMLI at Autumn Chase and AMLI at Gleneagles. No start-up
losses were incurred during 1995.
Cash flows used for investing activities were $42,197,000 for the nine
months ended September 30, 1996, and net cash flows provided by investing
activities were $2,867,000 for the nine months ended September 30, 1995.
Net cash flows provided by financing activities were $19,962,000 for the
nine months ended September 30, 1996, and net cash flows used in financing
activities were $25,867,000 for the nine months ended September 30, 1995. Such
cash flows for the nine months ended September 30, 1996 reflected the issuance
of preferred shares of beneficial interest resulting in the net cash proceeds of
$23,917,500.
The Company expects to pay quarterly dividends from cash available for
distribution. Until distributed, funds available for distribution will be
invested in short-term investment-grade securities or used to temporarily reduce
outstanding balances on the Company's revolving lines of credit.
The Company expects to meet its short-term liquidity requirements by using
its working capital and any portion of net cash flow from operations not
distributed currently. The Company is of the opinion that its future net cash
flows will be adequate to meet operating requirements in both the short and the
long term and provide for payment of dividends by the Company in accordance with
REIT requirements. In order to qualify as a REIT, the Company is required to
distribute dividends to its shareholders equal to 95% of its REIT taxable
income. The Company's 1996 estimated dividend payment level equals an annual
rate of $1.72 per share. The Company estimates that approximately 35% of the
total dividends to be paid in 1996 will be treated as a return of capital.
The Company expects to meet certain long-term liquidity requirements, such
as scheduled debt maturities, repayment of loans for construction, development,
and acquisition activities through the issuance of long-term secured and
unsecured debt and additional equity securities of the Company (or OP Units). On
July 20, 1995, the Company's shelf registration became effective. The
registration provided for up to an aggregate of $200,000,000 of preferred
shares, common shares and security warrants that the Company may issue from time
to time.
On January 30, 1996, the Company issued 1,200,000 Series A Cumulative
Convertible Preferred Shares of Beneficial Interest for $20 per share, or
$24,000,000 in the aggregate, directly to four institutional investors and ARC
in a registered offering, without the use of a placement agent or underwriter.
The proceeds of the offering, less $82,500 of transaction costs, were used to
reduce the Company's debt, to fund development costs and for working capital
requirements. ARC converted its 100,000 preferred shares to 100,000 Common
Shares on March 6, 1996.
S-22
COMPANY INDEBTEDNESS
The Company's debt as of September 30, 1996, substantially all of which is
secured by first mortgages on 19 of the wholly-owned Communities, is summarized
as follows:
SUMMARY DEBT TABLE
PERCENT OF
TYPE OF INDEBTEDNESS WEIGHTED AVERAGE INTEREST RATE BALANCE TOTAL
- ------------------------------------------------------- ------------------------------- -------------- ------------
Fixed Rate Mortgages(1)................................ 7.76% $ 152,023,000 65%
Tax-Exempt Bonds(2).................................... Tax Exempt Rate + 1.23% 40,750,000 17%
Lines of Credit(3)..................................... LIBOR + 1.35% to 36,535,000 16%
LIBOR + 1.65%
Other(4)............................................... Various 4,259,000 2%
-------------- ---
TOTAL................................................ $ 233,567,000 100%
-------------- ---
-------------- ---
- ---------
(1) Approximately $24,104,000 of the Company's fixed rate indebtedness is due in
1997, $11,264,000 is due in 1998, and $116,655,000 is due after June 30,
2003.
(2) The tax exempt bonds bear interest at a variable tax exempt rate, which for
the week beginning October 22, 1996 was 3.60% making the Company's effective
rate 4.83%, and mature on October 1, 2024. The related credit enhancement
expires in 1999.
(3) Amounts borrowed under lines of credit are due in 1998.
(4) All but $750,000 of the Company's "Other" debt was repaid in October, 1996.
FUNDS FROM OPERATIONS
Funds from operations for the nine months ended September 30, 1996 and 1995
are summarized as follows:
SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Net income before minority interest and extraordinary item.................................. $ 14,334 $ 12,779
Depreciation................................................................................ 8,354 8,218
Other, net(1)............................................................................... 367 (558)
--------- ---------
Funds from operations....................................................................... $ 23,055 $ 20,439
--------- ---------
--------- ---------
Total shares--weighted average, including shares issued upon conversion of preferred shares
and units................................................................................. 15,600 14,427
--------- ---------
--------- ---------
- ---------
(1) Includes share of co-investment partnerships' depreciation and, in 1996,
non-recurring gain relating to the sale of an interest rate cap contract
and, in 1995, non-recurring gain from the sale of an apartment community,
net of non-recurring expenses associated with the AMLI-Registered Trademark-
brand name.
Funds from operations is defined as income (loss) before minority interest
of the holders of OP Units and extraordinary items (computed in accordance with
generally accepted accounting principles), plus certain non-cash items,
primarily depreciation. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect funds from operations on the same basis.
Funds from operations is widely accepted in measuring the performance of equity
REITs. An understanding of the Company's funds from operations will enhance the
reader's comprehension of the Company's results of operations and cash flows as
presented in the financial statements and data included elsewhere herein. Funds
from operations should not be considered an alternative to net income or any
other GAAP measurement as a measure of the results of the Company's operations,
the Company's cash flows or liquidity.
S-23
DEVELOPMENT ACTIVITIES AND OTHER CAPITAL EXPENDITURES
AMLI at Autumn Chase Phase II, a 224 apartment home development in
Carrollton, Texas, is substantially complete and currently in lease-up. AMLI at
Gleneagles Phase II, a 264 apartment home development located in Dallas, Texas,
is expected to be completed in December 1996. The approximate development costs
of the two Communities (including land cost) are $25,000,000. The Company has
also commenced development activities on additional sites in Atlanta, Chicago,
Dallas, Topeka and Overland Park, Kansas. Furthermore, the Company has started
planning and pre-development activities on four additional sites in Atlanta,
Austin, Chicago and Dallas. The costs of these development activities are
expected to be funded from existing credit availability and/or in partnership
with institutional investors.
In February 1996, the Company acquired two land parcels in Atlanta, Georgia
and Aurora, Illinois for a total price of $11,023,000. The Atlanta parcel was
acquired for cash and a note that was paid off in May 1996. The consideration
for the Aurora land parcel was satisfied in part by the issuance of 26,182 OP
Units, with the remaining purchase price paid in cash. A 272 apartment home
community is under development on the Aurora site in a co-investment partnership
with an institutional investor. The Company has begun development of a 400
apartment home community on the Atlanta site and expects to commence development
of a second 400 apartment home community on adjacent land either for its own
account or in partnership with an institutional investor.
At September 30, 1996, AMLI at Pleasant Hill, a 502 apartment home community
developed through a co-investment partnership, is substantially complete. Total
development costs of approximately $26,600,000 were funded first from the
venturers' capital contributions and thereafter are being funded from the
$15,500,000 fixed-rate construction and permanent loan provided by the
co-venturer.
In November 1995, the Company, through a co-investment joint venture, began
construction of the 446-unit AMLI at Barrett Lakes apartment community on 54
acres of land located in Atlanta, Georgia. Of the total estimated development
costs of $27,800,000, the co-venturer has provided $16,680,000 of construction
and permanent financing for this development, and the remaining costs are being
funded from the Company's and the co-investor's equity contributions.
In December 1995, the Company began construction of AMLI at River Park, a
222 apartment home community in Atlanta, Georgia. In June 1996, this Community
was contributed to a co-investment joint venture. Of the $15,400,000 estimated
development costs, the co-venturer provided $9,100,000 in the form of a loan and
the remaining costs are being funded from equity contributions from the Company
and its co-investment partner.
On February 27, 1996, the Company committed to make a $12,955,000
construction loan to a third party to fund the development of a 156 apartment
home community in Overland Park, Kansas. This community was approximately 40%
complete at September 30, 1996 and is anticipated to be completed in May, 1997.
The construction and development of this community is accounted for as an
acquisition, construction and development loan.
At September 30, 1996, the Company entered into a joint venture with a large
public pension fund and formed Acquiport/Aurora Crossing, L.P. Concurrent with
the formation of the partnership, AMLI contributed the 18-acre Aurora land
parcel and all the improvements in place for a 272 apartment home development.
The total development cost of approximately $24,500,000 will be funded by equity
contributions, of which $7,400,000 was funded on September 30, 1996. The Company
owns a 25% general partnership interest in this joint venture and received
$5,545,000 as reimbursement of costs.
On September 30, 1996, the Company, as general partner, and for a 25%
partnership interest, entered into a co-investment partnership with a large
public pension plan and formed Acquiport/Fossil Creek, L.P. Upon formation of
the partnership, the Company contributed its 19-acre land parcel in Forth Worth,
Texas. The development of a 384 apartment home community on this site is
currently in progress. The total development costs of approximately $23,700,000
will be funded from capital contributions from the partners. At September 30,
1996, total costs incurred of $2,670,000 were funded. The Company received
$1,998,000 as reimbursement of costs.
S-24
On October 9, 1996, the Company acquired a 28.6 acre parcel of land located
in Aurora, Illinois. The $5,014,000 purchase price of this parcel was paid
partially in cash ($3,429,000 of which has been paid by the Company and $485,000
of which is payable when construction is completed) and through the issuance of
53,140 OP Units. The Company intends to develop a 464 unit apartment community
on this site in partnership with an institutional investor. Total development
costs are projected to be approximately $45,000,000 and construction is
contemplated to commence in the Spring of 1997.
Capital expenditures are those made for assets having a useful life in
excess of one year and include replacements (including carpeting and appliances)
and betterments, such as unit upgrades, enclosed parking facilities and similar
items.
In conjunction with acquisitions of existing properties, it is the Company's
policy to provide in its acquisition budgets adequate funds to complete any
deferred maintenance items and to otherwise make the properties acquired
competitive with comparable newly-constructed properties. In some cases, the
Company will provide in its acquisition budget additional funds to upgrade or
otherwise improve new acquisitions.
INFLATION
Virtually all apartment leases at the Communities and Co-Investment
Communities are for six or twelve months' duration. This enables the Company to
pass along inflationary increases in its operating expenses on a timely basis.
Because the Company's property operating expenses (exclusive of depreciation and
amortization) are approximately 43.0% of rental and other revenue, increased
inflation typically results in comparable increases in income before interest
and general and administrative expenses, so long as rental market conditions
allow increases in rental rates while maintaining stable occupancy.
An increase in general price levels may immediately precede, or accompany,
an increase in interest rates. The Company's exposure to rising interest rates
is mitigated by the existing debt level of approximately 41% of the Company's
current total market capitalization and the high percentage (65%) of
intermediate term fixed rate debt. As a result, for the foreseeable future,
increases in interest expense resulting from increasing inflation are
anticipated to be less than future increases in income before interest and
general and administrative expenses.
THE COMMUNITIES
THE STABILIZED COMMUNITIES
At September 30, 1996, the Wholly-Owned Communities consisted of 24
stabilized multifamily residential communities containing an aggregate of 9,600
apartment homes. The Co-Investment Communities consisted of 10 stabilized
multifamily residential communities containing an aggregate of 3,175 apartment
homes. At September 30, 1996, the average age of the Wholly-Owned Communities
was 8.5 years, and the average age of the Co-Investment Communities was 6.2
years. The Wholly-Owned Communities and the Co-Investment Communities are
primarily oriented to residents demanding high levels of services and contain
numerous tenant amenities, such as fitness centers, swimming pools, tennis
courts, basketball and volleyball courts, miles of jogging trials and nature
walks. Most of the apartment units have a patio, porch or sunroom, and many
offer one or more additional features, such as vaulted ceilings, microwave
ovens, Palladian windows, fireplaces, and washers and dryers or washer/dryer
connections. The Communities that were developed by the Company or its
predecessor have won numerous awards for design, landscaping and architecture.
The table set forth below summarizes the following information related to
the stabilized Communities: (i) the name and location of the community; (ii) the
year each community was completed; (iii) the number of units at, and average
unit size of, each community; (iv) the average rent per unit; (v) the weighted
average physical occupancy of each community from January 1, 1996 through
September 30, 1996; and (vi) with respect to the Co-Investment Communities, the
Company's percentage ownership thereof.
S-25
STABILIZED COMMUNITIES
WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF UNIT SIZE RENT PER PHYSICAL
WHOLLY-OWNED COMMUNITY LOCATION YEAR COMPLETED UNITS (SQUARE FEET) UNIT OCCUPANCY
- ----------------------------------- ------------- -------------- ----------- --------------- ----------- --------------
DALLAS/FT. WORTH, TX
AMLI at Autumn Chase............... Carrollton 1987 226 800 $ 636 93.7%
AMLI at Bear Creek................. Euless 1986 350 786 563 93.9%
AMLI at Chase Oaks................. Plano 1986 250 775 656 95.6%
AMLI at Gleneagles................. Dallas 1987 326 841 613 96.4%
AMLI on the Green.................. Ft. Worth 1990/1993 424 846 672 95.4%
AMLI at Nantucket.................. Dallas 1986 312 712 519 95.8%
AMLI of North Dallas............... Dallas 1985/1986 1,032 878 619 95.7%
AMLI at Reflections................ Irving 1986 212 822 645 92.5%
AMLI on Rosemeade.................. Dallas 1987 236 870 632 96.0%
AMLI on Timberglen................. Dallas 1985 260 774 563 95.1%
AMLI at Valley Ranch............... Irving 1985 460 848 649 93.6%
----------- ----- --- ---
4,088 827 617 95.0%
----------- ----- --- ---
AUSTIN, TX
AMLI at the Arboretum.............. Austin 1983 231 771 684 94.3%
AMLI in Great Hills................ Austin 1985 344 747 663 94.2%
AMLI at Martha's Vineyard.......... Austin 1986 360 704 624 91.9%
----------- ----- --- ---
935 736 653 93.3%
----------- ----- --- ---
ATLANTA, GA
AMLI at Sope Creek................. Marietta 1982/1983/1995 695 911 677 93.6%
AMLI at Spring Creek............... Dunwoody 1985-1989 1,180 916 694 94.9%
AMLI at Vinings.................... Atlanta 1985 208 1,104 776 95.9%
AMLI at West Paces................. Atlanta 1992 337 933 850 94.5%
----------- ----- --- ---
2,420 933 718 94.4%
----------- ----- --- ---
EASTERN KANSAS
AMLI at Alvamar.................... Lawrence 1989 152 828 640 93.5%
AMLI at Crown Colony............... Topeka 1986 156 776 553 89.3%
AMLI at Regents Center............. Overland Park 1991-1995 300 914 731 93.4%
AMLI at Sherwood................... Topeka 1993 300 868 603 90.2%
----------- ----- --- ---
908 860 643 91.6%
----------- ----- --- ---
INDIANAPOLIS, IN
AMLI at Riverbend.................. Indianapolis 1983/1985 996 824 565 93.7%
----------- ----- --- ---
CHICAGO, IL
AMLI at Park Sheridan.............. Chicago 1986 253 855 881 94.3%
----------- ----- --- ---
TOTAL WHOLLY-OWNED 9,600 848 $ 650 94.2%
COMMUNITIES...................
----------- ----- --- ---
WEIGHTED
COMPANY AVERAGE AVERAGE AVERAGE
PERCENTAGE YEAR NUMBER UNIT SIZE RENT PHYSICAL
CO-INVESTMENT COMMUNITY OWNERSHIP LOCATION COMPLETED OF UNITS (SQUARE FEET) PER UNIT OCCUPANCY
- -------------------------- ------------- ------------- ----------- ----------- --------------- ----------- --------------
ATLANTA, GA
AMLI at Towne Creek....... 1% Gainesville 1989 150 811 $620 95.6%
AMLI at Willeo Creek...... 30% Roswell 1989 242 1,229 764 94.4%
----------- ----- ----------- ---
392 1,069 709 94.9%
----------- ----- ----------- ---
CHICAGO, IL
AMLI at Prairie Court..... 1% Oak Park 1987 125 845 1,036 94.8%
AMLI at Windbrooke........ 15% Buffalo Grove 1987 236 903 899 95.9%
AMLI at Chevy Chase....... 33% Buffalo Grove 1988 592 812 862 93.6%
AMLI at Willowbrook....... 40% Willowbrook 1987 488 857 857 93.8%
----------- ----- ----------- ---
1,441 845 881 94.1%
----------- ----- ----------- ---
AUSTIN, TX
AMLI at Park Place........ 25% Austin 1985 588 677 598 96.7%
----------- ----- ----------- ---
S-26
WEIGHTED
COMPANY AVERAGE AVERAGE AVERAGE
PERCENTAGE YEAR NUMBER UNIT SIZE RENT PHYSICAL
CO-INVESTMENT COMMUNITY OWNERSHIP LOCATION COMPLETED OF UNITS (SQUARE FEET) PER UNIT OCCUPANCY
- -------------------------- ------------- ------------- ----------- ----------- --------------- ----------- --------------
HOUSTON, TX
AMLI at Champions Centre.. 15% Houston 1994 192 857 718 93.8%
AMLI at Champions Park.... 15% Houston 1991 246 901 681 90.1%
AMLI at Greenwood Forest.. 15% Houston 1995 316 984 733 87.6%
----------- ----- ----------- ---
754 924 712 90.0%
----------- ----- ----------- ---
TOTAL CO-INVESTMENT 3,175 860 $767 93.8%
COMMUNITIES..........
----------- ----- ----------- ---
TOTAL..................... 12,775 851 $679 94.1%
----------- ----- ----------- ---
----------- ----- ----------- ---
DEVELOPMENT COMMUNITIES
At September 30, 1996, the Development Communities consisted of 12
multifamily residential communities under construction or in various stages of
lease-up. When completed, the Development Communities will total 3,454 apartment
homes. The anticipated development costs for the Company Development communities
and the Co-Investment Development Communities were $99.1 million and $118.0
million, respectively.
The tables set forth below summarizes the following information related to
the Company Development Communities and the Co-Investment Development
Communities: (i) the name and location of the community; (ii) the number of
apartment homes to be constructed at each community; (iii) the projected
completion date of each community and the percentage completion of the community
as of September 30, 1996; (iv) the anticipated development cost of each
community and the amount thereof expended as of September 30, 1996; and (v) with
respect to each Co-Investment Community, the Company's percentage ownership
interest therein and the name of the joint venture partner with respect to each
Co-Investment Development Community. The Company Development Communities exclude
AMLI at Sope Creek Crossing IV, a 232 apartment home community which is now
complete.
COMPANY DEVELOPMENT COMMUNITIES
AMOUNT
PROJECTED ANTICIPATED EXPENDED
COMPANY DEVELOPMENT NO. OF COMPLETION COMPLETION DEVELOPMENT THROUGH
COMMUNITY LOCATION UNITS PERCENTAGE DATE COST 9/30/96
- ------------------------------- -------------------- ----------- --------------- ----------- ------------ --------------
AMLI at Gleneagles
Phase II..................... Dallas, Texas 264 86% Dec. 1996 $13,800,000 $ 11,932,000
AMLI at Regents Center Overland Park,
Phase III.................... Kansas 124 70% Dec. 1996 7,700,000 5,419,000
AMLI at Crown Colony........... Topeka, Kansas 64 30% Feb. 1997 3,600,000 1,094,000
AMLI at Autumn Chase
Phase III.................... Carrollton, Texas 240 13% Nov. 1997 14,100,000 1,787,000
AMLI at North Winds
Phase I...................... Atlanta, Georgia 400 17% Feb. 1998 26,800,000 4,423,000
AMLI at Peachtree City......... Atlanta, Georgia 312 20% Nov. 1997 21,900,000 4,379,000
Completed;
AMLI at Autumn Chase II........ Carrollton, Texas 224 100% In Lease-up 11,200,000 11,200,000
----- ------------ --------------
TOTAL.......................... 1,628 $99,100,000 $ 40,234,000
----- ------------ --------------
----- ------------ --------------
S-27
CO-INVESTMENT DEVELOPMENT COMMUNITIES
AMOUNT
CO-INVESTMENT COMPANY PROJECTED ANTICIPATED EXPENDED
DEVELOPMENT PERCENTAGE NO. OF COMPLETION COMPLETION DEVELOPMENT THROUGH
COMMUNITY OWNERSHIP LOCATION UNITS PERCENTAGE DATE COST 9/30/96
- ------------------- --------------- ---------------- ----- ---------------- ----------- ------------ --------------
AMLI at Pleasant Completed;
Hill.............. 40% Atlanta, Georgia 502 97% In Lease-up $26,600,000 $ 25,676,000
AMLI at Barrett
Lakes............. 35% Atlanta, Georgia 446 39% Nov. 1997 27,800,000 10,848,000
AMLI at River
Park.............. 40% Atlanta, Georgia 222 49% June 1997 15,400,000 7,497,000
AMLI at Aurora
Crossing.......... 25% Aurora, Illinois 272 32% July 1997 24,500,000 7,885,000
AMLI at Fossil
Creek............. 25% Ft. Worth, Texas 384 11% Feb. 1998 23,700,000 2,654,000
----- ------------ --------------
TOTAL.............. 1,826 $118,000,000 $ 54,560,000
----- ------------ --------------
----- ------------ --------------
CO-INVESTMENT
DEVELOPMENT CO-INVESTMENT
COMMUNITY PARTNER
- ------------------- -------------
AMLI at Pleasant
Hill.............. NML
AMLI at Barrett
Lakes............. NML
AMLI at River
Park.............. Erie
AMLI at Aurora
Crossing.......... NYCRF
AMLI at Fossil
Creek............. NYCRF
TOTAL..............
S-28
MANAGEMENT
TRUSTEES, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The Trustees, executive officers and certain other significant employees of
the Company and its affiliates and their positions and offices are set forth in
the following table.
NAME POSITIONS AND OFFICES HELD AMLI & AFFILIATES
- ---------------------------- ----------------------------------------------------------------
Gregory T. Mutz Chairman of the Board of Trustees (term will expire in 1999)
John E. Allen Vice-Chairman of the Board of Trustees (term will expire in
1998)
Allan J. Sweet President and Trustee (term will expire 1997)
Philip N. Tague Executive Vice President and Trustee (term will expire 1998)
Laura D. Gates* Trustee (term will expire in 1999)
Marc S. Heilweil* Trustee (term will expire in 1999)
Stephen G. McConahey* Trustee (term will expire in 1997)
Quintin E. Primo III* Trustee (term will expire in 1998)
John G. Schreiber* Trustee (term will expire in 1997)
Stephen C. Ross Executive Vice President
Charles C. Kraft Treasurer
Peggy Butterworth Executive Vice President--Amli Management Company
Robert Aisner Senior Vice President--Development
Mark Evans Senior Vice President--Amli Residential Construction, Inc.
Melissa Lavender Senior Vice President--Amli Institutional Advisors, Inc.
Rosita A. Lina Vice President and Controller
Charlotte A. Sparrow Vice President and Secretary
Fred N. Shapiro Vice President--Acquisitions
Curtis Walker Vice President--Acquisitions
Jennifer Wilson Vice President--Development
Greg O'Berry Vice President--Asset Management
Cindy Gurniewicz Vice President--Development
Robert C. Malpasuto Vice President--Management Information Systems
M. Watson Brown Vice President--Amli Residential Contruction, Inc.
David R. Wade Vice President--Amli Residential Contruction, Inc.
Terry L. Turk Regional Vice President--Amli Management Company
- ---------
* Each of these individuals is a Disinterested Trustee within the meaning of
the Company's Declaration of Trust. The Company has a nine-member Board of
Trustees, which includes, as required by the Company's Declaration of Trust,
a majority of Trustees (presently five Trustees) who are not affiliated with
ARC and its affiliates and successors (each a "Disinterested Trustee").
S-29
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
among the underwriters named below (the "Underwriters") and the Company (the
"Underwriting Agreement"), the Underwriters have severally agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriters, the
following respective number of Common Shares:
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
Lehman Brothers Inc........................................................
Dean Witter Reynolds Inc...................................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.........................
EVEREN Securities, Inc.....................................................
-----------------
Total.................................................................. 2,500,000
-----------------
-----------------
The Underwriting Agreement provides that the Underwriters' obligations to
purchase the Common Shares are subject to the satisfaction of certain
conditions, including the receipt of certain legal opinions. The nature of the
Underwriters' obligations is such that they are committed to purchase all of the
Common Shares if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Common Shares offered hereby for sale, from time to time, to purchasers directly
or through agents, or through brokers in brokerage transactions on the NYSE, or
to underwriters or dealers in negotiated transactions or in a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices.
Brokers, dealers, agents and underwriters that participate in the
distribution of the Common Shares offered hereby may be deemed to be
underwriters under the Securities Act of 1933. Those who act as underwriter,
broker, dealer or agent in connection with the sale of the Common Shares offered
hereby will be selected by the Underwriters and may have other business
relationships with the Company or affiliates in the ordinary course of business.
The Company has granted to the Underwriters an option to purchase up to an
additional 375,000 Common Shares at a purchase price of $ per share, solely
to cover over-allotments, if any. Such option may be exercised at any time until
30 days after the date of this Prospectus Supplement.
The Company has agreed, subject to certain exceptions (including the
issuance of Common Shares pursuant to the Company's employee benefits plans),
not to offer, sell, enter into any agreement to sell or otherwise dispose of any
Common Shares for a period of 90 days after the date of this Prospectus
Supplement.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including under the Securities Act of 1933.
In August 1994, Lehman Brothers Holdings, Inc., an affiliate of Lehman
Brothers Inc., provided to the Company a $54,835,000 whole loan and a
$39,628,000 line of credit, each of which was secured by liens on certain of the
Communities. The Company repaid in full such loan and line of credit in June,
1996. Additionally, from time to time from August, 1994 through June, 1996,
Lehman provided financial advisory services and financial derivative products to
the Company. Lehman received customary compensation for providing such loans,
financial advisory services and financial derivative products.
Since October 1, 1996, an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated has acted as trustee and administrator of the Company's Retirement
Savings Plan and Trust, for which it has received customary compensation.
Stephen G. McConahey, a Trustee of the Company, is the President and Chief
Operating Officer of EVEREN Securities, Inc.
S-30
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements set forth herein or incorporated by reference herein from
the Company's filings under the Securities Exchange Act of 1934, as amended (see
"Incorporation by Reference" in the accompanying Prospectus), contain
forward-looking statements, including, without limitation, statements relating
to the timing and anticipated capital expenditures of the Company's development
programs. Although the Company believes that the expectations reflected in such
forward-looking statements are based on reasonable assumptions, the actual
results may differ materially from that set forth in the forward-looking
statements. Certain factors that might cause such difference include general
economic conditions, local real estate conditions, construction delays due to
the unavailability of construction materials, weather conditions or other delays
beyond the control of the Company. Consequently, such forward-looking statements
should be regarded solely as reflections of the Company's current operating and
development plans and estimates. These plans and estimates are subject to
revision from time to time as additional information becomes available, and
actual results may differ from those indicated in the referenced statements.
EXPERTS
The consolidated financial statements and schedule of AMLI Residential
Properties Trust as of December 31, 1995 and 1994 and for each of the years in
the three-year period ended December 31, 1995 have been incorporated by
reference in the accompanying Prospectus and in the Registration Statement, of
which the accompanying Prospectus is a part, in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, which report is
incorporated by reference therein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
Mayer, Brown & Platt, Chicago, Illinois, has passed upon the validity of the
issuance of the Common Shares offered pursuant to this Prospectus Supplement and
the accompanying Prospectus and on certain tax matters as described under
"Federal Income Tax Considerations" in the accompanying Prospectus. Mayer, Brown
& Platt has in the past represented and is currently representing the Company
and certain of its affiliates. Mayer, Brown & Platt has in the past represented
and is presently representing Lehman Brothers in certain other matters. Certain
legal matters relating to the Offering will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom (Illinois).
S-31
PROSPECTUS
AMLI RESIDENTIAL PROPERTIES TRUST
$200,000,000
PREFERRED SHARES, COMMON SHARES AND SECURITIES WARRANTS
---------------------
Amli Residential Properties Trust (the "Company") may from time to time
offer and sell in one or more series (i) Preferred Shares of Beneficial
Interest, par value $.01 per share (the "Preferred Shares"); (ii) Common Shares
of Beneficial Interest par value $.01 per share (the "Common Shares"); or (iii)
warrants to purchase Preferred Shares (the "Preferred Shares Warrants") and
warrants to purchase Common Shares (the "Common Shares Warrants"), with an
aggregate public offering price of up to $200,000,000, on terms to be determined
by market conditions at the time of offering. The Preferred Shares Warrants and
the Common Shares Warrants shall be referred to herein collectively as the
"Securities Warrants." The Preferred Shares, Common Shares, and Securities
Warrants (collectively, the "Offered Securities") may be offered separately or
together, in separate series, in amounts and at prices and terms to be set forth
in an accompanying supplement to this Prospectus (each, a "Prospectus
Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Shares, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights, and any initial public offering
price, along with any other relevant specific terms; (ii) in the case of Common
Shares, any initial public offering price; and (iii) in the case of Securities
Warrants, the duration, offering price, exercise price and detachability, if
applicable, along with any other relevant specific terms. In addition, such
specific terms may include limitations on direct or indirect beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly by the Company, or through
agents designated from time to time by the Company, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Offered
Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS 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. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 15, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy material and other information
concerning the Company can be inspected and copied at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at its regional
offices, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and
Seven World Trade Center, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.SEC.gov) that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. The Company's outstanding Common Shares are listed on the
New York Stock Exchange (the "NYSE") under the symbol "AML", and all such
reports, proxy material and other information filed by the Company with the NYSE
may be inspected at the offices of the NYSE at 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This prospectus ("Prospectus"), which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. Statements made in this Prospectus as to the
content of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed or incorporated by reference as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-12784) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
(1) The Company's Annual Report on Form 10-K, as amended on Form 10-K/A
(filed May 16, 1996), for the fiscal year ended December 31, 1995;
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996.
(3) The Company's Current Reports on Form 8-K dated January 18, 1996 (filed
January 19, 1996); January 30, 1996 (two Reports dated this date, one
filed January 31, 1996 and one filed February 14, 1996) and October 15,
1996;
(4) The Company's Proxy Statement for the annual meeting of shareholders to
be held on April 29, 1996;
(5) Description of the Common Shares included in the Registration Statement
on Form 8-A dated February 1, 1994 (filed February 1, 1994).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document which is or is
deemed to be incorporated by reference herein, modifies or supersedes any such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of such
person, a copy of any of the foregoing documents incorporated herein by
reference (other than the exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Amli Residential Properties Trust, 125 South Wacker Drive, Chicago,
Illinois 60606, Attention: Secretary, telephone (312) 984-5037.
2
THE COMPANY
The Company and its affiliates constitute a self-administered and
self-managed real estate investment trust (a "REIT") which was organized in
February, 1994 to continue and expand the multifamily property business
conducted by Amli Realty Co. and its affiliates ("Amli") since 1980. The Company
and its affiliates own, manage, lease, acquire and develop institutional quality
apartment communities. The Company's communities (the "Communities") are located
in specific markets in the Southwest, Southeast and Midwest areas of the United
States. The Company also holds interests in co-investment ventures involving
residential apartment communities (the "Co-investment Communities").
Additionally, the Company engages in development activities on its own and
through co-investment joint ventures.
The business of the Company is operated through the Operating Partnership,
Amli Management Company (the "Management Company"), Amli Institutional Advisors,
Inc. ("AIA") and Amli Residential Construction, Inc. ("Amrescon" and together
with the Management Company and AIA, the "Service Companies"). The Company is
the sole general partner of the Operating Partnership, a Delaware limited
partnership, through which it owns the Communities and its interests in the
Co-Investment Communities. As of September 30, 1996, the Company owned 81.6% of
the partnership interests ("Units") in the Operating Partnership. The Management
Company provides management and leasing services to each of the Communities, the
Co-Investment Communities and several additional properties in which the Company
has no interest. AIA, a "QPAM" (qualified professional asset manager), renders
real estate investment advice to institutional capital sources, primarily
pension plans, endowments, foundations and insurance companies. The Company
actively pursues co-investments through relationships administered by AIA, in
this way seeking to diversify the sources of its equity capital for investment
in apartment communities. Amrescon provides general contracting, construction
management and landscaping services to the Company and its managed ventures.
The Company was formed as a Maryland real estate investment trust on
December 16, 1993. The Company's executive offices are located at 125 South
Wacker Drive, Suite 3100, Chicago, Illinois 60606 and its telephone number is
(312) 984-5037. The Company's principal office is in Chicago, Illinois with
regional offices in Dallas, Texas and Atlanta, Georgia.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement which accompanies
this Prospectus, the Company intends to use the net proceeds from the sale of
the Offered Securities for general corporate purposes, which may include
acquisition and development of apartment communities, investment in further
co-investment ventures, improvement of the Communities and repayment of certain
then-outstanding secured or unsecured indebtedness.
SHARES OF BENEFICIAL INTEREST AND SHAREHOLDER LIABILITY
The Declaration of Trust of the Company provides that the Company may issue
up to 150,000,000 shares of beneficial interest, $.01 par value per share. No
holder of any class of shares of beneficial interest of the Company will have
any preemptive right to subscribe for any securities of the Company except as
may be granted by the Board of Trustees in authorizing the issuance of a class
of preferred shares of beneficial interest. The Company's Declaration of Trust
authorizes the Trustees to classify or reclassify any unissued Common Shares or
Preferred Shares by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption.
Both Maryland statutory law governing real estate investment trusts
organized under the laws of that state and the Company's Declaration of Trust
provide that no shareholder of the Company will be personally liable for any
obligations of the Company. The Company's Declaration of Trust further provides,
with certain limited exceptions, that the Company shall indemnify each
shareholder against claims or liabilities to which the shareholder may become
subject by reason of his being or having been a shareholder and that the Company
shall reimburse each shareholder for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability. In addition, it
is the Company's policy to include a clause in its
3
contracts, including the Partnership Agreement of the Operating Partnership,
which provides that shareholders assume no personal liability for obligations
entered into on behalf of the Company. However, with respect to tort claims,
contractual claims where shareholder liability is not so negated, claims for
taxes and certain statutory liability, a shareholder may, in some jurisdictions,
be personally liable to the extent that such claims are not satisfied by the
Company. Inasmuch as the Company will carry public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited to
situations in which the Company's assets plus its insurance coverage would be
insufficient to satisfy the claims against the Company and its shareholders.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law, as amended from time to time
(the "MGCL"), as applicable to Maryland real estate investment trusts, certain
"business combinations" (including a merger, consolidation, share exchange, or,
in certain circumstances, an asset transfer or issuance or reclassification of
equity securities) between a Maryland real estate investment trust and any
person who beneficially owns 10% or more of the voting power of the shares of
the trust or an affiliate of the trust who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more of
the voting power of the then-outstanding voting shares of beneficial interest of
the trust (an "Interested Shareholder") or an affiliate thereof are prohibited
for five years after the most recent date on which the Interested Shareholder
became an Interested Shareholder. Thereafter, any such business combination must
be (a) recommended by the Board of Trustees of such trust and (b) approved by
the affirmative vote of at least (i) 80% of the votes entitled to be cast by
holders of outstanding voting shares of the trust and (ii) two-thirds of the
votes entitled to be cast by holders of outstanding voting shares (other than
voting shares held by the Interested Shareholder with whom the business
combination is to be effected or by an affiliate or associate thereof), voting
together as a single group, unless, among other things, the company's common
shareholders receive a minimum price (as defined in the statute) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for his shares. These provisions
of Maryland law do not apply, however, to business combinations with a
particular Interested Shareholder or its existing or future affiliates that are
approved or exempted by the board of trustees of the trust prior to the time
that the Interested Shareholder becomes an Interested Shareholder or if the
original declaration of trust includes a provision electing not to be governed,
in whole or in part, as to business combinations generally, specifically or
generally by types, as to identified or unidentified existing or future
Interested Shareholders or their affiliates. The Company's Declaration of Trust,
in accordance with Maryland law, exempts Mr. Mutz, Baldwin & Lyons, Inc., a
publicly traded casualty insurance company based in Indianapolis ("Baldwin &
Lyons") and Amli and their respective affiliates and successors from the
foregoing restrictions. As a result, such persons and entities may be able to
enter into business combinations with the Company, which may not be in the best
interests of the shareholders, without compliance by the Company with the
super-majority voting requirements and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, imposes
limitations on the voting rights of shares acquired in a "control share
acquisition" relating to a Maryland real estate investment trust. The MGCL
defines a "control share acquisition" as the acquisition of "control shares,"
which is defined as voting shares that would entitle the acquiror to exercise
voting power in electing trustees in excess of the following levels of voting
power: 20%, 33 1/3%, and 50%. The MGCL requires a two-thirds shareholder vote
(excluding shares owned by the acquiring person and certain members of
management) to accord voting rights to shares acquired in a control share
acquisition. The MGCL also requires a Maryland real estate investment trust to
hold a special meeting at the request of an actual or proposed control share
acquiror generally within 50 days after a request is made with the submission of
an "acquiring person statement," but only if the acquiring person (a) delivers a
written undertaking to pay the expenses of such special meeting or, if required
by the Board of Trustees, posts a bond for the cost of the meeting and (b)
submits a definitive financing agreement to the extent that financing is not
provided by the acquiring person. In addition, unless the charter or bylaws
provide otherwise, the MGCL gives a Maryland real estate investment trust,
within certain time limitations, various redemption rights if there is a
shareholder vote on the issue and the grant of
4
voting rights is not approved, or if an "acquiring person statement" is not
delivered to the target company within 10 days following a control share
acquisition. Moreover, unless the charter or bylaws provide otherwise, the MGCL
provides that if, before a control share acquisition occurs, voting rights are
accorded to the control shares which results in the acquiring person having a
majority of voting power, then minority shareholders are entitled to appraisal
rights. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition. The control share acquisition statute
does not apply (a) to shares acquired in a merger, consolidation or share
exchange if the trust is a party to the transaction or (b) to acquisitions
approved or exempted by the declaration of trust or bylaws of the trust. The
Company's Declaration of Trust, in accordance with Maryland law, contains a
provision exempting acquisitions of shares by Mr. Mutz, Baldwin & Lyons and Amli
and their respective affiliates and successors from the foregoing provisions.
DESCRIPTION OF COMMON SHARES
GENERAL
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares issuable pursuant to
subscription offerings or rights offerings or upon conversion of Preferred
Shares. The statements below describing the Common Shares are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Company's Declaration of Trust and Bylaws.
All Common Shares issued will be duly authorized, fully paid and, except as
described under "Shares of Beneficial Interest and Shareholder Liability,"
non-assessable. Subject to the provisions of the Company's Declaration of Trust
regarding Excess Shares (as defined therein), each outstanding Common Share
entitles the holder thereof to one vote on all matters voted on by shareholders,
including the election of Trustees. Holders of Common Shares do not have the
right to cumulate their votes in the election of Trustees, which means that the
holders of a majority of the outstanding Common Shares can elect all of the
Trustees then standing for election. Distributions may be paid to the holders of
Common Shares if and when declared by the Board of Trustees of the Company out
of funds legally available therefor, subject to the provisions of the Company's
Declaration of Trust regarding Excess Shares. The Company currently pays regular
quarterly dividends. Holders of Common Shares have no conversion, redemption,
preemptive or exchange rights to subscribe to any securities of the Company. If
the Company is liquidated, each outstanding Common Share will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company and the rights of
holders of any preferred shares of beneficial interest of the Company. The
rights of holders of Common Shares are subject to the rights and preferences
established by the Board of Trustees for any Preferred Shares which may
subsequently be issued by the Company. See "Description of Preferred Shares."
RESTRICTIONS ON TRANSFER
The Company's Declaration of Trust contains certain restrictions on the
number of Common Shares and Preferred Shares that individual shareholders may
own. For the Company to qualify as a REIT under the Code, no more than 50% in
value of its shares of beneficial interest (after taking into account options to
acquire shares of beneficial interest) may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities
and constructive ownership among specified family members) during the last half
of a taxable year (other than the first taxable year) or during a proportionate
part of a shorter taxable year. The shares of beneficial interest must also be
beneficially owned (other than during the first taxable year) by 100 or more
persons during at least 335 days of a taxable year or during a proportionate
part of a shorter taxable year. Because the Company expects to qualify as a
REIT, the Declaration of Trust of the Company contains restrictions on the
acquisition of Common Shares and Preferred Shares intended to ensure compliance
with these requirements.
Subject to certain exceptions specified in the Company's Declaration of
Trust, no holder may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 5% (the "Ownership Limit")
5
of the number or value of the issued and outstanding shares of beneficial
interest of the Company. The Company's Board of Trustees, upon receipt of a
ruling from the Internal Revenue Service (the "Service"), an opinion of counsel
or other evidence satisfactory to the Board of Trustees, and upon such other
conditions as the Board of Trustees may direct, may also exempt a proposed
transferee from the Ownership Limit. As a condition of such exemption, the
intended transferee must give written notice to the Company of the proposed
transfer no later than the fifteenth day prior to any transfer which, if
consummated, would result in the intended transferee owning shares in excess of
the Ownership Limit. The Board of Trustees of the Company may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Company's status as a
REIT. Any transfer of Common Shares or Preferred Shares that would (i) create a
direct or indirect ownership of shares in excess of the Ownership Limit, (ii)
result in the shares being beneficially owned by fewer than 100 persons as
provided in Section 856(a) of the Code, or (iii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the shares. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Trustees determines, which determination must be approved by the
shareholders, that it is no longer in the best interests of the Company to
attempt to qualify, or to continue to qualify, as a REIT.
The Company's Board of Trustees by resolution has excluded from the
foregoing ownership restriction Amli, Gregory T. Mutz and Baldwin & Lyons, who
collectively may own up to 34.9% of the outstanding shares of beneficial
interest of the Company as a group, or, subject to certain limitations,
individually (subject to the group restrictions) up to 29.9% of the outstanding
shares of beneficial interest of the Company. The Company's Declaration of Trust
excludes certain investors (and their transferees) from whom apartment
communities were obtained in exchange for Units or Common Shares in connection
with the formation of the Company and who would exceed the Ownership Limit as a
result of the ownership of such Common Shares or the exchange of such Units for
Common Shares. In no event will such persons be entitled to acquire additional
shares of beneficial interest of the Company such that the five largest
beneficial owners of shares of beneficial interest of the Company hold more than
50% of the total outstanding shares.
Any purported transfer of shares that would result in a person owning shares
in excess of the Ownership Limit or cause the Company to become "closely held"
under Section 856(h) of the Code that is not otherwise permitted as provided
above will constitute excess shares ("Excess Shares"), which will be transferred
pursuant to the Declaration of Trust to the Company as trustee for the exclusive
benefit of the person or persons to whom the Excess Shares are ultimately
transferred, until such time as the purported transferee retransfers the Excess
Shares. While these Excess Shares are held in trust, they will not be entitled
to vote or to share in any dividends or other distributions. Subject to the
Ownership Limit, the Excess Shares may be transferred by the purported
transferee to any person (if the Excess Shares would not be Excess Shares in the
hands of such person) at a price not to exceed the price paid by the purported
transferee (or, if no consideration was paid, fair market value), at which point
the Excess Shares will automatically be exchanged for the shares to which the
Excess Shares are attributable. In addition, such Excess Shares held in trust
are subject to purchase by the Company at a purchase price equal to the lesser
of the price paid for the shares by the purported transferee (or, if no
consideration was paid, fair market value) and the fair market value of the
shares of beneficial interest (as reflected in the last reported sales price
reported on the NYSE on the trading day immediately preceding the relevant date,
or if not then traded on the NYSE, the last reported sales price of such shares
on the trading day immediately preceding the relevant date as reported on any
exchange or quotation system over which such shares may be traded, or if not
then traded over any exchange or quotation system, then the market price of such
shares on the relevant date as determined in good faith by the Board of Trustees
of the Company) on the date the Company elects to purchase.
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank has been appointed as transfer agent and
registrar for the Common Shares.
6
DESCRIPTION OF PREFERRED SHARES
GENERAL
Subject to limitations prescribed by Maryland law and the Company's
Declaration of Trust, the Board of Trustees is authorized to issue, without the
approval of the shareholders, Preferred Shares, from the authorized but unissued
shares of beneficial interest of the Company, in series and to establish from
time to time the number of Preferred Shares to be included in such series and to
fix the designation and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each series. All Preferred Shares
issued will be duly authorized, fully paid and, except as described under
"Shares of Beneficial Interest and Shareholder Liability," non-assessable.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for the specific terms of such Preferred Shares,
including:
(1) The title and stated value of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
cumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Global Securities;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(14) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and restrictions
on transfer of Preferred Shares, in each case as may be appropriate to
preserve the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares and to all equity securities ranking junior to such
Preferred Shares; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Shares; and (iii) junior to all equity securities
issued
7
by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Shares. The rights of the holders of
each series of the Preferred Shares will be subordinate to those of the
Company's general creditors.
DIVIDENDS
Holders of each series of Preferred Shares shall be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both. Each such dividend shall be payable to
holders of record as they appear on the share transfer books of the Company on
such record dates as shall be fixed by the Board of Trustees of the Company.
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 the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are noncumulative, then the holders of such
series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no full dividends shall
be declared or paid or set apart for payment on the Preferred Shares of the
Company 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 (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Preferred Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Preferred Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
Preferred Shares of such series and any other series of Preferred Shares ranking
on a parity as to dividends with such Preferred Shares shall be declared pro
rata so that the amount of dividends declared per share on the Preferred Shares
of such series and such other series of Preferred Shares shall in all cases bear
to each other the same ratio that accrued dividends per share on the Preferred
Shares of such series (which shall not include any cumulation in respect of
unpaid dividends for prior dividend periods if such series of Preferred Shares
does not have a cumulative dividend) and such other series of Preferred Shares
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Shares of
such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) shall be declared or paid or set aside for payment or
other distribution shall be declared or made upon the Common Shares or any other
shares of beneficial interest of the Company ranking junior to or on a parity
with the Preferred Shares of such series as to dividends or upon liquidation,
nor shall any Common Shares or any other shares of beneficial interest of the
Company ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation be redeemed,
8
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any such shares) by
the Company (except by conversion into or exchange for other shares of
beneficial interest of the Company ranking junior to the Preferred Shares of
such series as to dividends and upon liquidation).
Any dividend payment made 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 remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any cumulation
in respect of unpaid dividends for prior dividend periods) to the date of
redemption. The redemption price may be payable in cash or other property, as
specified in the applicable Prospectus Supplement. If the redemption price for
Preferred Shares of any series is payable only from the net proceeds of the
issuance of shares of beneficial interest of the Company, the terms of such
Preferred Shares may provide that, if no such shares of beneficial interest
shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily be converted into shares of
the applicable shares of beneficial interest of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period and (ii) if such series of
Preferred Shares does not have a cumulative dividend, full dividends on all
Preferred Shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Shares of any series
shall be redeemed unless all outstanding Preferred Shares of such series are
simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing shall not prevent
the purchase or acquisition of Preferred Shares of such series pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Preferred Shares of such series, and, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all Preferred
Shares of any series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
on all Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, the Company shall not
purchase or otherwise acquire directly or indirectly any shares of Preferred
Shares of such series (except by conversion into or exchange for shares of
beneficial interest of the Company 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, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
Preferred Shares of such series in proportion to the number of Preferred Shares
of such series held by such holders (with adjustments to avoid redemption of
fractional shares), by lot in a manner determined by the Company or by any other
method as may be determined by the Company in its sole discretion to be
equitable.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the
9
share transfer books of the Company. Each notice shall state: (i) the redemption
date; (ii) the number of shares and series of the Preferred Shares to be
redeemed; (iii) the redemption price; (iv) the place or places where
certificates for such Preferred Shares are to be surrendered for payment of the
redemption price; (v) that dividends on the Preferred Shares to be redeemed will
cease to accrue on such redemption date; and (vi) the date upon which the
holder's conversion rights, if any, as to such Preferred Shares shall terminate.
If fewer than all the Preferred Shares of any series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the number of
Preferred Shares to be redeemed from each such holder. If notice of redemption
of any Preferred Shares has been given and if the funds necessary for such
redemption have been set aside by the Company in trust for the benefit of the
holders of any Preferred Shares so called for redemption, then from and after
the redemption date dividends will cease to accrue on such Preferred 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
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of shares
of beneficial interest of the Company ranking junior to the Preferred Shares in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders, liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement), plus
an amount equal to all dividends accrued and unpaid thereon (which shall not
include any cumulation in respect of unpaid dividends for prior dividend periods
if such Preferred Shares do not have a cumulative dividend). After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of Preferred Shares will have no right or claim to any of the remaining
assets of the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Shares and the corresponding amounts payable on all shares
of other classes or series of shares of beneficial interest of the Company
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 shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
the Preferred Shares, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of shares of beneficial
interest ranking junior to the Preferred Shares upon liquidation, dissolution or
winding up of the Company, according to their respective rights and preferences
and in each case according to their respective number of shares. For such
purposes, the consolidation or merger of the Company with or into any other
entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares of a particular series will not have any
voting rights, except as set forth below or in the applicable Prospectus
Supplement or as otherwise required by applicable law. The following is a
summary of the voting rights that, unless provided otherwise in the applicable
Prospectus Supplement, will apply to each series of Preferred Shares.
If six quarterly dividends (whether or not consecutive) payable on the
Preferred Shares of such series, or any other series of Preferred Shares ranking
on a parity with such series of Preferred Shares with respect in each case to
the payment of dividends, amounts upon liquidation, dissolution and winding up
("Parity Shares"), are in arrears, whether or not earned or declared, the number
of Trustees then constituting the Board of Trustees will be increased by two,
and the holders of Preferred Shares of such series, voting together as a class
with the holders of Parity Shares of any other series (any such other series,
the "Voting Preferred Shares"), will have the right to elect two additional
Trustees to serve on the Board of Trustees at any annual meeting of shareholders
or a properly called special meeting of the holders of Preferred Shares of
10
such series and such Voting Preferred Shares and at each subsequent annual
meeting of shareholders until all such dividends and dividends for the current
quarterly period on the Preferred Shares of such series and such other Voting
Preferred Shares have been paid or declared and set aside for payment. Such
voting rights will terminate when all such accrued and unpaid dividends have
been declared and paid or set aside for payment. The term of office of all
Trustees so elected will terminate with the termination of such voting rights.
The approval of two-thirds of the outstanding Preferred Shares of such
series and all other series of Voting Preferred Shares similarly affected,
voting as a single class, is required in order to (i) amend the Company's
Declaration of Trust to affect materially and adversely the rights, preferences
or voting power of the holders of the Preferred Shares of such series or the
Voting Preferred Shares, (ii) enter into a share exchange that affects the
Preferred Shares of such series, consolidate with or merge into another entity,
or permit another entity to consolidate with or merge into the Company, unless
in each such case each Preferred Share of such series remains outstanding
without a material and adverse change to its terms and rights or is converted
into or exchanged for convertible preferred shares of the surviving entity
having preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption thereof identical to that of a Preferred Share of such series (except
for changes that do not materially and adversely affect the holders of the
Preferred Shares of such series) or (iii) authorize, reclassify, create, or
increase the authorized amount of any class of shares having rights senior to
the Preferred Shares of such series with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up. However, the Company may
create additional classes of Parity Shares and Preferred Shares of any other
series ranking junior to such series of Preferred Shares with respect in each
case to the payment of dividends, amounts upon liquidation, dissolution and
winding up ("Junior Shares"), increase the authorized number of Parity Shares
and Junior Shares and issue additional series of Parity Shares and Junior Shares
without the consent of any holder of Preferred Shares of such series.
Except as provided above and as required by law, the holders of Preferred
Shares of each series will not be entitled to vote on any merger or
consolidation involving the Company or a sale of all or substantially all of the
assets of the Company.
With respect to any matter as to which the Preferred Shares of any series is
entitled to vote, holders of the Preferred Shares of such series and any Voting
Preferred Shares will be entitled to cast the number of votes set forth in the
respective Prospectus Supplement with respect to that series of Preferred Shares
and Voting Preferred Shares. As a result of the provisions requiring the holders
of shares of a series of the Preferred Shares to vote together as a class with
the holders of shares of one or more series of Parity Shares, it is possible
that the holders of such Parity Shares could approve action that would adversely
affect such series of Preferred Shares, including the creation of a class of
shares of beneficial interest ranking prior to such series of Preferred Shares
as to dividends, voting or distributions of assets.
CONVERSION RIGHTS
The terms and conditions, if any, upon which Preferred Shares of any series
are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Shares.
RESTRICTIONS ON TRANSFER
See "Description of Common Shares--Restrictions on Transfer" for a
discussion of the restrictions on the transfer of shares of beneficial interest.
TRANSFER AGENT AND REGISTRAR
The name and address of the transfer agent and registrar for any series of
Preferred Shares will be set forth in the applicable Prospectus Supplement.
11
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Preferred
Shares or Common Shares. Securities Warrants may be issued independently or
together with any other Offered Securities offered by any Prospectus Supplement
and may be attached to or separate from such Offered Securities. Each series of
Securities Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Securities Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Securities Warrants. The following summaries of certain provisions of the
Securities Warrant Agreement and the Securities Warrants do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Securities Warrant Agreement and the Securities
Warrant certificates relating to each series of Securities Warrants which will
be filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including the following
where applicable: (i) the offering price; (ii) the aggregate number of shares
purchasable upon exercise of such Securities Warrants, the exercise price, and
in the case of Securities Warrants for Preferred Shares, the designation,
aggregate number and terms of the series of Preferred Shares purchasable upon
exercise of such Securities Warrants; (iii) the designation and terms of any
series of Preferred Shares with which such Securities Warrants are being offered
and the number of such Securities Warrants being offered with such Preferred
Shares; (iv) the date, if any, on and after which such Securities Warrants and
the related series of Preferred Shares or Common Shares will be transferable
separately; (v) the date on which the right to exercise such Securities Warrants
shall commence and the date on which such right shall expire (the "Expiration
Date"); (vi) any special United States federal income tax consequences; and
(vii) any other material terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrants to purchase Preferred Shares or Common Shares, holders of such
Securities Warrants will not have any rights of holders of such Preferred Shares
or Common Shares, including the right to receive payments of dividends, if any,
on such Preferred Shares or Common Shares, or to exercise any applicable right
to vote.
To protect the Company's status as a REIT, restrictions on ownership of
Securities Warrants similar to the restrictions on ownership of Common Shares
and Preferred Shares will be imposed and enforced. See "Description of Common
Shares--Restrictions on Transfer" and "Description of Preferred
Shares--Restrictions on Transfer."
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
number of Preferred Shares or Common Shares, as the case may be, at such
exercise price as shall in each case be set forth in, or calculable from, the
Prospectus Supplement relating to the offered Securities Warrants. After the
close of business on the Expiration Date (or such later date to which such
Expiration Date may be extended by the Company), unexercised Securities Warrants
will become void.
Securities Warrants may be exercised by delivering to the Securities Warrant
Agent payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Preferred Shares or Common Shares, as the case may be,
purchasable upon such exercise together with certain information set forth on
the reverse side of the Securities Warrant certificate. Securities Warrants will
be deemed to have been exercised upon receipt of payment of the exercise price,
subject to the receipt within five (5) business days, of the Securities Warrant
certificate evidencing such Securities Warrants. Upon receipt of such payment
and the Securities Warrant certificate properly completed and duly executed at
the corporate trust office of the Securities Warrant Agent or any other office
indicated in the applicable Prospectus Supplement,
12
the Company will, as soon as practicable, issue and deliver the Preferred Shares
or Common Shares, as the case may be, purchasable upon such exercise. If fewer
than all of the Securities Warrants represented by such Securities Warrant
certificate are exercised, a new Securities Warrant certificate will be issued
for the remaining amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent of
the holders of the Securities Warrants issued thereunder to effect changes that
are not inconsistent with the provisions of the Securities Warrants and that do
not adversely affect the interests of the holders of the Securities Warrants.
ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Shares covered by, a
Common Shares Warrant are subject to adjustment in certain events, including (i)
payment of a dividend on the Common Shares payable in shares of beneficial
interest and share splits, combinations or reclassification of the Common
Shares; (ii) issuance to all holders of Common Shares of rights or warrants to
subscribe for or purchase shares of Common Shares at less than their current
market price (as defined in the Warrant Agreement for such series of Common
Shares Warrants); and (iii) certain distributions of evidences of indebtedness
or assets (including securities but excluding cash dividends or distributions
paid out of consolidated earnings or retained earnings or dividends payable in
Common Shares) or of subscription rights and warrants (excluding those referred
to above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Shares Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require a
change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of Common Shares covered by, a
Common Shares Warrant will not be adjusted for the issuance of Common Shares or
any securities convertible into or exchangeable for Common Shares, or carrying
the right or option to purchase or otherwise acquire the foregoing, in exchange
for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Shares); (ii) sale, transfer, lease or conveyance of all or substantially
all of the assets of the Company; or (iii) reclassification, capital
reorganization or change of the Common Shares (other than solely a change in par
value or from par value to no par value), then any holder of a Common Shares
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Shares Warrant the kind and amount of shares
of beneficial interest or other securities, cash or other property (or any
combination thereof) that the holder would have received had such holder
exercised such holder's Common Shares Warrant immediately prior to the
occurrence of such event. If the consideration to be received upon exercise of
the Common Shares Warrant following any such event consists of common shares of
the surviving entity, then from and after the occurrence of such event, the
exercise price of such Common Shares Warrant will be subject to the same
anti-dilution and other adjustments described in the second preceding paragraph,
applied as if such common shares were Common Shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the material Federal income tax
consequences to the Company and its shareholders of the treatment of the Company
as a REIT. The discussion is general in nature and not exhaustive of all
possible tax considerations, nor does the discussion give a detailed description
of any state, local, or foreign tax considerations. The discussion does not
discuss all aspects of Federal income tax law that may be relevant to a
prospective shareholder in light of his particular circumstances or to certain
types of shareholders (including insurance companies, financial institutions or
broker-dealers, tax exempt organizations, foreign corporations and persons who
are not citizens or residents of the United States) subject to special treatment
under the federal income tax laws nor does the discussion address special
considerations, if any, which may relate to the purchase of Preferred Shares or
Securities Warrants.
13
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING,
AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT provisions of the Code
are met, entities, such as the Company, that invest primarily in real estate and
that otherwise would be treated for Federal income tax purposes as corporations,
are generally not taxed at the corporate level on their "REIT taxable income"
that is currently distributed to shareholders. This treatment substantially
eliminates the "double taxation" (I.E., at both the corporate and shareholder
levels) that generally results from the use of corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and its
shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
The Company has elected REIT status effective for the taxable year ended
December 31, 1994, and the Board of Trustees of the Company believes that the
Company has operated and expects that the Company will continue to operate in a
manner that will permit the Company to elect REIT status in each taxable year
thereafter. There can be no assurance, however, that this belief or expectation
will be fulfilled, since qualification as a REIT depends on the Company
continuing to satisfy numerous asset, income and distribution tests described
below, which in turn will be dependent in part on the Company's operating
results.
TAXATION OF THE COMPANY
GENERAL. In any year in which the Company qualifies as a REIT it will not,
in general, be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability. The Company will
also be subject to a tax of 100% on net income from any "prohibited transaction"
as described below, and if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company may
also be subject to the corporate alternative minimum tax, as well as tax in
certain situations not presently contemplated. Each of the Management Company,
Amrescon and AIA will be taxed on its income at regular corporate rates. The
Company will use the calendar year both for Federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
SHARE OWNERSHIP TESTS. The Company's shares of beneficial interest must be
held by a minimum of 100 persons for at least 335 days in each taxable year (or
a proportional number of days in any short taxable year). In addition, at all
times during the second half of each taxable year, no more than 50% in value of
the
14
outstanding shares of beneficial interest of the Company may be owned, directly
or indirectly and by applying certain constructive ownership rules, by five or
fewer individuals, which for this purpose includes certain tax-exempt entities.
However, for purposes of this test, any shares of beneficial interest held by a
qualified domestic pension or other retirement trust will be treated as held
directly by its beneficiaries in proportion to their actuarial interest in such
trust rather than by such trust.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the transfer of its shares
of beneficial interest to prevent additional concentration of share ownership.
Moreover, to evidence compliance with these requirements, under Treasury
regulations the Company must maintain records which disclose the actual
ownership of its outstanding shares of beneficial interest. In fulfilling its
obligations to maintain records, the Company must and will demand written
statements each year from the record holders of designated percentages of its
shares of beneficial interest disclosing the actual owners of such shares of
beneficial interest (as prescribed by Treasury regulations). A list of those
persons failing or refusing to comply with such demand must be maintained as a
part of the Company's records. A shareholder failing or refusing to comply with
the Company's written demand must submit with his tax return a similar statement
disclosing the actual ownership of Company shares of beneficial interest and
certain other information. In addition, the Company's Declaration of Trust
provides restrictions regarding the transfer of its shares of beneficial
interest that are intended to assist the Company in continuing to satisfy the
share ownership requirements. See "Description of Common Shares-- Restrictions
on Transfer" and "Description of Preferred Shares--Restrictions on Transfer."
ASSET TESTS. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets (with
"assets" being determined in accordance with generally accepted accounting
principles). First, at least 75% of the value of the Company's total assets must
be represented by interests in real property, interests in mortgages on real
property, shares in other REITs, cash, cash items, government securities and
qualified temporary investments. Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed (i) in the case of securities of any one
non-government issuer, 5% of the value of the Company's total assets or (ii) 10%
of the outstanding voting securities of any one such issuer. Where the Company
invests in a partnership (such as the Operating Partnership), it will be deemed
to own a proportionate share of the partnership's assets. See "--Tax Aspects of
the Company's Investments in Partnerships--General." Accordingly, the Company's
investment in the Communities and the Co-Investment Communities through its
interest in the Operating Partnership is intended to constitute an investment in
qualified assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting preferred stock of
each of the Management Company, Amrescon and AIA and 5% of the voting common
stock of each of the Management Company, Amrescon and AIA. See "The Company." By
virtue of its partnership interest in the Operating Partnership, the Company is
deemed to own its pro rata share of the assets of the Operating Partnership,
including the securities of the Management Company, Amrescon and AIA, as
described above. Because the Operating Partnership owns only 5% of the voting
securities of each of the Management Company, Amrescon and AIA and the preferred
stock's approval right in the case of each of the Management Company, Amrescon
and AIA is limited to certain fundamental corporate actions that could adversely
affect the preferred stock as a class, the 10% limitation on holdings of voting
securities of any one issuer should not be exceeded.
Based upon its analysis of the total estimated value of the Management
Company stock, Amrescon stock and AIA stock and the Subordinated Notes,
respectively, owned by the Operating Partnership relative to the estimated value
of the total assets owned by the Operating Partnership and the other assets of
the Company, the Company believes that the Company's pro rata share of the
non-voting preferred stock, voting common stock and Subordinated Note of the
Management Company owned by the Operating Partnership does not exceed, on the
date of this Prospectus, 5% of the value of the Company's total assets, that the
Company's pro rata share of the non-voting preferred stock and voting common
stock of Amrescon owned by the Operating Partnership does not exceed, on the
date of this Prospectus, 5% of the value of the Company's total assets, and that
the Company's pro rata share of the non-voting preferred stock, voting common
stock and Subordinated Note of AIA owned by the Operating Partnership does not
exceed, on the
15
date of this Prospectus, 5% of the value of the Company's total assets. As to
the securities of any Services Company, this 5% limitation must be satisfied not
only as of the date that the Company (directly or through the Operating
Partnership) acquired securities of the Management Company, Amrescon or AIA, but
also at the end of any quarter in which the Company increases its interest in
the Management Company, Amrescon or AIA or so acquires other property. In this
respect, if the holder of a right to exchange Units for Common Shares exercises
such rights, the Company will thereby increase its proportionate (indirect)
ownership interest in the Management Company, Amrescon and AIA, thus requiring
the Company to meet the 5% test in any quarter in which such conversion option
is exercised. Although the Company plans to take steps to ensure that it
satisfies the 5% value test for any quarter with respect to which retesting is
to occur, there can be no assurance that such steps will always be successful or
will not require a reduction in the Operating Partnership's overall interest in
the Management Company, Amrescon or AIA.
GROSS INCOME TESTS. There are three separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will retain
the same character in the hands of the Company as it has in the hands of the
partnership. See "--Tax Aspects of the Company's Investments in
Partnerships--General" below. The three tests are as follows:
THE 75% TEST. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i) rents
from real property (except as modified below); (ii) interest on obligations
secured by mortgages on, or interests in, real property; (iii) gains from the
sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage secured by such property ("foreclosure
property"); (vii) commitment fees received for agreeing to make loans secured by
mortgages on real property or to purchase or lease real property; and (viii)
certain qualified temporary investment income attributable to the investment of
new capital received by the Company in exchange for its shares during the
one-year period following the receipt of such capital.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property for purposes of the 75% and 95%
gross income tests, the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no income, except that
the "independent contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, or are not otherwise
considered "rendered to the occupant for his convenience."
The Management Company (which does not satisfy the independent contractor
standard) provides management and leasing services to each of the Communities
and each of the Co-Investment Communities and may provide certain services on
any newly acquired properties of the Operating Partnership. The Company believes
for purposes of the 75% and 95% gross income tests, that the services provided
by the Management Company on the Operating Partnership's properties and any
other services and amenities provided by the Operating Partnership or its agents
with respect to such properties are and will continue to
16
be of the type usually or customarily rendered in connection with the rental of
space for occupancy only. The Company intends to monitor the services and
amenities provided by the Management Company as management agent as well as by
others, if any, on the properties of the Operating Partnership. The Company
intends that services that cannot be provided directly by the Operating
Partnership, the Management Company or other agents will be performed by
independent contractors.
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (excluding
foreclosure property); however, it does not include a sale of property if such
property is held by the Company for at least four years and certain other
requirements (relating to the number of properties sold in a year, their tax
bases, and the cost of improvements made thereto) are satisfied. See "--Taxation
of the Company--General" and "--Tax Aspects of the Company's Investments in
Partnerships--Sale of the Communities and Co-Investment Communities."
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Communities and the Co-Investment
Communities through the Operating Partnership will in major part give rise to
qualifying income in the form of rents, and that gains on sales of the
Communities and the Co-Investment Communities, or of the Company's interest in
the Operating Partnership, generally will also constitute qualifying income.
The Management Company receives and anticipates continuing to receive fee
income in consideration of the performance of property management and other
services with respect to properties not owned by the Company or the Operating
Partnership, Amrescon receives and anticipates continuing to receive fee income
in consideration of the performance of general contracting and construction
management services, and AIA receives and anticipates continuing to receive fee
income for providing investment advisory services; however, substantially all
income derived by the Company from the Management Company, Amrescon and AIA will
be in the form of dividends on the preferred stock and common stock of each of
the Service Companies owned by the Operating Partnership and interest on the
Subordinated Notes. Such dividends and interest income will satisfy the 95%, but
not the 75%, gross income test (as discussed above). In addition, the Company's
share of any income realized on interest rate swap or cap agreements, including
income received at the time of entering into such agreements, will satisfy the
95%, but not the 75%, gross income test. The Company intends to closely monitor
its non-qualifying income and anticipates that non-qualifying income on its
other investments and activities, including such dividend income, interest
income and interest rate swap or cap income (if any), will not result in the
Company failing either the 75% or 95% gross income test.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on this
schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100% tax
on the greater of the amount by which it fails either the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
THE 30% TEST. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions); (ii) stock or securities (including an interest rate swap or cap
agreement) held for less than one year; and (iii) property in a prohibited
transaction. The Company does not anticipate that it
17
will have difficulty in complying with this test. However, if extraordinary
circumstances were to occur that give rise to dispositions of Communities or
Co-Investment Communities held for less than four years (for example, on account
of the inability to obtain refinancing), the 30% test could become an issue.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company is required to distribute dividends (other than capital gain dividends)
to its shareholders each year in an amount at least equal to (A) the sum of (i)
95% of the Company's REIT taxable income (computed without regard to the
dividends paid deduction and the Company's net capital gain) and (ii) 95% of the
net income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its REIT taxable income, as adjusted, it will
be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Partnership Agreement authorizes the
Company, as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements. It is possible that
the Company may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, due to timing differences between the actual receipt
of income and actual payment of expenses on the one hand, and the inclusion of
such income and deduction of such expenses in computing the Company's REIT
taxable income on the other hand; due to the Operating Partnership's inability
to control cash distributions with respect to any properties as to which it does
not have decision making control; or for other reasons. To avoid a problem with
the 95% distribution requirement, the Company will closely monitor the
relationship between its REIT taxable income and cash flow and, if necessary,
intends to borrow funds (or cause the Operating Partnership or other affiliates
to borrow funds) in order to satisfy the distribution requirement. However,
there can be no assurance that such borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify as a REIT will not be deductible by the
Company, nor generally will they be required to be made under the Code. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
GENERAL. The Company holds a partnership interest in the Operating
Partnership. See "The Company." In general, a partnership is a "pass-through"
entity which is not subject to Federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include its proportionate share of the foregoing
partnership items for purposes of the various REIT gross income tests and in the
computation of its REIT taxable income. See "--Taxation of the Company--General"
and "--Gross Income Tests."
Accordingly, any resultant increase in the Company's REIT taxable income
from its interest in the Operating Partnership (whether or not a corresponding
cash distribution is also received from the Operating
18
Partnership) will increase its distribution requirements (see "--Taxation of the
Company--Annual Distribution Requirements"), but will not be subject to Federal
income tax in the hands of the Company provided that an amount equal to such
income is distributed by the Company to its shareholders. Moreover, for purposes
of the REIT asset tests (see "--Taxation of the Company--Asset Tests"), the
Company will include its proportionate share of assets held by the Operating
Partnership.
ENTITY CLASSIFICATION. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge by
the Service of the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation for Federal income tax
purposes). If the Operating Partnership were to be treated as an association, it
would be taxable as a corporation and therefore subject to an entity-level tax
on its income. In such a situation, the character of the Company's assets and
items of gross income would change, which would preclude the Company from
satisfying the REIT asset tests and the REIT gross income tests (see "--Taxation
of the Company--Asset Tests" and "--Gross Income Tests"), which in turn would
prevent the Company from qualifying as a REIT. (See "--Taxation of the
Company--Failure to Qualify" above, for a discussion of the effect of the
Company's failure to meet such tests.)
TAX ALLOCATIONS WITH RESPECT TO THE COMMUNITIES. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Communities), 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 (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic arrangements among the
partners. The formation of the Operating Partnership included contributions of
appreciated property (including certain Communities or interests therein).
Consequently, the Partnership Agreement requires certain allocations to be made
in a manner consistent with Section 704(c) of the Code.
In general, certain contributors of certain of the Communities or interests
therein will be allocated lower amounts of depreciation deductions for tax
purposes and increased taxable income and gain on sale by the Operating
Partnership on the contributed assets (including certain of the Communities).
This will tend to eliminate the Book-Tax Difference over the life of the
Operating Partnership. However, the special allocation rules of Section 704(c)
do not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale or a deemed sale,
and accordingly variations from normal Section 704(c) principles may arise,
which could result in the allocation of additional taxable income to the Company
in excess of corresponding cash proceeds in certain circumstances.
Treasury regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the method under current law. The Operating
Partnership and the Company will use the remedial method for making allocations
under Section 704(c) with respect to the existing Communities.
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, in
general, such property will initially have a tax basis equal to its fair market
value and Section 704(c) of the Code will not apply.
SALE OF THE COMMUNITIES AND CO-INVESTMENT COMMUNITIES. The Company's share
of any gain realized by the Operating Partnership on the sale of any dealer
property generally will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. See "Taxation of the Company--General" and
"Gross Income Tests--The 95% Test." Under existing law, whether property is
dealer property is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership intends to hold the Communities and Co-Investment Communities for
investment with a view to long-term appreciation, to engage in the business of
acquiring, owning, operating and developing the Communities, Co-Investment
Communities and other multifamily residential properties, and
19
to make such occasional sales of the Communities, Co-Investment Communities and
other properties acquired subsequent to the date hereof as are consistent with
the Company's investment objectives. Based upon the Company's investment
objectives, the Company believes that overall the Communities and Co-Investment
Communities should not be considered dealer property and that the amount of
income from prohibited transactions, if any, will not be material.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held its shares of beneficial interest of the Company.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's shares of beneficial
interest by the amount of such excess distribution (but not below zero), with
distributions in excess of the shareholder's tax basis being taxed as capital
gains (if the shares of beneficial interest are held as a capital asset). In
addition, any dividend declared by the Company in October, November or December
of any year and payable to a shareholder of record on a specific date in any
such month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to Company
shareholders.
In general, any loss upon a sale or exchange of shares of beneficial
interest by a shareholder who has held such shares of beneficial interest for
six months or less (after applying certain holding period rules) will be treated
as a long-term capital loss, to the extent of distributions from the Company
required to be treated by such shareholder as long-term capital gains.
BACKUP WITHHOLDING. The Company will report to its domestic shareholders
and to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions made to any shareholders who
fail to certify their non-foreign status to the Company. See "Certain United
States Tax Considerations for Non-U.S. Shareholders--Distributions from the
Company--Capital Gain Dividends" below.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling and the statutory framework of the Code, distributions by the
Company to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Code, that the
shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity, and that the Company, consistent with its present intent,
does not hold a residual interest in a real estate mortgage investment conduit.
20
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
DIVIDEND REINVESTMENT PLAN. Shareholders participating in the dividend
reinvestment and share purchase plan adopted by the Company will be deemed to
have received the gross amount of any cash distributions which would have been
paid by the Company to such shareholders had they not elected to participate.
These deemed distributions will be treated as actual distributions from the
Company to the participating shareholders and will retain the character and tax
effects applicable to distributions from the Company generally. See "--Taxation
of Shareholders--Taxation of Taxable Domestic Shareholders." Participants in the
dividend reinvestment and share purchase plan are subject to Federal income tax
on the amount of the deemed distributions to the extent that such distributions
represent dividends or gains, even though they receive no cash. In addition,
participants in the dividend reinvestment and share purchase plan are subject to
Federal income tax on payment by the Company of brokerage commissions and bank
fees on their behalf. Common Shares received under the plan will have a holding
period beginning with the day after purchase, and a tax basis equal to their
cost (which is the gross amount of the deemed distribution plus the amount of
any brokerage commissions and bank fees paid on the holder's behalf).
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANY, AMRESCON AND AIA; OTHER CONSIDERATIONS. A portion
of the cash to be used by the Operating Partnership to fund distributions to
partners, including the Company, is expected to come from the Management
Company, Amrescon and AIA through dividends on the common and preferred stock of
the Management Company, Amrescon and AIA held by the Operating Partnership and
from interest on the Subordinated Notes. In addition, the Management Company,
Amrescon and AIA will each receive income from the Company, the Operating
Partnership and unrelated third parties. Because the Company, the Operating
Partnership, the Management Company, Amrescon and AIA are related through stock
or partnership ownership, income of the Management Company, Amrescon or AIA from
services performed for the Company and the Operating Partnership may be subject
to certain rules under which additional income may be allocated to the
Management Company, Amrescon or AIA. On account of such ownership relationships,
the allocation of certain expenses and reimbursements thereof among the Company,
the Management Company, the Operating Partnership, Amrescon and AIA could be
subject to additional scrutiny by the Service.
Each of the Management Company, Amrescon and AIA will pay Federal and state
income taxes at the full applicable corporate rates on its income prior to
payment of any dividends. Each of the Management Company, Amrescon and AIA will
attempt to minimize the amount of such taxes, but there can be no assurance
whether or the extent to which measures taken to minimize taxes will be
successful. To the extent that the Management Company, Amrescon and AIA are
required to pay Federal, state, or local taxes, the cash available for
distribution by the Company to shareholders will be reduced accordingly.
In addition, to the extent that tax exempt entities and foreign persons hold
shares of beneficial interest of the Company, the interest expense deductions of
the Management Company and AIA on the Subordinated Notes could be reduced.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX
CONSEQUENCES. Prospective shareholders should recognize that the present
Federal income tax treatment of investment in the Company may be modified by
legislative, judicial or administrative action at any time and that any such
action may affect investments and commitments previously made. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the Service and the Treasury Department,
resulting in
21
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in Federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in the Company.
STATE AND LOCAL TAXES. The Company and its shareholders may be subject to
state or local taxation, and the Company and the Operating Partnership may be
subject to state or local tax withholding requirements, in various
jurisdictions, including those in which it or they transact business or reside.
The state and local tax treatment of the Company and its shareholders may not
conform to the Federal income tax consequences discussed above. Consequently,
prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in shares of beneficial
interest of the Company.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income and
U.S. Federal estate tax consequences of the ownership and disposition of shares
of beneficial interest applicable to Non-U.S. Shareholders of such shares. A
"Non-U.S. Shareholder" is (i) any individual who is neither a citizen nor
resident of the United States, (ii) any corporation or partnership other than a
corporation or partnership created or organized in the United States or under
the laws of the United States or any state thereof or under the laws of the
District of Columbia or (iii) any estate or trust that is not "resident" in the
United States. The discussion is based on current law and is for general
information only. The discussion does not address other aspects of U.S. Federal
taxation other than income and estate taxation or all aspects of U.S. Federal
income and estate taxation. The discussion does not consider any specific facts
or circumstances that may apply to a particular Non-U.S. Shareholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF BENEFICIAL INTEREST.
DISTRIBUTIONS FROM THE COMPANY
ORDINARY DIVIDENDS. The portion of dividends received by Non-U.S.
Shareholders payable out of the Company's earnings and profits that are not
attributable to capital gains of the Company and that are not effectively
connected with a U.S. trade or business of the Non-U.S. Shareholder will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty or
the Non-U.S. Shareholder files an Internal Revenue Service Form 4224 with the
Company certifying that the investment to which the distribution relates is
effectively connected to a United States trade or business of such Non-U.S.
Shareholder). Under certain limited circumstances, the amount of tax withheld
may be refundable, in whole or in part, because of the tax status of certain
partners or beneficiaries of Non-U.S. Shareholders that are either foreign
partnerships or foreign estates or trusts. In general, Non-U.S. Shareholders
will not be considered engaged in a U.S. trade or business solely as a result of
their ownership of shares of beneficial interest. In cases where the dividend
income from a Non-U.S. Shareholder's investment in shares of beneficial interest
is (or is treated as) effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will be
subject to U.S. tax at graduated rates, in the same manner as U.S. shareholders
are taxed with respect to such dividends (and may also be subject to the 30%
branch profits tax (unless reduced by treaty) in the case of a Non-U.S.
Shareholder that is a foreign corporation).
Under currently applicable Treasury regulations, withholding agents are
required to determine the applicable withholding rate pursuant to the
appropriate tax treaty, and withhold the appropriate amount. Under the current
regulations, dividends paid to an address in a foreign country are presumed to
be paid to a resident of that country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and, under the current
interpretation of the Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Treasury regulations proposed in 1996, which
have not been adopted, and are, therefore, not currently effective, would, if
and when they become effective, require Non-U.S. Shareholders to file a form W-8
to obtain the benefit of any applicable tax treaty providing for a lower rate of
22
withholding tax on dividends paid after December 31, 1997. Such form would
require a representation by the holder as to foreign status, the holder's name
and permanent residence address, the basis for a reduced withholding rate (e.g.,
the relevant tax treaty) and other pertinent information, to be certified by
such holder under penalties of perjury. Such information is subject to being
reported to the Internal Revenue Service. A permanent residence address for this
purpose generally is the address in the country where the person claims to be a
resident for the purpose of the country's income tax. If the beneficial holder
is a corporation, then the address is where the corporation maintains its
principal office in its country of incorporation.
CAPITAL GAIN DIVIDENDS. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), any distribution made by the Company to a Non-U.S.
Shareholder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") by the Company ("USRPI Capital
Gains"), will be considered effectively connected with a U.S. trade or business
of the Non-U.S. Shareholder and subject to U.S. income tax at the rates
applicable to U.S. individuals or corporations, without regard to whether such
distribution is designated as a capital gain dividend. In addition, the Company
will be required to withhold tax equal to 35% of the amount of such distribution
to the extent it constitutes USRPI Capital Gains. Such distribution may also be
subject to the 30% branch profits tax (unless reduced by treaty) in the case of
a Non-U.S. Shareholder that is a foreign corporation.
NON-DIVIDEND DISTRIBUTIONS. Any distributions by the Company that exceed
both current and accumulated earnings and profits of the Company will not be
taxed as either ordinary dividends or capital gain dividends. See "Federal
Income Tax Considerations--Taxation of Shareholders--Taxation of Taxable
Domestic Shareholders." However, if it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding. Should this occur, the Non-U.S. Shareholder may seek a refund of
over withholding from the Service once it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
DISPOSITIONS OF SHARES OF BENEFICIAL INTEREST
Unless the shares of beneficial interest constitute USRPIs, a sale or
exchange of shares of beneficial interest by a Non-U.S. Shareholder generally
will not be subject to U.S. taxation under FIRPTA. The shares of beneficial
interest will not constitute USRPIs if the Company is a "domestically controlled
REIT." A domestically controlled REIT is a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Shareholders. It is currently anticipated that the
Company will be a domestically controlled REIT and, therefore, that the sale of
shares of beneficial interest will not be subject to taxation under FIRPTA. No
assurance can be given that the Company will continue to be a domestically
controlled REIT.
If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Shareholder's sale or exchange of shares of beneficial interest
generally will still not be subject to tax under FIRPTA as a sale of USRPIs
provided that (i) the Company's shares of beneficial interest are "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market (e.g., the NYSE, on which the Common Shares are listed) and
(ii) the selling Non-U.S. Shareholder held 5% or less of the Company's
outstanding shares of beneficial interest at all times during a specified
testing period.
If gain on the sale or exchange of shares of beneficial interest were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
U.S. income tax at the rates applicable to U.S. individuals or corporations, and
the purchaser of shares of beneficial interest could be required to withhold 10%
of the purchase price and remit such amount to the Service. The branch profits
tax would not apply to such sales or exchanges.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in three cases: (i) if the Non-U.S.
Shareholder's investment in shares of beneficial interest is effectively
connected with a U.S. trade or business conducted by such Non-U.S. Shareholder,
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
shareholders with respect to such gain, (ii) if the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will
23
be subject to 30% tax on the individual's capital gain (unless reduced or
eliminated by treaty), or (iii) if the Non-U.S. Shareholder is subject to tax
pursuant to the Code provisions applicable to certain U.S. expatriates.
FEDERAL ESTATE TAX
Shares of beneficial interest owned or treated as owned by an individual who
is not a citizen or "resident" (as specifically defined for U.S. Federal estate
tax purposes) of the United States at the time of death will be includable in
the individual's gross estate for U.S. Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may be
subject to U.S. Federal estate tax on the property includable in the estate for
U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S.
Shareholder the amount of dividends (including any capital gain dividends) paid
to, and the tax withheld with respect to, each Non-U.S. Shareholder. These
reporting requirements apply regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. Copies of these returns may also be made
available under the provisions of a specific treaty or agreement with the tax
authorities in the country in which the Non-U.S. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
shares of beneficial interest to a Non-U.S. Shareholder at an address outside
the United States. The proposed Treasury regulations referred to under
"Distributions from the Company--Ordinary Dividends," in general, would
similarly require a Non-U.S. Shareholder to provide the form W-8 for dividends
paid after December 31, 1997 to be exempt from backup withholding and
information reporting.
The payment of the proceeds from the disposition of shares of beneficial
interest to or through a U.S. office of a broker will be subject to information
reporting and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Shareholder, or
otherwise establishes an exemption. The payment of the proceeds from the
disposition of shares of beneficial interest to or through a non-U.S. office of
a non-U.S. broker generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of a payment of
proceeds from the disposition of shares of beneficial interest to or through a
non-U.S. office of a broker which is (i) a U.S. person, (ii) a "controlled
foreign corporation" for U.S. Federal income tax purposes or (iii) a foreign
person 50% or more of whose gross income for certain periods is derived from a
U.S. trade or business (a "Foreign U.S. Connected Broker"), information
reporting (but not backup withholding) will apply unless the broker has
documentary evidence in its files that the holder is a Non-U.S. Shareholder (and
the broker has no actual knowledge to the contrary) and certain other conditions
are met, or the holder otherwise establishes an exemption. In addition, the
Treasury Department has indicated that it is studying the possible application
of backup withholding in the case of such foreign offices of U.S. and Foreign
U.S. Connected Brokers. Under proposed Treasury regulations, a payment of the
proceeds from the disposition of shares of beneficial interest to or through
such broker will be subject to backup withholding if such broker has actual
knowledge that the holder is a U.S. person.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. Federal income tax liability, provided that required
information is furnished to the Service.
These backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to shares of beneficial
interest is subject to change.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Direct sales to investors
24
may be accomplished through subscription offerings or through subscription
rights distributed to the Company's shareholders. In connection with
subscription offerings or the distribution of subscription rights to
shareholders, if all of the underlying Offered Securities are not subscribed
for, the Company may sell such unsubscribed Offered Securities to third parties
directly or through underwriters or agents and, in addition, whether or not all
of the underlying Offered Securities are subscribed for, the Company may
concurrently offer additional Offered Securities to third parties directly or
through underwriters or agents. Any such underwriter or agent involved in the
offer and sale of the Offered Securities will be named in the applicable
Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market prices). The Company also may, from time to time, authorize underwriters
acting as the Company's agents to offer and sell the Offered Securities upon the
terms and conditions as are set forth in the applicable Prospectus Supplement.
In connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Offered Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject; and
(ii) if the Offered Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by the Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
EXPERTS
The consolidated financial statements and schedule of Amli Residential
Properties Trust as of December 31, 1995 and 1994, and for each of the years in
the three-year period ended December 31, 1995, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, which report
is incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing. To the extent that
25
KPMG Peat Marwick LLP audits and reports on financial statements of Amli
Residential Properties Trust issued at future dates, and consents to the use of
their report thereon, such financial statements also will be incorporated by
reference in the Registration Statement in reliance upon their report and said
authority.
LEGAL MATTERS
Certain legal matters relating to the validity of the Offered Securities
offered pursuant to this Prospectus will be passed upon for the Company by
Mayer, Brown & Platt. Mayer, Brown & Platt has in the past represented and is
currently representing the Company and certain of its affiliates.
26
[The inside back cover shows pictures of the following AMLI communities:
AMLI at Gleneagles II in Dallas
AMLI at Martha's Vineyard in Austin
AMLI at Regents Center in Overland Park
AMLI at Sope Creek IV in Atlanta
AMLI at Aurora Crossing in Chicago
AMLI at North Dallas in Dallas]
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUN-DER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
Prospectus Supplement
Page
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Prospectus Supplement Summary.................... S-3
The Company...................................... S-7
Growth Strategies................................ S-7
Recent Developments.............................. S-11
Use of Proceeds.................................. S-14
Price Range of Common Shares and Distribution
History........................................ S-15
Capitalization................................... S-16
Selected Financial Information................... S-17
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ S-20
The Communities.................................. S-25
Management....................................... S-29
Underwriting..................................... S-30
Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995....... S-31
Experts.......................................... S-31
Legal Matters.................................... S-31
Prospectus
Available Information......................... 2
Incorporation by Reference.................... 2
The Company................................... 3
Use of Proceeds............................... 3
Shares of Beneficial Interest and Shareholder
Liability................................... 3
Description of Common Shares.................. 5
Description of Preferred Shares............... 7
Description of Securities Warrants............ 12
Federal Income Tax Considerations............. 13
Certain United States Tax Considerations for
Non-U.S. Shareholders....................... 22
Plan of Distribution.......................... 24
Experts....................................... 25
Legal Matters................................. 26
2,500,000 SHARES
[LOGO]
AMLI RESIDENTIAL
PROPERTIES TRUST
COMMON SHARES
--------------
PROSPECTUS SUPPLEMENT
NOVEMBER 5, 1996
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LEHMAN BROTHERS
DEAN WITTER REYNOLDS INC.
MERRILL LYNCH & CO.
EVEREN SECURITIES, INC.
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